-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Uk95pFpEtcv2hiIZtjTCN9ikzsLD/7BvvWv3IFd6qm9gbKX2og2E1g55wXn0XAj2 932fB6kiIheMi5RHqc7TMA== 0000931763-97-001088.txt : 19970701 0000931763-97-001088.hdr.sgml : 19970701 ACCESSION NUMBER: 0000931763-97-001088 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19970630 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANS WORLD AIRLINES INC /NEW/ CENTRAL INDEX KEY: 0000278327 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512] IRS NUMBER: 431145889 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-26645 FILM NUMBER: 97632284 BUSINESS ADDRESS: STREET 1: ONE CITY CENTRE STREET 2: 515 N SIXTH ST CITY: ST LOUIS STATE: MO ZIP: 63101 BUSINESS PHONE: 3145893000 MAIL ADDRESS: STREET 1: ONE CITY CENTRE STREET 2: 515 N 6TH ST CITY: ST LOUIS STATE: MO ZIP: 63101 S-4/A 1 AMENDMENT NO. 1 TO FORM S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1997. REGISTRATION NO. 333-26645 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- TRANS WORLD AIRLINES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 4512 43-1145889 (Primary Standard (I.R.S. Employer (State of Incorporation) Industrial Classification Identification No.) Code Number) ONE CITY CENTRE, 515 N. SIXTH STREET ST. LOUIS, MISSOURI 63101 (314) 589-3000 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) ---------------- Copy to: GERALD L. GITNER HOWARD E. TURNER, ESQ. CHAIRMAN AND CHIEF EXECUTIVE OFFICER SMITH, GAMBRELL & RUSSELL, LLP ONE CITY CENTRE, 515 N. SIXTH STREET 1230 PEACHTREE STREET, NE, SUITE 3100 ST. LOUIS, MISSOURI 63101 ATLANTA, GEORGIA 30309 (314) 589-3000 (404) 815-3500 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) ---------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this registration statement. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, please check the following box. [_] ---------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CROSS-REFERENCE SHEET PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K
FORM S-4 ITEM NUMBER AND CAPTION PROSPECTUS CAPTION -------------------------------- ------------------ 1. Forepart of Registration Statement and Outside Front Cover Page of Prospectus... Facing Page; Cross-Reference Sheet; Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus............................ Inside Front Cover Page; Available Information; Outside Back Cover Page 3. Risk Factors, Ratio of Earnings to Fixed Charges and Other Information............ Prospectus Summary; Risk Factors; Selected Historical Consolidated Financial and Certain Other Data 4. Terms of the Transaction................. Prospectus Summary; The Exchange Offer; Description of the Notes; Certain Federal Income Tax Considerations; Plan of Distribution 5. Pro Forma Financial Information.......... Summary Historical Consolidated Financial and Certain Other Data; Selected Historical Consolidated Financial and Certain Other Data; Interim Condensed Consolidated Financial Statements 6. Material Contacts with the Company Being Acquired................................. Not Applicable 7. Additional Information Required for Reoffering by Persons and Parties Deemed to Be Underwriters....................... Not Applicable 8. Interests of Named Experts and Counsel... Legal Matters; Experts 9. Disclosure of Commission Position on Indemnification for Securities Act Liabilities.............................. Not Applicable 10. Information with Respect to S-3 Registrants.............................. Not Applicable 11. Incorporation of Certain Information by Reference................................ Not Applicable 12. Information with Respect to S-2 or S-3 Registrants.............................. Prospectus Summary; Selected Historical Consolidated Financial and Certain Other Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Consolidated Financial Statements 13. Incorporation of Certain Information by Incorporation of Certain Documents by Reference................................ Reference 14. Information with Respect to Registrants Other Than S-3 or S-2 Registrants........ Not Applicable 15. Information with Respect to S-3 Companies................................ Not Applicable 16. Information with Respect to S-2 or S-3 Companies................................ Not Applicable
17. Information with Respect to Companies Other Than S-3 or S-2 Companies.......... Not Applicable 18. Information if Proxies, Consents or Authorizations are to be Solicited....... Not Applicable 19. Information if Proxies, Consents or Authorizations are not to be Solicited or in an Exchange Offer..................... Prospectus Summary; The Exchange Offer 20. Indemnification of Directors and Officers................................. Part II, Item 20 21. Exhibits and Financial Statement Schedules................................ Part II, Item 21 22. Undertakings............................. Part II, Item 22
2 ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROSPECTUS SUBJECT TO COMPLETION DATED JUNE 30, 1997 TRANS WORLD AIRLINES, INC. OFFER TO EXCHANGE 12% SENIOR SECURED NOTES DUE 2002, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL OUTSTANDING 12% SENIOR SECURED NOTES DUE 2002 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON 1997, UNLESS EXTENDED. Trans World Airlines, Inc., a Delaware corporation (the "Company" or "TWA"), hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and the accompanying letter of transmittal (the "Letter of Transmittal" and, together with this Prospectus, the "Exchange Offer"), to exchange its 12% Senior Secured Notes due 2002 (the "New Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which this Prospectus is a part (including all amendments, including post-effective amendments, and exhibits thereto, the "Registration Statement"), for an equal principal amount at maturity of its outstanding 12% Senior Secured Notes due 2002 (the "Old Notes," and collectively with the New Notes, the "Notes"), of which $50 million aggregate principal amount at maturity is outstanding as of the date hereof. The Company will accept for exchange any and all Old Notes that are validly tendered and not withdrawn on or prior to 5:00 P.M., New York City time, on the date the Exchange Offer expires (the "Expiration Date"), which will be , 1997 (30 days following the commencement of the Exchange Offer), unless the Exchange Offer is extended. Tenders of Old Notes may be withdrawn at any time prior to 5:00 P.M., New York City time, on the Expiration Date. The Exchange Offer is not conditioned upon any minimum principal amount of Old Notes being tendered for exchange. Old Notes may be tendered only in integral multiples at maturity of $1,000. See "The Exchange Offer." ---------- The New Notes will bear interest at the rate of 12% per annum, payable semi- annually on April 1 and October 1 of each year, commencing on October 1, 1997. The New Notes will mature on April 1, 2002. The New Notes will not be redeemable prior to maturity. The New Notes will bear original issue discount ("OID"), and a holder of a New Note will be required to include such OID in such holder's gross income for federal income tax purposes in advance of the receipt of the cash payments to which such income is attributable. See "Certain Federal Income Tax Considerations." Upon a Change in Control (as defined), each holder of New Notes shall have the right for a limited period to require the Company to repurchase all or any part of such holder's New Notes at a price, in cash, equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date fixed for repurchase; however, there can be no assurance that upon the occurrence of a Change in Control the Company will be able to repurchase the Notes. The New Notes will represent senior secured obligations of the Company and will rank pari passu in right of payment with all other senior obligations of the Company. As of March 31, 1997, the Company had approximately $1,072 million of total outstanding indebtedness (including $50.0 million for the Old Notes), all of which will rank pari passu in right of payment of principal and interest with the New Notes. None of the Company's outstanding indebtedness is senior to the Notes. The New Notes will be secured by a lien on certain assets of the Company including (i) TWA's beneficial interest in its FAA designated take-off and landing slots at three high-density, capacity-controlled airports, (ii) currently owned and hereafter acquired defined ground equipment of TWA used at certain domestic airports, and (iii) all of the issued and outstanding stock of (a) a wholly-owned subsidiary of TWA holding the leasehold interest in a hangar at Los Angeles International Airport ("LAX") used by TWA and (b) three wholly- owned subsidiaries of TWA holding leasehold interests in gates and related support space at certain domestic airports served by the Company. THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL ARE FIRST BEING MAILED TO HOLDERS OF OLD NOTES ON , 1997. The New Notes will be obligations of the Company evidencing the same indebtedness as the Old Notes. The New Notes will be issued under and entitled to the benefits of the same Indenture (as defined) pursuant to which the Old Notes were issued such that the New Notes and Old Notes will be treated as a single class of debt securities under the Indenture. The form and terms of the New Notes are generally the same as the form and terms of the Old Notes, except that (i) the exchange will be registered under the Securities Act and, therefore, the New Notes will not bear legends restricting the transfer thereof, and (ii) holders of the New Notes will not be entitled to any of the registration rights of holders of Old Notes under the Registration Rights Agreement (as defined), which rights will terminate upon the consummation of the Exchange Offer. See "Description of the Notes." Based on interpretations by the staff of the Securities and Exchange Commission (the "Commission"), as set forth in no-action letters issued to 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 continued on following page THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE PAGE 14, "RISK FACTORS," FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PARTICIPANTS IN THE EXCHANGE OFFER. ---------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION ORANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OFTHIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. believes that a holder who exchanges Old Notes for New Notes pursuant to the Exchange Offer may offer for resale, resell and otherwise transfer such New Notes without compliance with the registration and prospectus delivery requirements of the Securities Act; provided, that (i) such New Notes are acquired in the ordinary course of such holder's business, (ii) such holder is not engaged in, and does not intend to engage in, a distribution of such New Notes and has no arrangement with any person to participate in the distribution of such New Notes, and (iii) such holder is not an affiliate of the Company (as defined under Rule 405 of the Securities Act). However, the staff of the Commission has not considered the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the Commission would make a similar determination with respect to the Exchange Offer as in such other circumstances. A holder who exchanges Old Notes for New Notes pursuant to the Exchange Offer with the intention to participate in a distribution of the New 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 New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." EXCEPT AS DESCRIBED IN THIS PARAGRAPH, THIS PROSPECTUS MAY NOT BE USED FOR ANY OFFER, SALE OR OTHER TRANSFER OF NEW NOTES. Prior to this Exchange Offer, there has been no public market for the Old Notes or New Notes. The Old Notes have traded in the National Association of Securities Dealers, Inc. Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") market. If a public market were to develop, the New Notes could trade at prices that may be higher or lower than their principal amount at maturity. The Company does not intend to apply for listing or quotation of the New Notes on any securities exchange or stock market. Therefore, there can be no assurance as to the liquidity of any trading market for the New Notes or that an active public market for the New Notes will develop. See "Risk Factors -- Risk Factors Relating to the Notes and the Exchange Offer -- Absence of Public Trading Market." THE COMPANY WILL NOT RECEIVE ANY PROCEEDS FROM THIS EXCHANGE OFFER. THE COMPANY HAS AGREED TO PAY THE EXPENSES OF THE EXCHANGE OFFER. NO UNDERWRITER IS BEING USED IN CONNECTION WITH THIS EXCHANGE OFFER. No person has been authorized to give any information or to make any representations not contained in this Prospectus in connection with the offer of securities made by this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or by any underwriter, dealer or agent. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than those to which it relates. Neither the delivery of this Prospectus nor any sale of, or offer to sell, the securities offered hereby shall, under any circumstances, create an implication that there has been no change in the affairs of the Company since the date hereof or that the information herein is correct as of any time subsequent to its date. AVAILABLE INFORMATION TWA is subject to the informational requirements of the Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Commission. Reports, proxy statements and other information filed by the Company with the Commission may be inspected and 2 copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549 and at the Commission's regional offices located at Room 1400, 75 Park Place, New York, New York 10007 and Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661-2511. Copies of such materials may be obtained from the Public Reference Section of the Commission at Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549 at prescribed rates, and such reports, proxy statements and other information regarding the Company can also be inspected at the offices of the American Stock Exchange, 86 Trinity Place, New York City, New York 10006-1881, on which the Company's Common Stock, $.01 par value per share (the "Common Stock") is listed. The Commission maintains a Web site that contains reports, proxy and information statements and other materials that are filed through the Commission's Electronic Data Gathering, Analysis and Retrieval System. This Web site can be accessed at http://www.sec.gov. This Prospectus contains summaries of material terms of certain agreements; however, in each such case, reference is made to the actual agreements (copies of which will be made available upon request to the Company) for complete information with respect thereto, and all such summaries are qualified by this reference. This Prospectus forms a part of the Registration Statement which the Company has filed under the Securities Act with respect to the securities offered hereby. This Prospectus does not contain all the information otherwise set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information, reference is made to the Registration Statement and the exhibits filed as part thereof. The Registration Statement may be inspected at the public reference facilities maintained by the Commission at the addresses set forth in the preceding paragraph. Statements contained herein concerning any document filed as an exhibit are not necessarily complete and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Company hereby incorporates by reference in this Prospectus the following documents filed with the Commission pursuant to the requirements of the Exchange Act (File No. 001-07815): (i) the Company's Annual Report on Form 10-K for the year ended December 31, 1996; (ii) the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997; (iii) the description of the Common Stock contained in the Company's Form 8-A dated August 1, 1995 filed under the Exchange Act, including any amendment or reports filed for the purpose of updating such description; and (iv) the Company's Proxy Statement and Notice of Meeting relating to the Annual Meeting of Stockholders held on May 29, 1997. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering of the securities offered hereby shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the respective dates of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE UPON THE WRITTEN OR ORAL REQUEST OF EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROSPECTUS IS DELIVERED. REQUESTS SHOULD BE MADE TO THE CORPORATE SECRETARY OF TRANS WORLD AIRLINES, INC., ONE CITY CENTRE, 515 N. SIXTH STREET, ST. LOUIS, MISSOURI 63101, TELEPHONE (314) 589-3000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE AT LEAST FIVE BUSINESS DAYS BEFORE THE EXPIRATION DATE OF THE EXCHANGE OFFER. FORWARD-LOOKING STATEMENTS Certain statements made in this Prospectus relating to plans, conditions, objectives, and economic performance go beyond historical information and may provide an indication of future financial condition or results of operations. To that extent, they are forward-looking statements within the meaning of Section 21E of the Exchange Act, and each of them is therefore subject to risks, uncertainties, and assumptions that could cause actual results to differ from those in the forward-looking statements. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Some of the uncertainties that may adversely impact TWA's future financial condition and results of operations include, but are not limited to, the "Risk Factors" described herein. 3 PROSPECTUS SUMMARY This summary does not purport to be complete and is qualified by reference to the detailed information and financial statements appearing elsewhere in this Prospectus or incorporated by reference herein. Terms not defined in this summary are defined elsewhere herein. THE COMPANY TWA is the seventh largest U.S. air carrier (based on 1996 revenue passenger miles ("RPMs")), whose primary business is transporting passengers, cargo and mail. During 1996, the Company carried more than 23.3 million passengers and flew approximately 27.3 billion RPMs. As of May 1, 1997, TWA provided regularly scheduled jet service to 86 cities in the United States, Mexico, Europe, the Middle East, Canada and the Caribbean. As of May 1, 1997, the Company's fleet consisted of 183 active jet aircraft. TWA's North American operations have a primarily domestic hub in St. Louis at Lambert International Airport ("St. Louis") and a domestic-international hub at New York's John F. Kennedy International Airport ("JFK"). TWA is the predominant carrier at St. Louis, with approximately 335 scheduled daily departures and approximately a 72% share of airline passenger enplanements in St. Louis in 1996. Given its location in the center of the country, St. Louis is well-suited to function as an omni-directional hub for both north-south and east-west transcontinental traffic. Therefore, TWA believes it can offer more frequencies and connecting opportunities to many travelers in its key Midwestern markets than competing airlines. TWA's international operations are concentrated at JFK, from which TWA currently serves 28 domestic and international cities with approximately 39 daily departures. JFK is both the Company's and the industry's largest international gateway from North America. As of the date hereof, the Company offers non-stop flights from JFK to 8 cities in Europe and the Middle East as well as 15 destinations in the U.S. and the Caribbean. The Company recently announced plans to refocus its JFK operations by discontinuing unprofitable service to certain European destinations, eliminating certain lower-yielding domestic feed routes, consolidating most JFK operations for the near term to a single terminal and accelerating the replacement of certain wide-body aircraft. THE REORGANIZATIONS During the early 1990s, the U.S. airline industry experienced unprecedented losses attributable to, among other things, the Persian Gulf War, recessions in the United States and Europe, and significant industry-wide fare discounting. These negative factors affected TWA disproportionately due to the significant debt the Company had incurred in the 1986 leveraged acquisition of the Company. As a result, the Company was forced to undergo two financial restructurings during the period between 1992 and 1995, with the first of such restructurings effected in 1993 (the " '93 Reorganization") and the second of such restructurings effected in 1995 (the " '95 Reorganization") (collectively, the '93 Reorganization and the '95 Reorganization are the "Reorganizations"). The Reorganizations were effected pursuant to Chapter 11 reorganization proceedings. Pursuant to the Reorganizations, the Company eliminated more than $1.5 billion in debt and lease obligations, negotiated agreements with its unions providing for reductions in wages and benefits and other concessions, and reached a settlement with respect to the Company's underfunded pension plan obligations. Pursuant to the '95 Reorganization, the Company canceled its then outstanding equity securities in exchange for new securities and other consideration and issued a special class of voting preferred stock (the "Employee Preferred Stock") to its union employees and shares of Common Stock to its non-union employees. This resulted in the union and non-union employees achieving an ownership of approximately 30% of the voting equity of the Company as of the effective date of the '95 Reorganization. Also pursuant to the '95 Reorganization, the Company adopted an employee stock incentive program (the "ESIP") designed to permit TWA's employees to increase their level of stock ownership through grants and purchases of additional shares over a five year period commencing in July 1997. See "Risk Factors--Risk Factors Related to the Company--Corporate Governance Provisions; Special Voting Arrangements." 4 RECENT DEVELOPMENTS In 1994 the Company began implementing a strategic repositioning which, in combination with the financial restructuring, cost savings and operating efficiencies achieved as a result of the '95 Reorganization, was designed to improve TWA's overall operating and financial performance. The key elements of this strategy included: (i) optimizing TWA's route structure by redeploying assets to markets, such as the Company's St. Louis hub, where it believes it has a competitive advantage, and by eliminating unprofitable operations, such as its Atlanta hub and certain international routes; (ii) upgrading and simplifying the Company's fleet by replacing older aircraft with more modern, technologically advanced aircraft to realize operating cost savings and "right- sizing" its aircraft types to better conform to TWA's route requirements; (iii) offering a full-service product designed and priced to appeal both to value- conscious business travelers and to price-conscious leisure travelers; (iv) leveraging TWA's cooperative labor relationship and substantial employee stock ownership to improve TWA's air travel product and identify additional cost savings and revenue enhancement opportunities; (v) investing in technology programs designed to enhance revenues or reduce costs; and (vi) pursuing additional cost and efficiency initiatives to help maintain a low cost structure. While the Company experienced improvements in its operating performance in 1995 and the first half of 1996 as a result of implementing the strategy outlined above, the Company's operating results and cash balances deteriorated significantly during the second half of 1996. Material factors contributing to this deterioration included: (i) an overly aggressive expansion of TWA's capacity and planned flight schedule, particularly during the summer season, which forced the Company to rely disproportionately on lower-yielding feed traffic and bulk ticket sales to fill the increased capacity of its system; (ii) the delayed delivery of four older 747s intended to increase capacity for incremental international summer operations; and (iii) unexpected maintenance delays due to the capacity increase, higher levels of scheduled narrow-body heavy maintenance and increased contract maintenance performed for third parties. These factors caused excessive levels of flight cancellations, poor on-time performance, increased pilot training costs and higher maintenance expenditures and adversely affected the Company's unit revenues (principally yields) and costs. In addition, the crash of TWA Flight 800 on July 17, 1996 distracted management's attention from core operating issues and led to lost bookings and revenues. Finally, the Company experienced a 27.6% increase in fuel costs in 1996, driven primarily by a 22.3% increase in the average fuel price paid per gallon during the year. In late 1996, management began to implement a series of actions intended to correct TWA's performance difficulties and refocus the Company's strategy. Steps taken to improve operating integrity included reducing the near-term flight schedule to more closely match available aircraft and terminating an unprofitable aircraft maintenance contract with the U.S. government in order to increase resources available to service TWA aircraft in maintenance backlog. The Company also began to restructure its operations at the JFK hub by (i) eliminating certain unprofitable international routes such as JFK to Frankfurt and JFK to Athens; (ii) eliminating certain low-yielding domestic feed service into JFK; and (iii) consolidating for the near term most of its JFK operations from two terminals into a single terminal in order to reduce operating costs, increase facility utilization and improve passenger service. The Company believes that operating and financial results at JFK will be improved by the Company's recently announced plans to accelerate retirement of its remaining 747 and L-1011 fleets to year-end 1997. Such aircraft will be replaced by smaller, more efficient new or later-model used 757s, 767s and MD80s, which management believes will operate more reliably and be more appropriately sized to the demands of cities served, resulting in higher load factors and improved yields due to less dependence on low-yielding feed traffic. In addition, these newer, twin-engine, two-pilot aircraft should provide efficiencies in fuel, flight crew and maintenance expenses. These actions are designed to improve the Company's financial performance and make its product more competitive to the business segment offering greater yields. Finally, the Company believes that its focus on improving operational integrity and product quality will allow TWA to further leverage its existing hub dominance in St. Louis by attracting a greater share of higher yielding connecting traffic. Management also believes that additional opportunities exist at St. Louis to utilize existing capacity more efficiently and expand service frequency to certain major domestic cities. Management believes that the above actions, initiated and performed during the latter part of 1996 and the first half of 1997, have resulted in improved operational performance and 5 schedule reliability; however, the Company's unit revenues, yields and cash position continue to be adversely affected by the negative impact on consumer demand created by the previous deterioration in operating performance, particularly in the higher-yield business traveler segment of the market. As a result of these factors, the Company's financial performance in the first quarter of 1997 was worse than its performance in the first quarter of 1996, and the Company anticipates that its 1997 second quarter financial performance will be worse than its performance in the second quarter of 1996. The Company's results for the fourth quarter and full year 1996 reflect, among others, the impact of the factors discussed above. The Company reported a fourth quarter 1996 operating loss of $232.4 million and a net loss of $258.6 million versus an operating profit of $1.1 million and net loss of $27.8 million for the fourth quarter of 1995. For the year ended December 31, 1996, the Company reported an operating loss and net loss of $198.5 million and $284.8 million, respectively, compared to a 1995 operating profit of $25.1 million and a 1995 net loss of $227.5 million. The Company's 1996 results reflect special charges, recorded in the fourth quarter, of $85.9 million, including a $53.7 million write-down related to the planned retirement of older aircraft, a charge of $5.5 million for overseas employee severance costs and a $26.7 million write-down of the Company's JFK-Athens route authority, reflecting the Company's decision to terminate service on such route after April 18, 1997. The Company's auditors included in their report on TWA's consolidated financial statements for the year ended December 31, 1996 an explanatory paragraph to the effect that substantial doubt exists regarding the Company's ability to continue as a going concern due to the Company's recurring losses from operations and its limited sources of additional liquidity. See the Consolidated Financial Statements (as defined) and "Risk Factors--Risk Factors Related to the Company--Substantial Indebtedness; Capital Expenditure Requirements; Liquidity." The Company's first quarter operating results have historically been considerably less favorable than other quarters and typically reflect substantial operating and net losses. Notwithstanding actions taken and planned by management to improve the Company's future operating results and performance described above, during the first quarter of 1997, the Company reported results which compare unfavorably with the first quarter of 1996. TWA's operating revenue of $762.3 million during the first quarter of 1997 represented a $20.1 million decrease from the first quarter of 1996, when the Company's operating revenue totaled $782.4 million. The reduced revenue during the first quarter of 1997 as compared with the same period of 1996 reflected a planned reduction in capacity resulting from the ongoing replacement of larger 747 and L-1011 aircraft with smaller 767 and 757 aircraft and a reduction in the number of narrow-body aircraft in TWA's schedule during the first quarter of 1997 in order to move more aircraft through required scheduled maintenance before the peak travel season. Despite the decrease in operating revenue during the first quarter of 1997, operating expenses of $861.8 million represented a $25.2 million increase over the first quarter of 1996, when the Company's operating expenses totaled $836.6 million. Increased expenses included approximately $20 million during the first quarter of 1997 associated with the accelerated maintenance of the Company's narrow-body aircraft, and $10 million resulting from increased crew retraining costs incurred in connection with the downsizing of the Company's fleet. In addition, TWA's average cost per gallon for jet fuel during the first quarter of 1997 increased to 74.02c, an 11.2 percent increase from 66.58c, the average cost per gallon in the first quarter of 1996. As a result of the above, in the first quarter of 1997 TWA experienced an operating loss of $99.5 million and a net loss of $71.6 million, as compared with the first quarter of 1996, when the Company reported an operating loss of $54.2 million and a net loss of $37.1 million. See "Risk Factors--Risk Factors Related to the Company--Substantial Indebtedness; Capital Expenditure Requirements; Liquidity" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--General." On February 12, 1997, the Company's Board of Directors (the "Board of Directors" or the "Board") named Gerald L. Gitner, a member of the Board, as Chairman and Chief Executive Officer of the Company. Mr. Gitner replaced Jeffrey H. Erickson, who announced his intention to leave as the Company's President and Chief Executive Officer on October 24, 1996. On March 27, 1997, the Board confirmed William F. Compton's appointment as Executive Vice President--Operations and elected Stephen M. Tumblin as director to fill the remaining vacancy on the Board. As of May 29, 1997, the date of the Company's 1997 Annual Meeting of Stockholders, Jewel Lafontant- 6 Mankarious and Lawrence J. Roos reached mandatory retirement age and retired as directors of the Company. To fill the vacancies left from Ms. Lafontant- Mankarious's and Mr. Roos's retirement from the Board, Merrill A. McPeak and Blanche M. Touhill were elected as directors at the Annual Meeting. See "Risk Factors--Risk Factors Related to the Company--Changes to Management Team." On March 6, 1997, the International Association of Machinists and Aerospace Workers (the "IAM") was certified to replace the Independent Federation of Flight Attendants ("IFFA") as the bargaining representative for the Company's flight attendants. The IAM has notified the Company that it will assume full representation rights over TWA's flight attendants, including collective bargaining and IFFA's seat on the Board of Directors. See "Certain Provisions of the Certificate of Incorporation, the By-laws and Delaware Law--Board of Directors" and "Risk Factors--Risk Factors Related to the Company--'94 Labor Agreements." On March 31, 1997 and pursuant to a private placement (the "Private Placement"), the Company issued and sold 50,000 Units (the "Units") consisting of (i) the Old Notes and (ii) 50,000 Redeemable Warrants (the "Warrants"), with each Warrant representing the right to purchase 126.26 shares of Common Stock at an exercise price of approximately $7.92 per share. After deducting discounts, commissions and estimated expenses, the net proceeds of the Private Placement were approximately $47.2 million. 7 THE EXCHANGE OFFER Registration Rights Agreement....... Pursuant to the Private Placement, in March 1997, the Company sold the Old Notes to the Initial Purchaser (as de- fined), who placed the Old Notes with in- stitutional investors as part of an ag- gregate of 50,000 Units, with each Unit comprised of $1,000 principal amount at maturity of Old Notes and one Warrant to purchase 126.26 shares of Common Stock. In connection therewith, the Company exe- cuted and delivered for the benefit of the holders of the Old Notes the Regis- tration Rights Agreement dated as of March 31, 1997 by and between the Company and the Initial Purchaser of the Units (the "Registration Rights Agreement"), which provided, among other things, for the Exchange Offer. The Exchange Offer.................. New Notes are being offered in exchange for an equal principal amount at maturity of Old Notes. As of the date hereof, $50 million aggregate principal amount at ma- turity of New Notes will be recorded in the Company's accounting records at the same carrying value as the Old Notes, and no gain or loss will be recognized by the Company upon the consummation of the Ex- change Offer. See "The Exchange Offer-- Accounting Treatment." Holders of the Old Notes do not have appraisal or dissent- ers' rights in connection with the Ex- change Offer under the Delaware General Corporation Law or the Indenture. 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 (avail- able 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 New Notes pursuant to the Exchange Offer may offer for resale, resell and otherwise transfer such New Notes without compliance with the registration and prospectus delivery requirements of the Securities Act; pro- vided, however, that (i) such New Notes are acquired in the ordinary course of such holder's business, (ii) such holder is not engaged in, and does not intend to engage in, a distribution of such New Notes and has no arrangement with any person to participate in the distribution of such New Notes, and (iii) such holder is not an affiliate of the Company as de- fined 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 Ex- change Offer as in such other circum- stances. A holder who exchanges Old Notes for New Notes pursuant to the Exchange Offer with the intention to participate in a distribution of the New Notes may not rely on the staff's position enunci- ated in the Exxon Capital Letter, the Morgan Stanley Letter or similar letters and must comply with the registration
8 and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives New Notes for its own ac- count in exchange for Old Notes, where such Old Notes were acquired by such bro- ker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribu- tion." Acceptance of Old Notes and Delivery Subject to certain conditions, the Com- of New Notes....................... pany will accept for exchange any Old Notes which are properly tendered in the Exchange Offer prior to 5:00 P.M., New York City time, on the Expiration Date. The New Notes issued pursuant to the Ex- change Offer will be delivered promptly following the Expiration Date. See "The Exchange Offer--Terms of the Exchange Of- fer." Expiration Date..................... 5:00 P.M., New York City time, on , 1997 (30 days following the commencement of the Exchange Offer), unless the Exchange Offer is extended, in which case the term "Expiration Date" means the latest date and time to which the Exchange Offer is extended. Conditions to the Exchange Offer.... The Exchange Offer is subject to certain customary conditions, which may be waived by the Company. See "The Exchange Offer-- Conditions." Except for the requirements of applicable Federal and state securities laws, there are no Federal or state regulatory requirements to be complied with or obtained by the Company in connection with the Exchange Offer. NO VOTE OF THE COMPANY'S SECURITY HOLDERS IS REQUIRED TO EFFECT THE EXCHANGE OFFER AND NO SUCH VOTE (OR PROXY THEREFOR) IS BEING SOUGHT HEREBY. Procedures for Tendering............ Each holder of Old Notes wishing to accept the Exchange Offer must complete, sign and date the Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with the Old Notes to be exchanged (unless such tender is being effected pursuant to the procedure for book-entry transfer described herein) and any other required documentation to the Exchange Agent (as defined) at the address set forth herein and therein. See "The Exchange Offer-- Procedures for Tendering." Withdrawal Rights................... Tenders of Old Notes may be withdrawn at any time prior to 5:00 P.M., New York City time, on the Expiration Date. To withdraw a tender of Old Notes, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth below under "Exchange Agent" prior to 5:00 P.M., New York City time, on the Expiration Date.
9 Untendered Old Notes................ Holders of Old Notes whose Old Notes are not exchanged for New Notes pursuant to the Exchange Offer will continue to be subject to the existing restrictions upon transfer contained in the legend thereon. In general, the Old Notes may not be offered for resale or resold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. See "Risk Factors--Risk Factors Relating to the Notes and the Exchange Offer--Consequences of Failure to Exchange" and "Description of the Notes--Exchange Offer; Registration Rights." Exchange Agent...................... First Securities Bank, National Association, the Trustee under the Indenture, is serving as exchange agent (the "Exchange Agent") in connection with the Exchange Offer. Accounting Treatment................ No gain or loss for accounting purposes will be recognized by the Company upon the consummation of the Exchange Offer. See "The Exchange Offer--Accounting Treatment." Use of Proceeds..................... There will be no cash proceeds to the Company from the issuance of the New Notes pursuant to the Exchange Offer.
THE NOTES The Exchange Offer relates to the exchange of up to $50 million aggregate principal amount at maturity of Old Notes for up to an equal aggregate principal amount at maturity of New Notes. The New Notes will be obligations of the Company evidencing the same indebtedness as the Old Notes, and will be entitled to the benefits of the same Indenture. The form and terms of the New Notes are generally the same as the form and terms of the Old Notes, except that the New Notes have been registered under the Securities Act and therefore will not bear legends restricting the transfer thereof. See "Description of the New Notes." COMPARISON OF OLD NOTES WITH NEW NOTES Freely Transferable................. Generally, the New Notes will be freely transferable under the Securities Act by holders who are not affiliates of the Company. The New Notes otherwise will be substantially identical in all material respects (including interest rate and maturity) to the Old Notes. See "The Exchange Offer--Terms of the Exchange Offer." Registration Rights................. The holders of Old Notes currently are entitled to certain registration rights pursuant to the Registration Rights Agreement. However, upon consummation of the Exchange Offer, subject to certain exceptions, holders of Old Notes who do not exchange their Old Notes for New Notes in the Exchange Offer will no longer be entitled to registration rights and will not be able to offer for resale or resell their Old Notes, unless such Old Notes are subsequently registered under the Securities Act (which, subject to certain limited exceptions, the Company will have no obligation to do), except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. See "Risk Factors--Risk Factors Related to the Notes and the Exchange Offer--Consequences of Failure to Exchange."
10 TERMS OF THE NEW NOTES Maturity Date....................... April 1, 2002. Interest............................ 12% per annum, payable semi-annually in arrears on April 1 and October 1 commencing October 1, 1997. Redemption.......................... The New Notes will not be redeemable prior to maturity, nor will the Company be required to make any sinking fund payments with respect to the New Notes. Change in Control................... Upon a Change in Control, each holder of New Notes shall have the right for a limited period to require the Company to repurchase all or any part of such holder's New Notes at a cash price equal to 100% of the principal amount thereof, plus any accrued and unpaid interest to the date fixed for repurchase; however, there can be no assurance that upon the occurrence of a Change in Control the Company will be able to repurchase the Notes. Ranking............................. The New Notes will represent senior secured obligations of the Company and will rank pari passu in right of payment with all other senior obligations of the Company. As of March 31, 1997, the Company had approximately $1,072 million of total outstanding indebtedness (including $50 million for the Old Notes), all of which will rank pari passu in right of payment of principal and interest with the New Notes. None of the Company's outstanding indebtedness is senior to the Notes. Collateral.......................... The New Notes will be secured by a lien on certain assets of the Company including (i) TWA's beneficial interest in its Federal Aviation Administration ("FAA") designated take-off and landing slots at JFK and LaGuardia airports in New York and Chicago's O'Hare International Airport, which are high- density, capacity-controlled airports, (ii) currently owned and hereafter acquired defined ground equipment of TWA used at certain domestic airports, and (iii) all of the issued and outstanding stock of (a) a wholly-owned subsidiary of TWA holding the leasehold interest in a hangar at LAX used by TWA and (b) three wholly-owned subsidiaries of TWA holding leasehold interests in gates and related support space at certain domestic airports served by the Company. See "Description of Notes--Collateral Security." Certain Covenants................... The indenture governing the New Notes (the "Indenture") and certain related security documents will contain provisions relating to the preservation of and release of Collateral (as defined), including a prohibition against the Company allowing certain additional liens against such Collateral. The Indenture will not contain any financial covenants and will not limit the Company's ability to incur additional indebtedness.
11 Original Issue Discount............. The Old Notes were issued with original issue discount, requiring holders of the New Notes to include such OID in such holder's gross income for federal income tax purposes in advance of the receipt of the cash payments to which such income is attributable. See "Certain Federal Income Tax Considerations."
RISK FACTORS Prospective participants in the Exchange Offer should consider carefully the information set forth under "Risk Factors" and all other information set forth in this Prospectus before making any investment in the New Notes. 12 SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA The summary consolidated financial and operating data presented below relates to periods in the three year period ended December 31, 1996 and the three month periods ended March 31, 1996 and 1997. This data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's 1996 consolidated financial statements (including the notes thereto, the "1996 Consolidated Financial Statements") and the Company's condensed consolidated financial statements for the three months ended March 31, 1997 (including the notes thereto, the "1997 Interim Consolidated Financial Statements"), together referred to herein as the "Consolidated Financial Statements." The consolidated financial data for the periods in the three year period ended December 31, 1996 were derived from the audited consolidated financial statements of the Company. For a discussion of factors affecting the comparability of this data, see "Selected Consolidated Financial Data." See "Risk Factors--Risk Factors Related to the Company-- Substantial Indebtedness; Capital Expenditure Requirements; Liquidity" for a description of the auditor's report issued in connection with the 1996 Consolidated Financial Statements.
PREDECESSOR COMPANY REORGANIZED COMPANY ------------------------- -------------------------------------------- EIGHT MONTHS FOUR MONTHS THREE MONTHS YEAR ENDED ENDED ENDED YEAR ENDED ENDED MARCH 31, DECEMBER 31, AUGUST 31, DECEMBER 31, DECEMBER 31, ------------------ 1994 1995 1995 1996 1996 1997 ------------ ------------ ------------ ------------ -------- -------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Operating revenues...... $3,407,702 $2,218,355 $1,098,474 3,554,407 $782,433 $762,306 Operating income (loss)(1).............. (279,494) 14,642 10,446 (198,527) (54,191) (99,486) Loss before extraordinary items(2)............... (433,829) (338,213) (33,638) (275,027) (37,107) (70,032) Extraordinary items..... (2,005) 140,898 3,500 (9,788) -- (1,532) Net income (loss)....... (435,834) (197,315) (30,138) (284,815) (37,107) (71,564)
MARCH 31, 1997 ---------------------- ACTUAL ---------------------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Total assets............................................ $2,741,091 Current maturities of long-term debt and capital leases................................................. 122,208 Long-term debt and long-term obligations under capital leases................................................. 861,303 Shareholders' equity.................................... 185,819
THREE MONTHS ENDED MARCH YEAR ENDED DECEMBER 31, 31, ------------------------- ------------ 1994 1995 1996 1996 1997 ------- ------- ------- ----- ----- AIRLINE ONLY OPERATING DATA(3): Revenue passenger miles (millions).... 24,906 24,902 27,111 5,847 5,673 Available seat miles ("ASMs") (millions)........................... 39,191 37,905 40,594 9,188 8,558 Passenger load factor................. 63.5% 65.7% 66.8% 63.6% 66.3% Passenger yield (cents)............... 11.31c 11.39c 11.35c 11.59c 11.84c Passenger revenue per available seat mile (cents)......................... 7.19c 7.48c 7.58c 7.38c 7.85c Operating cost per available seat mile (cents).............................. 8.45c 8.12c 8.76c 8.82c 9.86c
- -------- (1) Includes special charges of $138.8 million in 1994, $1.7 million in the eight months ended August 31, 1995 and $85.9 million in 1996. For a discussion of these and other non-recurring items, see Note 16 to the 1996 Consolidated Financial Statements. (2) The eight months ended August 31, 1995 include charges of $242.2 million related to reorganization items. (3) For a definition of the items presented, see "Management's Discussion and Analysis of Financial Condition and Results of Operations." 13 RISK FACTORS Prospective participants in the Exchange Offer should carefully consider the risk factors set forth below, as well as the other information appearing in this Prospectus, before tendering their Old Notes in the Exchange Offer. The risk factors should be considered carefully in evaluating the Company and its business before participating in the Exchange Offer. Certain statements made in this Prospectus relating to plans, conditions, objectives and economic performance go beyond historical information and may provide an indication of future results. To that extent, they are forward- looking statements within the meaning of Section 21E of the Exchange Act, and each of them is therefore subject to risks, uncertainties, and assumptions that could cause actual results to differ from those in the forward-looking statement. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. Some of the uncertainties that might adversely impact TWA's future results of operations include, but are not limited to, the "Risk Factors" described below. RISK FACTORS RELATED TO THE COMPANY Substantial Indebtedness; Capital Expenditure Requirements; Liquidity The Company believes that a substantial improvement in its operating results is necessary for TWA to maintain adequate liquidity to meet its obligations throughout the remainder of 1997. The Company's auditors included in their report dated March 24, 1997 on TWA's consolidated financial statements for the year ended December 31, 1996 an explanatory paragraph to the effect that substantial doubt exists regarding the Company's ability to continue as a going concern due to the Company's recurring losses from operations and limited sources of additional liquidity. See the Consolidated Financial Statements. The Company is highly leveraged and has and will continue to have significant debt service obligations. As of March 31, 1997, the Company's ratio of long-term debt and capital leases (including current maturities) to shareholders' equity was 5.29 to 1. As of March 31, 1997, the Company's total long-term debt and capital leases (including current maturities) was $983.5 million. In addition, at March 31, 1997, TWA's estimated minimum payment obligations under noncancellable operating leases were approximately $309.5 million for the remainder of 1997 and the first quarter of 1998 and approximately $2,855.9 million for periods thereafter. Over the last several years, the Company's earnings have not been sufficient to cover fixed charges. The deficiency of earnings to cover fixed charges was $107.0 million and $74.9 million in the three months ended March 31, 1997 and 1996, respectively, $280.0 million in the year ended December 31, 1996, $32.3 million in the four months ended December 31, 1995, $338.3 million in the eight months ended August 31, 1995, $435.0 in the year ended December 31, 1994, $88.4 million in the two months ended December 31, 1993, $364.7 in the ten months ended October 31, 1993, and $317.4 in the year ended December 31, 1992. See "Selected Consolidated Financial Data," "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations--General" and the Consolidated Financial Statements. The degree to which the Company is leveraged could have important consequences to holders of the securities offered hereby, including the following: (i) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be impaired; (ii) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of principal and interest on the Company's existing indebtedness; (iii) the Company is placed at a relative competitive disadvantage to its less highly leveraged competitors and is more vulnerable to economic downturns; and (iv) such indebtedness contains restrictive and other covenants, which, if not complied with, may result in an event of default which, if not cured or waived, could have a material adverse effect on the Company. See "Business-- Legal Proceedings--Icahn Litigation" for a description of an alleged default under a loan agreement of the Company which could result in a cross-default under substantially all of the Company's other indebtedness and leases and otherwise have a material adverse effect on the Company. 14 As of May 1, 1997, TWA's capital expenditures for 1997 were anticipated to total approximately $107 million, including approximately $91 million for flight equipment related expenditures (e.g., progress payments for aircraft and the purchase of aircraft engines and spare parts). While the Company is seeking financing for certain of its planned capital expenditures, a substantial portion of such expenditures are expected to utilize internally generated funds. The inability to finance or otherwise fund such expenditures could have a material adverse effect on the ability of the Company to implement its strategic plan. On March 31, 1997, including net proceeds of $47.2 million from the Private Placement, the Company's consolidated cash and cash equivalents balance was approximately $136.5 million (including approximately $20.9 million in cash and cash equivalents held in TWA's international operations and by subsidiaries which, based upon various monetary regulations and other factors, might not be immediately available to the Company), a $45.1 million decrease from the $181.6 million balance at December 31, 1996. The Company expects that, due to the continued negative impact on the Company's revenues and costs resulting from the deterioration in operating performance experienced by the Company in late 1996 and early 1997, cash balances at June 30, 1997 will be significantly below the Company's cash balances at December 31, 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Liquidity." TWA has no unused credit lines and must satisfy all of its working capital and capital expenditure requirements from cash provided by operating activities, from external capital sources or from the sale of assets. See "The Company--Business Strategy" and "Management's Discussion and Analysis of Financial Conditions and Results of Operations--General" for a description of the actions taken by the Company to improve its liquidity during the first quarter of 1997. Substantially all of TWA's strategic assets, including its owned aircraft and overhaul facilities, have been pledged to secure various issues of outstanding indebtedness of the Company. Sales of such other assets which are not replaced would, under the terms of applicable financing agreements, generally require payment of the indebtedness secured thereby, which indebtedness in many cases would likely exceed the immediately realizable value of such assets. To the extent that the Company's access to capital is constrained, the Company may not be able to make certain capital expenditures or implement certain other aspects of its strategic plan, and the Company may therefore be unable to achieve the full benefits expected therefrom. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Availability of NOLs" for a discussion of the status of the Company's net operating loss carryforwards. The Company's long-term viability as well as its ability to meet its existing debt and other obligations and future capital commitments depends upon the Company's financial and operating performance, which in turn is subject to, among other things, prevailing economic conditions and to certain other financial, business and other factors beyond the Company's control. As discussed elsewhere herein, in late 1996 and early 1997, the Company began implementing certain operational changes which are intended to improve the Company's financial results through, among other things, higher yields and load factors; increased fuel, pilot and other aircraft operating efficiencies; and a decrease in maintenance-related expenditures, employee headcount and JFK-related operating costs. Although management believes that such operational changes will be successful and that the Company's cash flow from its operations and financing activities should be sufficient in the foreseeable future to meet the Company's debt and other obligations and future capital commitments, the airline industry in general and the Company in particular are subject to significant risks and uncertainties referred to in this Prospectus including under these Risk Factors and "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Recent Results" and "--Liquidity and Capital Resources." Therefore, there can be no assurance that the Company's operating results and financing activities will be sufficient in the foreseeable future to meet its debt and other obligations and future capital commitments. Prior Operating Losses and Future Uncertainties Relating to Results of Operations As with other companies, TWA's long-term viability depends on its ability to achieve and maintain profitable operations. During the early 1990s, both the airline industry and the Company experienced periods of significant losses, with unprecedented losses incurred by the domestic airline industry during the years 1990-1993. Although the airline industry has generally seen strengthened performance in recent years, particularly in 15 1995 and 1996 when many airlines reported record profits, the Company has continued to report significant net losses. For example, the Company reported a net loss of $368.4 million for the combined 12-month period ended December 31, 1995 (excluding extraordinary gains related to the '95 Reorganization), while reporting an operating profit of $25.1 million (including $58.0 million of non-cash expense relating to the distribution of stock to employees as part of the '95 Reorganization), representing the Company's first operating profit since 1989. The Company's reported net loss of $284.8 million for 1996 represented a $57.3 million increase over the 1995 net loss, while the Company reported a $198.5 million operating loss for 1996 (including special charges of $85.9 million), which represented a $223.6 million decline from its operating profit in 1995. During the first quarter of 1997, the Company reported a net loss of $71.6 million, which represented a $34.5 million increase over the $37.1 net loss for the first quarter of 1996, and a $99.5 million operating loss, which represented a $45.3 million increase over the operating loss reported for the first quarter of 1996. For a discussion of such operating results and the substantial net losses incurred during such periods, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "The Company--Business Strategy." Although the Company has taken a number of actions which management believes will improve future results, the Company will incur additional expenses relating to these actions, including pilot training and aircraft leases, and there can be no assurance that such actions will make the Company's future operations profitable. See "--Substantial Indebtedness; Capital Expenditure Requirements; Liquidity" and "The Company--Business Strategy." TWA has historically experienced significant variations in annual operating revenues and operating expenses and expects such variations to continue. While numerous uncertainties concerning the level of revenues and expenses always exist and the nature of such uncertainties is subject to constant change, the Company is unable to predict the potential impact of any of such uncertainties upon its results of operations. Among the other uncertainties that might adversely impact TWA's future results of operations are: (i) competitive pricing and scheduling initiatives; (ii) the availability and cost of capital; (iii) increases in fuel and other operating costs; (iv) insufficient levels of air passenger traffic resulting from, among other things, war, threat of war, terrorism or changes in the economy; (v) governmental limitations on the ability of TWA to service certain airports and/or foreign markets; (vi) regulatory requirements requiring additional capital or operating expenditures; (vii) the outcome of certain upcoming labor negotiations (see "--'94 Labor Agreements"); and (viii) the possible reduction in yield due to a discount ticket program entered into between the Company and Karabu Corporation ("Karabu"), a Delaware corporation controlled by Mr. Carl C. Icahn, in connection with the '95 Reorganization (see "Management's Discussion and Analysis of Financial Condition and Results of Operations--General" and "Business--Legal Proceedings--Icahn Litigation"). 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. TWA is currently a defendant in a number of lawsuits relating to the crash, but it is unable to predict the amount of claims which may ultimately be made against the Company or how those claims might be resolved. TWA maintains substantial insurance coverage and, at this time, management has no reason to believe that such insurance coverage will not be sufficient to cover the claims arising from the crash. Therefore, TWA believes that the resolution of such claims will not have a material adverse effect on its financial condition or results of operations. The Company is unable to identify or predict the extent of any adverse effect on its revenues, yields, or results of operations which has resulted or may result from the public perception of the crash. See "Business--Legal Proceedings." Changes to Management Team Commencing in June 1996, the Company experienced a substantial number of changes in its executive management team. In June 1996, Messrs. Robert A. Peiser and Mark J. Coleman, Chief Financial Officer and Senior Vice President- Marketing, respectively, resigned from the Company. On August 21, 1996, Edward Soule 16 was elected to the position of Executive Vice President and Chief Financial Officer. On September 3, 1996, Roden A. Brandt was elected to the position of Senior Vice President--Planning. On October 24, 1996, Jeffery H. Erickson, President and Chief Executive Officer announced his intention to leave the Company. On December 14, 1996, the Board appointed Gerald L. Gitner, a member of the Board, to serve as Vice Chairman and Acting Chief Executive Officer; David M. Kennedy, a member of the Board, to serve as Acting Executive Vice President and Chief Operating Officer; and William F. Compton, also a member of the Board, to serve as Acting Executive Vice President--Operations. On December 20, 1996, Michael J. Palumbo was appointed as Senior Vice President and Chief Financial Officer, succeeding Mr. Soule, who had resigned from such positions on December 19, 1996. On February 12, 1997, the Board of Directors elected Mr. Gitner to serve as Chairman and Chief Executive Officer. On February 14, 1997, Don Monteath, who had served as the Company's Senior Vice President--Operations, left the Company. On March 13, 1997, Mr. Compton was appointed Executive Vice President--Operations, subject to Board approval. On March 27, 1997, the Board confirmed Mr. Compton's appointment. On May 29, 1997, Donald M. Casey was elected to serve as the Company's Executive Vice President--Marketing, and it was announced that Mr. Kennedy would leave his position as Acting Executive Vice President and Chief Operating Officer. Mr. Kennedy will remain as a director and as chairman of the Finance Committee of the Board of Directors. The Company does not believe that such changes have unduly affected its ongoing operations or implementation of the Company's business strategy, although there can be no assurance that such changes will not have a material adverse effect on future operations. '94 Labor Agreements As of March 31, 1997, the Company had approximately 24,170 full-time employees (based upon full-time equivalents which include part-time employees). Of these, approximately 82% were represented by ALPA and the IAM. On March 6, 1997, the IAM was certified to replace IFFA as the bargaining representative of the Company's flight attendants. The Company's currently effective '94 Labor Agreements (as defined) with each such union contain more favorable work rules than in prior contracts and wage levels which the Company believes to be below many other U.S. airlines. The '94 Labor Agreements are three year agreements which become amendable after August 31, 1997. Negotiations on a new collective bargaining agreement with the IAM regarding the Company employees represented by the IAM (other than the flight attendants) commenced in February 1997 and are currently ongoing. Negotiations on a new collective bargaining agreement with ALPA commenced in June 1997 and are currently ongoing. It is expected that negotiations with the IAM with regard to the flight attendants will commence in July 1997. Under the Railway Labor Act (the "RLA"), workers whose contracts have become amendable are required to continue to work under the "status quo" (i.e., under the terms of employment antedating the amendable date) until the RLA's procedures are exhausted. Under the RLA, the Company and its unions are obligated to continue to bargain until agreement is reached or until a mediator is appointed and concludes that negotiations are deadlocked and mediation efforts have failed. The mediator must then further attempt to induce the parties to agree to arbitrate the dispute. If either party refuses to arbitrate, then the mediator must notify the parties that his efforts have failed and, after a 30-day cooling-off period, a strike or other direct action may be taken by the parties. In the opinion of management, the Company's financial resources are not as great as those of most of its competitors, and, therefore, 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." Age of Fleet; Noise At May 1, 1997, the average age of TWA's aircraft fleet was 18.3 years, making TWA's fleet one of the oldest of U.S. air carriers. As a result, TWA incurs increased overall operating costs due to the higher maintenance, fuel and other operating costs associated with older aircraft. The Company is in the process of acquiring a number of new and later model used aircraft and, based upon current delivery schedules for firmly committed aircraft, TWA's composite fleet age should be reduced to slightly under 17 years at December 31, 1997. As of December 31, 1996, TWA's fleet included 70 aircraft which did not meet the noise reduction requirements under the Airport Noise and Capacity Act of 1990 (the "Noise Act") and must therefore be retired 17 or substantially modified by the end of 1999. Although the Company has plans to meet the Noise Act's noise reduction requirement, there can be no assurance that such plans will be achieved. In addition, in 1990 the Federal Aviation Administration ("FAA") issued several Airworthiness Directives ("ADs") mandating changes to maintenance programs for older aircraft to ensure that the oldest portion of the nation's fleet remains airworthy. Most of the Company's aircraft are currently affected by these aging aircraft ADs. In 1995 and 1996, TWA spent approximately $2.6 million and $3.4 million, respectively, to comply with aging aircraft maintenance requirements. Based on information currently available to TWA and its current fleet plan, TWA estimates that costs associated with complying with these aging aircraft maintenance requirements will aggregate approximately $18.7 million through the year 2000. These cost estimates assume, among other things, that newer aircraft will replace certain of TWA's existing aircraft and that as a result certain aircraft will be retired by the Company before TWA would be required to make certain aging aircraft maintenance expenditures. There can be no assurance that TWA will be able to implement fully its fleet plan or that the cost of complying with aging aircraft maintenance requirements will not be significantly increased. See "-- Substantial Indebtedness; Capital Expenditure Requirements; Liquidity," "Business--Regulatory Matters--Noise Abatement" and "--Aging Aircraft Maintenance." Corporate Governance Provisions; Special Voting Arrangements As a result of provisions of the '94 Labor Agreements, the Company's Third Amended and Restated Certificate of Incorporation (the "Certificate of Incorporation") and Amended and Restated By-laws (the "By-laws") contain provisions which allow certain corporate actions requiring board approval, including mergers, consolidations and sale of all or substantially all the assets of the Company, to be blocked by a vote of six (four union elected directors and two other directors) of the Company's fifteen directors, which together constitute a "Blocking Coalition." Actions subject to disapproval by the Blocking Coalition include: (a) any sale, transfer or disposition, in a single or series of transactions, of at least twenty percent (20%) of the Company's assets, except for transactions in the ordinary course of business including aircraft transactions as part of a fleet management plan; (b) any merger of the Company into or with, or consolidation of the Company with any other entity; (c) any business combination within the meaning of Section 203 of the Delaware General Corporation Law (the "DGCL"); (d) any dissolution or liquidation of the Company; (e) any filing of a petition for bankruptcy, reorganization or receivership under any state or federal bankruptcy, reorganization or insolvency law; (f) any repurchase, retirement or redemption of the Company's capital stock or other equity securities prior to their scheduled maturity or expiration, except for redemptions out of the proceeds of any substantially concurrent offering of comparable or junior securities and mandatory redemptions of any redeemable preferred stock of the Company; (g) any acquisition of assets, not related to the Company's current business as an air carrier, in a single transaction or a series of related transactions exceeding $50 million adjusted annually by the consumer price index; or (h) any sale of the Company's capital stock or securities convertible into capital stock of the Company to any person if (i) at the time of issuance or (ii) assuming conversion of all outstanding securities of the Company convertible into capital stock, such person or entity would beneficially own at least twenty percent (20%) of the capital stock of the Company. Certain Potential Future Earnings Charges There are a number of uncertainties relating to agreements with employees of the Company, the resolution of which could result in significant non-cash charges to TWA's future operating results. Shares granted or purchased at a discount under the ESIP will generally result in a charge equal to the fair market value of shares granted and the discount for shares purchased at the time when such shares are earned. If the ESIP's target prices for the Common Stock are realized, the minimum aggregate charge for the years 1997 to 2002 would be approximately $58 million based upon such target prices and the number of shares of Common Stock and Employee Preferred Stock outstanding at December 31, 1996. The charge for any year, however, could be substantially higher if the then market price of the Common Stock exceeds the target price for such year ($11.00, $12.10, $13.31, $14.64, $16.11 and $17.72 for the years 1997 to 2002, respectively). Additionally, the allocation of approximately 1.1 million shares of Employee Preferred Stock issued to a trust for employees represented by 18 ALPA pursuant to the '95 Reorganization will, when allocated to individual employees so represented, result in a charge equal to the fair market value of the shares on the dates allocated. Finally, the IAM has indicated that it does not agree with the Company's method of computing certain amounts owed to IAM- represented employees relating to overtime "bonus" claims under the Company's 1992 concession agreements with its unions (the " '92 Labor Agreements"). The Company estimates its obligation to be approximately $26.3 million, and the IAM has, while not specifying an amount, indicated they believe the amount owed is significantly greater. See Notes 1 and 12 to the Consolidated Financial Statements. Fresh Start Reporting In connection with the '95 Reorganization, the Company adopted fresh start reporting in accordance with the American Institute of Certified Public Accountants' Statement of Position 90-7 "--Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). The fresh start reporting common equity value of the Company was determined by the Company, with the assistance of its financial advisors, to be approximately $270.0 million based, in part, on assumptions as to future results of operations. The carrying value of the Company's assets does not reflect historical cost but rather reflects current values determined by the Company as of the August 23, 1995 effective date (the " '95 Effective Date") of the '95 Reorganization (including values for intangible assets such as routes, gates and slots of approximately $458.4 million). The difference between (i) the equity valuation of the Company plus the estimated fair market value of the Company's liabilities and (ii) the estimated fair market value of its identifiable assets was allocated to "reorganization value in excess of amounts allocable to identifiable assets" in the amount of approximately $839.1 million. In future periods, these intangible assets will be evaluated for recoverability based upon estimated future cash flows. If expectations are not substantially achieved, charges to future operations for impairment of these assets might be required and such charges could be material. Due to the significant adjustments relating to the "95 Reorganization and the adoption of fresh start reporting, the pre-reorganization consolidated financial statements are not comparable to the post-reorganization consolidated financial statements. A vertical black line is shown in the Consolidated Financial Statements and selected financial data presented herein to separate TWA's post-reorganization Consolidated Financial Statements from its pre-'95 reorganization consolidated financial statements since they have not been prepared on a consistent basis of accounting. See "Management's Discussions and Analysis of Financial Condition and Results of Operations" and Note 19 to the Consolidated Financial Statements. In the fourth quarter of 1996, the Company reported a special charge of $26.7 million relating to the write-down of the carrying value of TWA's JFK- Athens route authority, reflecting the Company's decision to terminate service on such route after April 18, 1997. RISK FACTORS RELATED TO THE INDUSTRY Competition The airline industry operates in an intensely competitive environment. TWA competes with one or more major airlines on most of its routes (including on all routes between major cities) and with all forms of surface transportation. The airline industry is also cyclical due to, among other things, a close relationship of yields and traffic to general U.S. and worldwide economic conditions. Small fluctuations in revenue per available seat mile ("RASM") and cost per available seat mile ("CASM") can have a significant impact on the Company's financial results. Airline profit levels are highly sensitive to, and during recent years have been adversely affected by, among other things, changes in fuel costs, fare levels and passenger demand. Vigorous price competition exists, and TWA and its competitors have frequently offered sharply reduced discount fares in many markets. Airlines, including TWA, use discount fares and other promotions to stimulate traffic during normally slack travel periods, to generate cash flow and to increase relative market share in selected markets. TWA has often elected to initiate or match discount or promotional fares in certain markets in order to compete vigorously in those discounted markets or to stimulate traffic. Passenger demand and fare levels have also been affected adversely by, among other factors, the state of the economy and international events. 19 The airline industry has consolidated in recent years as a result of mergers and liquidations, and further consolidation may occur in the future. This consolidation has, among other things, enabled certain of the Company's major competitors to expand their international operations and increase their domestic market presence. The emergence and growth of low cost, low fare carriers in domestic markets represents an intense competitive challenge for the Company, which has higher operating costs than many of such low fare carriers and fewer financial resources than many of its major competitors. In many cases, such low cost carriers have initiated or triggered price discounting. In part as a result of the industry consolidation referred to above, aircraft, skilled labor and gates at most airports continue to be readily available to start-up carriers. To the extent new carriers or other lower cost competitors enter markets in which the Company operates, such competition could have a material adverse effect on the Company. Many of the traditional carriers that compete with TWA have implemented, or are in the process of implementing, measures to reduce their operating costs. In addition, the Company is more highly leveraged and has significantly less liquidity (and in certain cases, a higher cost structure) than certain of its competitors, several of whom have available lines of credit, significant unencumbered assets and/or greater access to public capital markets. Accordingly, TWA may be less able than certain of its competitors to withstand a prolonged recession in the airline industry or prolonged periods of competitive pressure. Demand for air transportation has historically tended to mirror general economic conditions. During the most recent economic recession in the United States, the change in industry capacity failed to mirror the reduction in demand for domestic air transportation due primarily to continued delivery of new aircraft. While in the period following such recession, industry capacity leveled off, such capacity has again begun to expand. TWA expects that the airline industry will remain extremely competitive for the foreseeable future. Aircraft Fuel Since fuel costs constitute a significant portion of the Company's operating costs (approximately 15.6% in 1996), significant increases in fuel costs would materially and adversely affect the Company's operating results. Fuel prices continue to be susceptible to, among other factors, political events and market factors beyond the Company's control, and the Company cannot predict near or longer-term fuel prices. In the event of a fuel supply shortage resulting from a disruption of oil imports or otherwise, higher fuel prices or curtailment of scheduled service could result. During 1996, the Company's average per gallon cost of fuel increased approximately 22.3% over 1995, from approximately $0.57 per gallon to approximately $0.70 per gallon. During the first quarter of 1997, the Company's average per gallon cost of fuel increased approximately 11.2%, from approximately $0.67 per gallon to approximately $0.74 per gallon, over the same period in the prior year. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." A one cent change in the cost per gallon of fuel (based on 1996 consumption) impacts operating expense by approximately $700,000 per month. Increases in fuel prices may have a greater proportionate and more immediate impact on TWA than many of its competitors because of the composition of its fleet and because the Company does not presently maintain substantial reserves of fuel required for its operations or otherwise hedge the cost of anticipated purchases of fuel. In August 1993, the United States increased taxes on fuel, including aircraft fuel, by 4.3c per gallon. Although airlines were exempted from this tax increase until October 1995, the Company continued to collect the tax. The expiration of the exemption in October 1995 increased the Company's operating expenses by approximately $13.6 million in 1996 over 1995. See "Business-- Aircraft Fuel." Regulatory Matters The airline industry is subject to extensive federal and international government regulations relating to airline safety, security and scheduling, as well as to local, state, federal, and international environmental laws. Adoption of newly proposed regulations relating to these matters could increase the Company's cost of 20 compliance with governmental regulations, and could therefore increase operating expenses and in some cases restrict the operations of airlines, including TWA, thereby adversely affecting TWA's results of operations. During the last several years, the FAA has issued a number of maintenance directives and other regulations relating to, among other things, collision avoidance systems, airborne windshear avoidance systems, noise abatement and increased inspection requirements, including added requirements for aging aircraft. TWA believes, based on its current fleet, that it will incur substantial capital expenditures to comply with the aging aircraft and noise abatement regulations. The Company assumes that a number of aircraft will be retired before major aging aircraft modifications and noise compliance will be required, and required capital expenditures will vary depending upon changes in TWA's planned fleet composition. Management expects that the cost of compliance will be funded through a combination of internally generated funds and utilization of cost sharing and/or funding provisions under certain lease agreements and loan agreements. See "--Risk Factors Related to the Company-- Substantial Indebtedness; Capital Expenditure Requirements; Liquidity." Additional laws and regulations have been proposed from time to time which could significantly increase the cost of airline operations by, for instance, imposing additional requirements or restrictions on operations. Laws and regulations have also been considered from time to time that would prohibit or restrict the ownership and/or transfer of airline routes or takeoff and landing slots. Also, the award of international routes to U.S. carriers (and their retention) is regulated by treaties and related agreements between the United States and foreign governments which are amended from time to time. The Company cannot predict what laws and regulations will be adopted or what changes to international air transportation treaties will be effected, if any, or how they will affect TWA. See "Business--Regulatory Matters" and "Description of Notes--Collateral Security--Slots." Management believes that the Company benefitted from the expiration on December 31, 1995 of the aviation trust fund tax (the "Ticket Tax"), which imposed certain taxes including a 10% air passenger tax on tickets for domestic flights, a 6.25% air cargo tax and a $6 per person international departure tax. The Ticket Tax was reinstated on August 27, 1996 and expired again on December 31, 1996. At the end of February 1997, the Ticket Tax was reinstated effective March 7, 1997 through September 30, 1997. The amount of the negative impact directly resulting from the reimposition of the Ticket Tax cannot be precisely determined. However, management believes that reinstatement of the Ticket Tax will result in higher costs to the Company and/or, if passed on to consumers in the form of increased ticket prices, might have an adverse effect on passenger traffic, revenue and/or margins. See "Business--Regulatory Matters." RISK FACTORS RELATING TO THE NOTES AND THE EXCHANGE OFFER Certain Bankruptcy Considerations If the Company were to become a debtor in a proceeding under Title 11 of the United States Bankruptcy Code, as amended (the "Bankruptcy Code"), it is likely that there would be delays in payment with respect to the Notes and delays in or prevention from enforcing remedies and other rights that may otherwise be available to holders of the Notes, including rights with respect to the Collateral (as defined). See "Description of Notes--Certain Bankruptcy Considerations." Collateral The FAA has designated certain congested U.S. airports as "High Density Traffic Airports." At those airports, the FAA determines the maximum hourly number of Instrument Flight Rule take-offs and landings which may be reserved for use by air carriers and other airport operators. The authority granted by the FAA to conduct one take-off or landing in a specified time period at one of such airports is referred to as a "slot." A portion of the Collateral securing the Company's obligations under the Notes is the Company's beneficial interest in the Company's slots at JFK, LaGuardia and O'Hare airports. These slots are subject to complete control by the FAA and may be withdrawn from the Company without compensation at any time to fulfill the FAA's operational needs, including, but not limited to, providing slots for international or essential air service operations 21 or eliminating slots. The availability of slots to serve as Collateral and the ability of the Trustee on behalf of the holders of the Notes to foreclose upon or realize any value from the sale or transfer of such slots may be impaired. See "Description of Notes--Collateral Security" and "Business--Regulatory Matters--Slot Restrictions." Certain other Collateral consists of all of the outstanding capital stock (the "Pledged Securities") of (i) a wholly-owned subsidiary of TWA (the "LAX Hangar Subsidiary") that holds the leasehold and sub-leasehold interests (the "LAX Hangar Lease") in a hangar at LAX used by TWA (the "LAX Hangar Facility"), and (ii) three wholly-owned subsidiaries of TWA (the "Gate Subsidiaries" and, together with the LAX Hangar Subsidiary, the "Pledged Subsidiaries") which hold the leasehold interests (the "Gate Leases" and together with the LAX Hangar Lease, the "Subsidiary Facilities Leases") in gates and related support space (the "Gate Facilities" and, together with the LAX Hangar Facility, the "Subsidiary Facilities") at certain domestic airports served by the Company. The value of the Pledged Securities depends upon, among other things, the value of the Subsidiary Facilities Leases. The lessors under the Subsidiary Facilities Leases are various governmental authorities. The Subsidiary Facilities Leases generally are not assignable without the consent of such lessors and many such lessors do not enter into airport facilities leases with, or permit assignment of airport facilities leases to, non-airline lessees (including subsidiaries of airlines). The Subsidiary Facilities Leases were assigned to the Pledged Subsidiaries without the consent of the lessors by special order of the bankruptcy court in the '93 Reorganization. TWA will not be required to assign any additional airport facilities leases to the Pledged Subsidiaries. In addition, so long as no Event of Default (as defined in the Indenture) has occurred and is continuing, there will be no limitation in the Indenture or the Collateral Documents (as defined) on the Pledged Subsidiaries' paying dividends to TWA or disposing of or otherwise dealing in the Subsidiary Facilities Leases as such subsidiaries deem appropriate in the ordinary course of business. Accordingly, the level of assets in the Pledged Subsidiaries, and thus the value of the Pledged Securities as Collateral, could decline significantly. Further, the Pledged Subsidiaries have entered into subleases (the "Facilities Subleases") of the Pledged Subsidiary Facilities with the Company. Until such time as a Pledged Subsidiary ceases to be a wholly-owned subsidiary of TWA, the rent under the Subsidiary Facilities Subleases essentially only equals the rent payable by the relevant Pledged Subsidiary under the relevant Subsidiary Facilities Leases. See "Description of Notes--Collateral Security--Ground Equipment; Beneficial Interest Certificates and Stock of Certain Subsidiaries." Appraisal of Collateral; Sufficiency of Collateral Appraisals of the Slots, Ground Equipment (as defined) and the Subsidiary Facilities Leases (the "Appraised Assets") were prepared by Simat, Helliesen & Eichner, Inc. As of the date of such appraisals, the fair market value of the Slots was approximately $68.2 million, the Subsidiary Facilities Leases (disregarding the effects of the rights and interests of TWA under the Facilities Subleases), approximately $38.6 million, and the Ground Equipment, of approximately $24.2 million. Each appraisal is subject to certain assumptions and limitations and is only an estimate of value. The appraisals should not be relied on as a measure of realizable value of the Appraised Assets, which may be more or less than the value indicated in the appraisal. The value of the Appraised Assets and the Collateral in the event of liquidation will likely be less than fair market value and could be considerably below such value depending on market and economic conditions, the rapidity with which the Collateral is sought to be sold, the availability of buyers, the existence of liens and/or claims with respect to the Appraised Assets or the Collateral and similar factors. Accordingly, there can be no assurance that the proceeds of any sale of Collateral following a payment default under the Notes would be sufficient to satisfy payments due on the Notes. See "Notes--Collateral Security--General." Absence of Public Trading Market The New Notes will constitute a new issue of securities for which there is no established trading market and the New Notes may not be widely distributed. The Initial Purchaser has informed the Company that it currently intends to make a market in the New Notes as permitted by applicable laws and regulations; however, the Initial Purchaser is not obligated to do so and any such market-making may be discontinued at any time without notice at the sole discretion of the Initial Purchaser. The Company does not intend to list the New Notes 22 on any national securities exchange or to seek the admission thereof to trading in the National Association of Securities Dealers' Automated Quotation Stock Market, and there can be no assurance as to the development of any market or liquidity of any market that may develop for the New Notes. If a market for the New Notes does develop, the price of such New Notes may fluctuate and liquidity may be limited. If a market for the New Notes does not develop, purchasers may be unable to resell such New Notes for an extended period of time, if at all. Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of such securities. There can be no assurance that the market for the New Notes will not be subject to similar disruptions. Any such disruptions may have an adverse effect on holders of the New Notes. Original Issue Discount Because a portion of the purchase price for each Unit issued in the Private Placement was allocated to the Warrants for federal income tax purposes, the Old Notes will be treated as issued with OID. Therefore, OID will be includable in the gross income of a New Note holder for federal income tax purposes in advance of receipt of the cash interest payments on the Notes to which the income is attributable. See "Certain Federal Income Tax Considerations" for a more detailed discussion of the federal income tax consequences of the purchase, ownership and disposition of the New Notes. If a bankruptcy case is commenced by or against the Company under the Bankruptcy Code after the issuance of the Notes, the claim of a holder of the Notes with respect to the principal amount thereof may be limited to an amount equal to the sum of (i) the initial offering price of the Notes and (ii) that portion of the OID that is not deemed to constitute "unmatured interest" for purposes of the Bankruptcy Code. Any OID that was not accrued as of such bankruptcy filing may be deemed to constitute "unmatured interest." A holder of a Note may not have any claim with respect to that portion of the issue price of a Unit in the Private Placement that is allocated to the Warrant that was issued as part of such Unit. Consequences of Failure to Exchange Upon consummation of the Exchange Offer, holders of Old Notes that were not prohibited from participating in the Exchange Offer and did not tender their Old Notes will have no registration rights under the Registration Rights Agreement with respect to such nontendered Old Notes and, accordingly, such Old Notes will continue to be subject to the restrictions on transfer contained in the legend thereon as a consequence of the issuance of the Old Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered for resale or resold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Company does not intend to register the Old Notes under the Securities Act. Based on interpretations by the staff of the Commission, as set forth in no-action letters issued to 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 New Notes pursuant to the Exchange Offer may offer for resale, resell and otherwise transfer such New Notes without compliance with the registration and prospectus delivery requirements of the Securities Act; provided that (i) such New Notes are acquired in the ordinary course of such holder's business, (ii) such holder is not engaged in, and does not intend to engage in, a distribution of such New Notes and has no arrangement with any person to participate in the distribution of such New Notes, and (iii) such holder is not an affiliate of the Company (as defined under Rule 405 of the Securities Act). However, the staff of the Commission has not considered the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the Commission would make a similar determination with respect to the Exchange Offer as in such other circumstances. A holder who exchanges Old Notes for New Notes pursuant to the Exchange Offer with the intention to participate in a distribution of the New 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 23 prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." The New Notes may not be offered or sold unless they have been registered or qualified for sale under applicable state securities laws or an exemption from registration or qualification is available and is complied with. The Registration Rights Agreement requires the Company to register the New Notes in any jurisdiction requested by the holders, subject to certain limitations. To the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Old Notes could be adversely affected. Change in Control; Cross Default Provisions Upon a Change in Control, each holder of New 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 New Notes at a price in cash equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date fixed for repurchase. However, there can be no assurance that upon the occurrence of such a Change in Control, the Company will be able to repurchase the Notes. In addition, the failure to repurchase the Notes could constitute an Event of Default under the Indenture which would result in a cross-default under the indenture relating to the Company's 12% Senior Secured Reset Notes, as well as other then-outstanding indebtedness of the Company. See "Description of the Notes--Purchase of Notes at the Option of Holders Upon a Change in Control." USE OF PROCEEDS The Company will not receive any proceeds from the Exchange Offer. The Company has agreed to pay the expenses of the Exchange Offer. No underwriter is being used in connection with the Exchange Offer. THE EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER On March 31, 1997, the Company issued $50 million aggregate principal amount at maturity of Old Notes to PaineWebber Incorporated as Initial Purchaser. In connection with the issuance and sale of the Old Notes, the Company entered into the Registration Rights Agreement with the Initial Purchaser, 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 March 31, 1997, the date the Old Notes were issued (the "Issue Date"), (ii) use its best efforts to cause the Registration Statement to become effective within 120 days after the Issue Date, and (iii) consummate the Exchange Offer within 180 days of the Issue Date. A copy of the Registration Rights Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The Exchange Offer is being made pursuant to the Registration Rights Agreement to satisfy the Company's obligations thereunder. Based on interpretations by the staff of the Commission, as set forth in no- action letters issued to 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 New Notes pursuant to the Exchange Offer may offer for resale, resell and otherwise transfer such New Notes without compliance with the registration and prospectus delivery requirements of the Securities Act; provided, that (i) such New Notes are acquired in the ordinary course of such holder's business, (ii) such holder is not engaged in, and does not intend to engage in, a distribution of such New Notes and has no arrangement with any person to participate in the distribution of such 24 New Notes, and (iii) such holder is not an affiliate of the Company (as defined under Rule 405 of the Securities Act). However, the staff of the Commission has not considered the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the Commission would make a similar determination with respect to the Exchange Offer as in such other circumstances. A holder who exchanges Old Notes for New Notes pursuant to the Exchange Offer with the intention to participate in a distribution of the New 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 New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes (other than a resale of an unsold allotment from the original sale of the Notes) received in exchange for Old Notes where such Old Notes were acquired by such broker- dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal (which together constitute the Exchange Offer), the Company will accept any and all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. The Company will issue a principal amount at maturity of New Notes in exchange for an equal principal amount at maturity of outstanding Old Notes validly tendered pursuant to the Exchange Offer and not withdrawn prior to the Expiration Date. Old Notes may only be tendered in integral multiples at maturity of $1,000. Holders may tender some or all of their Old Notes pursuant to the Exchange Offer. The terms of the New Notes and the Old Notes are substantially identical in all material respects, except that (i) the exchange will be registered under the Securities Act and, therefore, the New Notes will not bear legends restricting the transfer of such New Notes, and (ii) holders of the New Notes will not be entitled to any of the registration rights of holders of Old Notes under the Registration Rights Agreement, which rights will terminate upon the consummation of the Exchange Offer. See "Description of New Notes." The New Notes will evidence the same indebtedness as the Old Notes. The New Notes will be issued under and entitled to the benefits of the Indenture pursuant to which the Old Notes were issued such that the New Notes and Old Notes will be treated as a single class of debt securities under the Indenture. As of the date of this Prospectus, $50 million aggregate principal amount at maturity of the Old Notes are outstanding. This Prospectus, together with the Letter of Transmittal, is being sent to all registered holders of the Old Notes. Holders of Old Notes do not have any appraisal or dissenters' rights under the DGCL or the Indenture in connection with the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the provisions of the Registration Rights Agreement and the applicable requirements of the Exchange Act, and the rules and regulations of the Commission thereunder. Old Notes which are not tendered and were not prohibited from being tendered for exchange in the Exchange Offer will remain outstanding and continue to accrue interest and to be subject to transfer restrictions, but will not be entitled to any rights or benefits under the Registration Rights Agreement. Upon satisfaction or waiver of all the conditions to the Exchange Offer, the Company will accept, promptly after the Expiration Date, all Old Notes properly tendered and not withdrawn and will issue New Notes in exchange therefor promptly after acceptance of the Old Notes. For purposes of the Exchange Offer, the Company 25 shall be deemed to have accepted properly tendered Old Notes for exchange when, as and if, the Company has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders for the purposes of receiving the New Notes from the Company. In all cases, issuance of New Notes for Old Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of such Old Notes, a properly completed and duly executed Letter of Transmittal and all other required documents; provided, however, that the Company reserves the absolute right to waive any defects or irregularities in the tender or conditions of the Exchange Offer. If any tendered Old Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if Old Notes are submitted for a greater principal amount at maturity than the holder desires to exchange, such unaccepted or nonexchanged Old Notes or substitute Old Notes evidencing the unaccepted portion, as appropriate, will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. Holders who tender Old Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than certain applicable taxes described below, in connection with the Exchange Offer. See "--Fees and Expenses." EXPIRATION DATE; EXTENSION; AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time, on , 1997 (30 days following the commencement of the Exchange Offer), unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" will mean the latest date and time to which the Exchange Offer is extended. In order to extend the Exchange Offer, the Company will notify the Exchange Agent of any extension by oral or written notice and will mail to the registered holders an announcement thereof, prior to 9:00 a.m., New York City time, on the next business day after the then Expiration Date. The Company reserves the right, in its sole discretion, (i) to delay accepting any Old Notes, to extend the Exchange Offer or to terminate the Exchange Offer if any of the conditions set forth below under "--Conditions" shall not have been satisfied, by giving oral or written notice of such delay, extension or termination to the Exchange Agent or (ii) to amend the terms of the Exchange Offer. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment in a manner reasonably calculated to inform the holders of Old Notes of such amendment. Without limiting the manner in which the Company may choose to make a public announcement of any delay, extension, amendment or termination of the Exchange Offer, the Company shall have no obligation to publish, advertise, or otherwise communicate any such public announcement, other than by making a timely release to an appropriate news agency. INTEREST ON THE NEW NOTES The New Notes will bear interest at the rate of 12% per annum, payable semi- annually in arrears, in cash, on April 1 and October 1 of each year, commencing October 1, 1997. CONDITIONS Notwithstanding any other term of the Exchange Offer, the Company will not be required to exchange any New Notes for any Old Notes, and may terminate or amend the Exchange Offer before the acceptance of any 26 Old Notes for exchange, if: (a) any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the Exchange Offer which seeks to restrain or prohibit the Exchange Offer or, in the Company's judgment, would materially impair the ability of the Company to proceed with the Exchange Offer; or (b) any law, statute, rule or regulation is proposed, adopted or enacted, or any existing law, statute, rule, order or regulation is interpreted, by any government or governmental authority which, in the Company's judgment, would materially impair the ability of the Company to proceed with the Exchange Offer; or (c) the Exchange Offer or the consummation thereof would otherwise violate or be prohibited by applicable law. If the Company determines in its sole discretion that any of these conditions are not satisfied, the Company may (i) refuse to accept any Old Notes and return all tendered Old Notes to the tendering holders, (ii) extend the Exchange Offer and retain all Old Notes tendered prior to the expiration of the Exchange Offer, subject, however, to the rights of holders who tendered such Old Notes to withdraw their tendered Old Notes, or (iii) waive such unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Old Notes which have not been withdrawn. If the Company's waiver constitutes a material change to the Exchange Offer, the Company will promptly disclose such waiver by means of a prospectus supplement that will be distributed to the registered holders, and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the registered holders, if the Exchange Offer would otherwise expire during such five to ten business day period. The foregoing conditions are for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances giving rise to any such condition or may be waived by the Company in whole or in part at any time and from time to time in its sole discretion. The Company's failure at any time to exercise any of the foregoing rights will not be deemed a waiver of any such right, and each such right will be deemed an ongoing right which may be asserted at any time and from time to time. Any determination by the Company concerning the events described above will be final and binding on all parties. NO VOTE OF THE COMPANY'S SECURITYHOLDERS IS REQUIRED TO EFFECT THE EXCHANGE OFFER AND NO SUCH VOTE (OR PROXY THEREFOR) IS BEING SOUGHT HEREBY. PROCEDURES FOR TENDERING Only a holder of Old Notes may tender such Old Notes in the Exchange Offer. To tender in the Exchange Offer, a holder must (i) complete, sign and date the Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal or such facsimile, together with the Old Notes (unless such tender is being effected pursuant to the procedure for book-entry transfer described below) and any other required documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date, or (ii) comply with the guaranteed delivery procedures described below. Delivery of all documents must be made to the Exchange Agent at its address set forth herein. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes, where such Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with the resale of such New Notes. See "Plan of Distribution." The tender of Old Notes by a holder as set forth below will constitute an agreement between such holder and the Company in accordance with the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal. THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS 27 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. In addition, the Company reserves the right in its sole discretion to purchase or make offers for any Old Notes that remain outstanding subsequent to the Expiration Date or, as set forth below under "Conditions," to terminate the Exchange Offer and, to the extent permitted by applicable law, to purchase Old Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers could differ from the terms of the Exchange Offer. By tendering, each holder will represent to the Company that, among other things, (i) the New Notes to be acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of such holder, (ii) such holder has no arrangement or understanding with any person to participate in the distribution (within 28 the meaning of the Securities Act) of the New Notes and (iii) such holder is not an "affiliate," as defined in Rule 405 under the Securities Act, of the Company, or that if it is an "affiliate," it will comply with applicable registration and prospectus delivery requirements of the Securities Act. BOOK-ENTRY TRANSFER Within two business days after the date of this Prospectus, the Exchange Agent will make a request to establish an account with respect to the Old Notes at the book-entry transfer facility for the Old Notes, The Depository Trust Company ("DTC" or the "Depositary"), for purposes of the Exchange Offer. Any financial institution that is a participant in DTC's systems may make book-entry delivery of Old Notes by causing DTC to transfer such Old Notes into the Exchange Agent's account with respect to the Old Notes in accordance with DTC's procedures for such transfer. Although delivery of Old Notes may be effected through book-entry transfer into the Exchange Agent's account at DTC, an appropriate Letter of Transmittal with any required signature guarantee and all other required documents must in each case be transmitted to and received and confirmed by the Exchange Agent at its address set forth below on or prior to the Expiration Date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under such procedures. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Old Notes and (i) whose Old Notes are not immediately available, (ii) who cannot deliver their Old Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to the Expiration Date, or (iii) who cannot complete the procedures for book-entry transfer of Old Notes to the Exchange Agent's account with DTC prior to the Expiration Date, may effect a tender if: (a) The tender is made through an Eligible Institution; (b) On or prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution (by facsimile transmission, mail or hand delivery) a properly completed and duly executed notice of guaranteed delivery substantially in the form provided by the Company (the "Notice of Guaranteed Delivery"), setting forth the name and address of the holder, the certificate number(s) of such Old Notes (if possible) and the principal amount at maturity of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that, within five business trading days after the Expiration Date, (i) the Letter of Transmittal (or facsimile thereof) together with the certificate(s) representing the Old Notes and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent, or (ii) that book-entry transfer of such Old Notes into the Exchange Agent's account at DTC will be effected and confirmation of such book-entry transfer will be delivered to the Exchange Agent; and (c) Such properly completed and executed Letter of Transmittal (or facsimile thereof), as well as the certificate(s) representing all tendered Old Notes in proper form for transfer and all other documents required by the Letter of Transmittal, or confirmation of book-entry transfer of the Old Notes into the Exchange Agent's account at DTC, are received by the Exchange Agent within five business trading days after the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to tender their Old Notes according to the guaranteed delivery procedures set forth above. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To withdraw a tender of Old Notes in the Exchange Offer, the Exchange Agent must receive at its address set forth herein a telegram, telex, facsimile transmission or letter indicating notice of withdrawal prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the 29 name of the person having tendered the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the certificate number or numbers and principal amount at maturity of such Old Notes), (iii) be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Old Notes were tendered (including any required signature guarantees) or be accomplished by documents of transfer sufficient to have the Trustee with respect to the Old Notes register the transfer of such Old Notes into the name of the person withdrawing the tender and (iv) specify the name in which any such Old Notes are to be registered, if different from that of the Depositor. If Old Notes have been tendered pursuant to the procedure for book-entry transfer, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn Old Notes or otherwise comply with DTC's procedures. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no New Notes will be issued with respect thereto unless the Old Notes so withdrawn are validly retendered. Any Old Notes which have been tendered but which are not accepted for payment will be returned to the holder thereof without cost to such holder as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described above under "--Procedures for Tendering" at any time prior to the Expiration Date. UNTENDERED OLD NOTES Holders of Old Notes whose Old Notes are not tendered or are tendered but not accepted in the Exchange Offer will continue to hold such Old Notes and will be entitled to all the rights and preferences and subject to the limitations applicable thereto under the Indenture. Following consummation of the Exchange Offer, the holders of Old Notes will continue to be subject to the existing restrictions upon transfer contained in the legend thereon. In general, the Old Notes may not be offered for resale or resold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Company will have no further obligations to such holders, other than the Initial Purchaser, to provide for the registration under the Securities Act of the Old Notes held by them after the Expiration Date. To the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Old Notes could be adversely affected. EXCHANGE AGENT First Securities Bank, National Association, has been appointed as Exchange Agent of the Exchange Offer. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notices of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: By Mail, Overnight Courier or Hand: First Security Bank, National Association 79 South Main Street Salt Lake City, Utah 84111 Attention: Corporate Trust Department (registered or certified mail recommended) Telephone: 801/246-5630 Facsimile: 801/246-5053 DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. 30 FEES AND EXPENSES The Company will bear the expenses of soliciting tenders. The principal solicitation is being made by mail; however, officers and regular employees of the Company and its affiliates may make additional solicitation by telegraph, facsimile transmission, telephone or in person. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers or others soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The Company will pay the cash expenses to be incurred in connection with the Exchange Offer. Such expenses include registration fees and expenses of the Exchange Agent and Trustee, accounting and legal fees and printing costs, among others. The Company will pay any and all transfer taxes applicable to the exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates representing New Notes or Old Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Old Notes tendered, or if tendered Old Notes are registered in the name of any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Old Notes pursuant to the Exchange Offer, satisfactory evidence of the payment of the amount of any such transfer taxes must be submitted with the Letter of Transmittal (whether imposed on the registered holder or any other person). Certificates representing New Notes will not be issued to such persons until satisfactory evidence of the payment of such taxes, or an exemption therefrom, is submitted. CONSEQUENCES OF FAILURE TO EXCHANGE Upon consummation of the Exchange Offer, holders that were not prohibited from participating in the Exchange Offer and did not tender their Old Notes will not have any registration rights under the Registration Rights Agreement with respect to such nontendered Old Notes and, accordingly, such Old Notes will continue to be subject to the restrictions on transfer contained in the legend thereon as a consequence of the issuance of the Old Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered for resale or resold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Company does not intend to register the Old Notes under the Securities Act. Based on interpretations by the staff of the Commission, as set forth in no-action letters Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley & Co. Incorporated (available June 5, 1991), Mary Kay Cosmetics, Inc. (available June 5, 1991) and Warnaco, Inc. (available October 11, 1991), issued to third parties, the Company believes that a holder who exchanges Old Notes for New Notes pursuant to the Exchange Offer may offer for resale, resell and otherwise transfer such New Notes without compliance with the registration and prospectus delivery requirements of the Securities Act; provided, however, that (i) such New Notes are acquired in the ordinary course of such Holder's business, (ii) such holder is not engaged in, and does not intend to engage in, a distribution of such New Notes and has no arrangement with any person to participate in the distribution of such New Notes, and (iii) such holder is not an affiliate of the Company (as defined under Rule 405 of the Securities Act). However, the staff of the Commission has not considered the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the Commission would make a similar determination with respect to the Exchange Offer as in such other circumstances. A holder who exchanges Old Notes for New Notes pursuant to the Exchange Offer with the intention to participate in a distribution of the New 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 New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must 31 acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." The New Notes may not be offered or sold unless they have been registered or qualified for sale under applicable state securities laws or an exemption from registration or qualification is available and is complied with. The Registration Rights Agreement requires the Company to register the New Notes in any jurisdiction requested by the holders, subject to certain limitations. To the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Old Notes could be adversely affected. OTHER Participation in the Exchange Offer is voluntary and holders should carefully consider whether to accept. Holders of the Old Notes are urged to consult their financial and tax advisors in making their own decisions on what action to take. Upon consummation of the Exchange Offer, holders who were not prohibited from participating in the Exchange Offer and who did not tender their Old Notes will not have any registration rights under the Registration Rights Agreement with respect to such nontendered Old Notes and such Old Notes will continue to be subject to the restrictions on transfer contained in the legend thereon. Accordingly, such Old Notes may not be offered, sold, pledged or otherwise transferred except (i) to a person whom the seller reasonably believes is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act purchasing for its own account or for the account of a qualified institutional buyer in a transaction meeting the requirements of Rule 144A, (ii) in an offshore transaction complying with Rule 904 of Regulation S under the Securities Act, (iii) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available), (iv) pursuant to an effective registration statement under the Securities Act or (v) to the Company and, in each case, in accordance with all other applicable securities laws. ACCOUNTING TREATMENT The New Notes will be recorded in the Company's accounting records at the same carrying value as the Old Notes as reflected in the Company's accounting records on the date of the exchange. Accordingly, the Company will recognize no gain or loss for accounting purposes upon the consummation of the Exchange Offer. The expenses of the Exchange Offer will be amortized over the remaining term of the New Notes. 32 THE COMPANY TWA is the seventh largest U.S. air carrier (based on 1996 RPMs), whose primary business is transporting passengers, cargo and mail. During 1996, the Company carried more than 23.3 million passengers and flew approximately 27.3 billion RPMs. As of May 1, 1997, TWA provided regularly scheduled jet service to 86 cities in the United States, Mexico, Europe, the Middle East, Canada and the Caribbean. As of May 1, 1997, the Company's fleet consisted of 183 active jet aircraft. NORTH AMERICAN ROUTE STRUCTURE TWA's North American operations have a hub-and-spoke structure, with a primarily domestic hub at St. Louis and a domestic-international hub at JFK. The North American system serves 37 states, the District of Columbia, Puerto Rico, Mexico, Canada and the Caribbean. The JFK and St. Louis hub systems are designed to allow TWA to support both its North American and transatlantic connecting flights. In 1996, TWA's North American revenues accounted for approximately 80% of its total revenues. St. Louis TWA is the predominant carrier at St. Louis, with approximately 360 scheduled daily departures serving 74 cities. In 1996, TWA had approximately a 72% share of airline passenger enplanements in St. Louis, while the next largest competitor enplaned approximately 15%. Since 1995, TWA has added service from its St. Louis hub to Jackson, Mississippi, Reno, Nevada, Knoxville, Tennessee, Shreveport, Louisiana, Toronto, Canada and the Mexican resort cities of Cancun, Puerto Vallarta and Ixtapa/Zihuatenejo. JFK TWA serves 28 domestic and international cities from its JFK hub, with approximately 39 daily departures. JFK is both the Company's and the industry's largest international gateway from North America. The Company offers non-stop flights from JFK to 8 cities in Europe and the Middle East as well as 15 destinations in the U.S. and the Caribbean. Commuter Feed TWA coordinates operation of its commuter feed into the Company's hubs at St. Louis and JFK with Trans States Airlines, Inc. ("Trans States"). Trans States, an independently owned regional commuter carrier, currently operates approximately 168 daily flights into St. Louis and 53 flights into JFK. Trans States' operations are coordinated to feed TWA's North American and international flights. Management believes that these commuter operations are an important source of traffic into the Company's domestic and international route networks. INTERNATIONAL ROUTE STRUCTURE TWA's international operations consist of both nonstop and through service from JFK and St. Louis to destinations in Europe and the Middle East. TWA's international operations are concentrated at JFK, where TWA has built a hub system designed to provide domestic traffic feed for its transatlantic service. International cities served include, Barcelona, Cairo, Lisbon, Madrid, Milan, Riyadh, Rome, Tel Aviv from JFK; Paris from JFK and St. Louis; London--Gatwick from St. Louis. On January 13, 1997, as part of its plans to improve the profitability of its international operations, the Company discontinued service on certain European routes, including JFK to Frankfurt and Boston to Paris, as well as non-stop feed service to JFK from several domestic cities. In addition, service to Athens was discontinued on April 18, 1997. In 1996, TWA's international revenues accounted for approximately 20% of total revenues. 33 BUSINESS STRATEGY In 1994, the Company began implementing a strategic repositioning which, in combination with the financial restructuring, cost savings and operating efficiencies achieved as a result of the '95 Reorganization, was designed to improve TWA's overall operating and financial performance. While the Company experienced improvements in its operating performance in 1995 and the first half of 1996 as a result of implementing this strategy, the Company's operating results and cash balances deteriorated significantly during the second half of 1996. Material factors contributing to this deterioration included: (i) an overly aggressive expansion of TWA's capacity and planned flight schedule, particularly during the summer season, which forced the Company to rely disproportionately on lower-yielding feed traffic and bulk ticket sales to fill the increased capacity of its system; (ii) the delayed delivery of four older 747s intended to increase capacity for incremental international summer operations; and (iii) unexpected maintenance delays due to the capacity increase, higher levels of scheduled narrow-body heavy maintenance and increased contract maintenance performed for third parties. These factors caused excessive levels of flight cancellations, poor on-time performance, increased pilot training costs and higher maintenance expenditures. The Company believes that this has adversely affected its unit revenues (principally yields) and costs. In addition, the crash of TWA Flight 800 on July 17, 1996 distracted management's attention from core operating issues and led to lost bookings and revenues. Finally, the Company experienced a 27.6% increase in fuel costs in 1996, driven primarily by a 22.3% increase in the average fuel price paid per gallon during the year. In late 1996, management began to implement a series of actions intended to correct TWA's performance difficulties and refocus the Company's strategy. Steps taken to improve operating integrity included reducing the near-term flight schedule to more closely match available aircraft and terminating an unprofitable aircraft maintenance contract with the U.S. government in order to increase resources available to service TWA aircraft in maintenance backlog. The Company has also begun to restructure its operations at the JFK hub by (i) eliminating certain unprofitable international routes such as JFK to Frankfurt and, as of April 18, 1997, Athens; (ii) eliminating certain low- yielding domestic feed service into JFK; and (iii) consolidating for the near term most of its JFK operations from two terminals into a single terminal in order to reduce operating costs, increase facility utilization and improve passenger service. The Company believes that operating and financial results at JFK will be improved by the Company's recently announced plans to accelerate retirement of its remaining 747 and L-1011 fleets to year-end 1997. Such aircraft will be replaced by smaller, more efficient new or later-model used 757s, 767s and MD80s, which management believes will operate more reliably and be more appropriately sized to the demands of cities served, resulting in higher load factors and improved yields due to less dependence on low-yielding feed traffic. In addition, these newer, twin-engine, two-pilot aircraft should provide efficiencies in fuel, flight crew and maintenance expenses. These actions are designed to improve the Company's financial performance and make its product more competititve to the business segment offering greater yields. Finally, the Company believes that its focus on improving operational integrity and product quality will allow TWA to further leverage its existing hub dominance in St. Louis by attracting a greater share of higher yielding connecting traffic. Management also believes that additional opportunities exist at St. Louis to utilize existing capacity more efficiently and expand service frequency to certain major domestic cities. Management believes that the above actions, initiated and performed during the latter part of 1996 and the first half of 1997, have resulted in improved operational performance and schedule reliability; however, the Company's unit revenues, yields and cash position continue to be adversely affected by the negative impact on consumer demand created by the previous deterioration in operating performance, particularly in the higher-yield business traveler segment of the market. As a result of these factors, the Company's financial performance in the first quarter of 1997 was worse than its performance in the first quarter of 1996, and the Company anticipates that its 1997 second quarter financial performance will be worse than its performance in the second quarter of 1996. The key elements of the Company's ongoing business strategy are outlined below. Route Structure Optimization The Company is optimizing its route structure by redeploying assets to markets in which it believes it has a competitive advantage and limiting its commitments in other markets. 34 Domestically, the Company believes the greatest opportunities for improved operating results will come from focusing additional resources on its St. Louis hub in order to leverage its strong market position. The Company already dominates operations at St. Louis, with approximately 72% of total 1996 enplanements. In addition, the Company enjoys certain advantages in the Midwest due to its established route system, strong brand identity and concentrated presence in that market. Because St. Louis is located in the center of the country, it is well-suited to function as an omni-directional hub for both north-south and east-west transcontinental traffic. Therefore, TWA believes it is better positioned to offer more frequencies and connecting opportunities to many travelers in its key Midwestern markets than competing airlines. To capitalize on these advantages, the Company increased its number of daily departures at St. Louis from 229 in 1993 to 335 in 1996. In addition, beginning in 1995, the Company has consolidated domestic routes in order to strengthen its position further, and has increased service to the north and south with markets to Jackson, Mississippi, Knoxville, Tennessee, Shreveport, Louisiana, Toronto, Canada and the Mexican resort cities of Cancun, Ixtapa/Zihuatenejo and Puerto Vallarta. Internationally, the Company's operations are concentrated at JFK. The Company's strategy is to reduce and streamline international operations to focus on business markets that it believes can support non-stop service and to maximize utilization of the JFK facility. As a result, in 1994 and 1995, the Company eliminated service to several European cities including Berlin, Zurich and Vienna and reduced its service to and from Paris. In the summer of 1996, the Company increased service to several European leisure destinations through the planned addition of four 747 aircraft. In addition, during 1996 the Company increased service from JFK to the Caribbean, Florida and certain other domestic cities to increase utilization of the Company's JFK facility, particularly during off-peak time periods, and to provide feed traffic for its international operations. Implementation of these plans resulted in significant load factor increases and improvement in RASM during the early months of 1996. However, as TWA moved into the peak summer months, delays occurred in the expected delivery of the additional 747 aircraft, requiring daily rescheduling of aircraft and resulting in considerable disruption in the domestic feed schedule. In addition, the crash of TWA Flight 800 on July 17, 1996 diverted management's attention, contributing to additional deterioration of schedule integrity and impacting the public perception of TWA. Management believes that these factors contributed to deterioration in load factor and yield on international and domestic JFK feed flights. In addition, the Company relied disproportionately on lower-yield feed traffic to fill additional wide-body seats. As a result, after an extended series of evaluation sessions with union officials and advisors, the Company embarked on a program in late 1996 to improve yields and load factors, reduce costs and otherwise increase efficiencies by (i) accelerating the replacement of all 747 and L-1011 aircraft with smaller equipment, (ii) reducing low-yield domestic JFK feed service, (iii) limiting or eliminating historically unprofitable international routes and (iv) consolidating most JFK operations for the near term from two terminals into a single terminal. On April 28, 1997, TWA announced it had filed an application with the U.S. Department of Transportation seeking approval of code-share service with Royal Jordanian Airline. The agreement calls for the joint coding of TWA domestic flights between seven U.S. cities and JFK and of Royal Jordanian Airline's direct flights between JFK, Amsterdam and Amman, Jordan. Service is anticipated to begin in late 1997. TWA is exploring the possibility of entering into marketing and code-share alliances with additional foreign carriers. These alliances, if consummated, would allow the Company to provide its passengers with extended service to foreign destinations not served directly by the Company, while feeding TWA's North American operations from these foreign destinations. Fleet Upgrade and Simplification TWA's fleet modernization plans seek to realize operating cost savings by replacing a number of older, less efficient aircraft with more modern, technologically advanced, twin-engine, two-pilot aircraft. New flight equipment acquisition plans initiated in 1996, are intended to achieve a decrease in operating and maintenance costs as the older, heavier maintenance aircraft are phased out and replaced by newer aircraft. The Company's plans contemplate a phase out of two older aircraft types intended to simplify the Company's fleet structure, thereby reducing the number of aircraft types to decrease overall crew training and aircraft maintenance costs 35 (although resulting in increased short-term transition crew training costs). Additional efficiencies should be realized through increased standardization of aircraft parts, supplies and cabin equipment that must be inventoried throughout TWA's system. Despite the higher capital costs associated with owning or leasing new and later model aircraft, the Company believes that corresponding reductions in operating costs should result in a lower overall cost per seat mile. Management believes this initiative offers the potential for greater proportionate benefit to TWA than perhaps any other major U.S. airline. In early 1997, the Company announced plans to accelerate retirement of its 14 remaining 747s (four-engine, 3-pilot wide-body jets with an average age of approximately 25.6 years) and its 11 remaining L-1011s (three-engine, three- pilot wide-body jets with an average age of approximately 22.6 years). These aircraft will be replaced by more efficient twin-engine, two-pilot new or later-model used 757, 767 and MD80 aircraft, which are more appropriately sized to meet the needs of TWA's mid-continent St. Louis hub and smaller JFK operation, thereby reducing the Company's dependence on low-yield feed traffic and bulk ticket sales. Such aircraft should also permit TWA to more effectively utilize its yield management system. In 1996, TWA entered into agreements with a major operating lessor to lease 10 new 757s with deliveries in 1996 and 1997 and with the aircraft manufacturer to purchase an additional 10 new 757 aircraft, with deliveries that commenced in February 1997. The Company also acquired the right, subject to certain conditions, to purchase up to 20 additional new 757 aircraft from the manufacturer. TWA is also in discussions with certain other lessors to lease other aircraft as part of TWA's fleet modernization program. Also in 1996, the Company entered into an agreement with the manufacturer to acquire 15 new MD-83s. The long-term leasing arrangement provides for delivery of the aircraft between the second half of 1997 and 1999. Finally, the Company outfitted thirty of its DC9-30 aircraft with "hush-kits" in order to bring such aircraft into compliance with Stage 3 requirements of the Noise Act. The Company intends to "hush-kit" additional DC9-30, DC9-40 and DC9-50 aircraft in 1997 as the FAA approves hush-kit installations for these aircraft. See "Business--Regulatory Matters-- Noise Abatement." While the Company is seeking financing for certain of its planned capital expenditures, a substantial portion of such expenditures is expected to utilize internally generated funds. The inability to finance or otherwise fund such expenditures could materially adversely affect the ability of the Company to implement its strategic plan. See "Risk Factors--Risk Factors Related to the Company--Substantial Indebtedness; Capital Expenditure Requirements; Liquidity." Customer Service; Travel Agent Commissions In recent years, the Company has focused on improving the quality of its air travel product and the service provided to passengers by TWA personnel. TWA has undertaken a number of service initiatives which it believes had begun building brand loyalty and increasing among existing customers its market share of value-conscious business travelers and price-conscious leisure travelers. In 1996, however, the Company's operating difficulties described elsewhere herein caused increased flight cancellations, poor on-time performance and a general deterioration in product quality. The crash of TWA Flight 800 also had a negative impact on the public perception of TWA. The Company believes that the steps taken to restore operating integrity will result in improvements in TWA's product quality and customer service. Ongoing initiatives include: Focus on Business Traveler. Based on customer research, the Company has targeted value-conscious business travelers and is therefore tailoring its marketing and advertising efforts to emphasize the Company's positioning as a full-service, high-value airline providing service to popular business destinations throughout the U.S. The Company believes that its convenient flight schedules and connections, as well as its centrally located hub at St. Louis, are important in providing service which is attractive to these travelers. The Company also offers its Frequent Flight Bonus ("FFB"(R)) program in order to build customer loyalty among business travelers. In March 1995, TWA began implementation of Trans World One SM ("Trans World One") service in international and transcontinental non-stop markets. Trans World One is aimed at attracting business travelers by providing improved premium class service at fares comparable to its competitors' business class service. To implement Trans World One, TWA converted its wide-body fleet of Boeing 747 and 767 aircraft from a traditional three-class configuration to a two-class configuration, with a special emphasis on improvements to the 36 premium class cabin, including new seats with increased recline capability and enhanced meal service and wine selections. Leisure Traveler. Within the leisure travel market, TWA has positioned itself as a high-quality, low-fare carrier. Management believes that based upon TWA's lower costs and its extensive off-peak flight schedule, the Company is in a strong position to compete for price-conscious leisure travelers who seek a full-service product at prices competitive with other carriers offering "no-frills" service. To capitalize on its strengths in this area, the Company's marketing and advertising efforts targeted at this segment will continue to emphasize TWA's quality image and strong name recognition together with the airline's broad route network serving popular leisure destinations. The Company has recently commenced service to additional leisure destinations in Mexico and the Caribbean, and has entered into marketing agreements with a number of major international tour packagers. Travel Agent Commissions. TWA pays the full traditional 10% commission on tickets for domestic transportation on TWA sold by independent travel agents and has removed the cap of $50 and $25 per domestic round-trip and one-way tickets, respectively, which it and most other major airlines imposed in 1995. Although the Company can not quantify the current or potential future impact of this decision, the Company believes the payment of full commissions is a positive factor in the Company maintaining and improving its long-term relationships with such travel agents. See "Business--Travel Agencies--Travel Agent Commissions." Labor Relationship Management believes TWA has a generally cooperative relationship with its employees, including employees represented by trade unions. At various times, the Company's employees have demonstrated significant loyalty and commitment to TWA's future by, among other things, agreeing to various wage and work rule concessions to improve productivity in connection with the '93 and '95 Reorganizations. As a result of these agreements (i) the Company's employees received approximately 30% of the voting equity of TWA outstanding immediately following the '95 Reorganization and (ii) certain corporate governance provisions were effected, including provision of the right of employees represented by ALPA, the IAM and IFFA, who then together constituted approximately 84% of TWA's total employees, to elect four of the Company's 15 directors. On March 6, 1997, the IAM assumed representation of the Company's flight attendants formerly represented by IFFA, and IFFA was decertified. Union and non-union employees are also eligible under the ESIP to increase their level of stock ownership through grants and purchases of additional shares over a five year period commencing in 1997. For information concerning the ESIP, see "Business--Employees." Each of the Company's union contracts becomes amendable after August 31, 1997, and negotiations have begun with respect to two of the contracts. While management believes that the negotiation process for the new contracts will result in extended contracts mutually satisfactory to the parties, there can be no assurances as to the ultimate timing or terms of any such new contracts. As the Company's financial resources are not as great as those of most of its competitors, any substantial increase in its labor costs as a result of any new labor agreements or any cessation or disruption of operations due to any strike or work action could be particularly damaging to the Company. The Company believes that the status of its employees as substantial stockholders and participants in corporate governance and the Company's efforts to involve employees in developing and achieving the Company's goals will result in continued dedication to the efforts to improve the Company's financial and operational performance. As part of the Company's efforts to foster employee participative management concepts throughout the organization, several employee-led initiatives were begun in 1994 and continue to be developed and implemented. For example, the Company's Productivity Task Force, is designed to focus upon broader cost savings opportunities and is comprised of both labor and management members. Such initiatives are supported by the Management/Labor Advisory Task Force, consisting of union leaders, the Chairman and Chief Executive Officer and other senior officers of the Company. This task force meets monthly to discuss these and other initiatives to demonstrate joint commitment to reengineering efforts. 37 Investment in Technology Management believes significant opportunities exist for the Company to increase revenues and reduce costs by investing in available technology that provides the Company and its employees with the information necessary to operate its business more effectively and to improve customer service. The Company has recently taken a significant step forward in this area by installing a new computerized yield management system. The need to build a historic database for such yield management system has delayed full realization of benefits expected from such system; however, later in 1997 when such database is more complete, this system is expected to allow the Company to improve significantly its ability to estimate demand flight-by-flight for each class of fares and manage the allocation of seats accordingly. Given TWA's prior lack of a computerized yield management system, the Company's management believes that full implementation of this new system will offer significant opportunities for revenue improvement. In 1996, the Company implemented a "QIK-Res" system at its reservation center in Norfolk, Virginia. QIK-Res is a front-end reservations software program designed to improve customer service. Management believes the system has demonstrated its effectiveness at Norfolk and intends to pursue the possibility of extending the system to its reservation centers in Los Angeles and Chicago. Cost and Efficiency Initiatives Management believes that maintaining a low cost structure is crucial to the Company's business strategy. TWA's airline operating cost per ASM (adjusted for subsidiaries, restructuring and earned stock contributions) increased from 8.12c in 1995 to 8.76c in 1996 and 9.86c in the first quarter of 1997. The primary contributors to these increases were increases in fuel rates, maintenance costs and costs associated with flight crew training. Despite these increases, management believes that TWA's operating costs remain below the average of the six largest full service carriers. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company intends to continue to pursue, among other things, route optimization, increased labor efficiencies, fleet modernization and rationalization, and investment in technological advances in order to improve operating results. The Company has also increased to 12 the number of "banks" of flights operating into its St. Louis hub to increase further the utilization of its aircraft. TWA has installed a new ticketless system and will begin testing automatic ticket machines in selected markets in the second quarter of 1997. In mid-1996, the Company initiated programs allowing customers to book reservations directly via on-line network systems, and during the second quarter of 1997, TWA began to provide bookings via the Internet. It is expected that distribution costs will be reduced as travelers use these on- line booking vehicles and ticketless systems. In addition, TWA is implementing a number of programs to reduce computer reservation systems booking fees, both internally and from travel agents. Such booking fees are separate transaction fees that are paid in addition to any travel agent commission. TWA will continue to explore other opportunities to reduce costs and improve efficiency in the areas of aircraft maintenance, airport operations, purchasing, distribution, ticket delivery, food service, cargo delivery operations and administrative functions. CORPORATE REORGANIZATIONS During the early 1990s, the U.S. airline industry, including the Company, experienced unprecedented losses, which were largely attributable to, among other things, the Persian Gulf War (which caused a substantial increase in fuel costs and reduction in travel demand due to concerns over terrorism), recessions in the United States and Europe, and significant industry-wide fare discounting resulting from another U.S. airline's attempt to introduce a new pricing structure into the domestic airline business. In addition, TWA had incurred significant debt as a result of the leveraged acquisition in 1986 of a controlling interest in the Company by Mr. Icahn. The substantial losses sustained by the Company during this period, coupled with the Company's excessive debt obligations, made it necessary for TWA to restructure its debt obligations and equity, lower its labor costs and severely reduce its capital outlays. '93 Reorganization On November 3, 1993 (the " '93 Effective Date"), TWA emerged from the protection of Chapter 11 of the United States Bankruptcy Code pursuant to a bankruptcy case filed on January 31, 1992. During the pendency of 38 the '93 Reorganization, the Company (i) negotiated, effective September 1, 1992, a series of three-year concession agreements with its unions providing for, among other things, a 15% reduction in wages and benefits and certain work-rule concessions designed to reduce costs substantially (the " '92 Labor Agreements"), (ii) obtained confirmation of a reorganization plan which eliminated more than $1 billion of debt and lease obligations, and (iii) reached a settlement with the Pension Benefit Guaranty Corporation (the "PBGC") with respect to the Company's underfunded pension plan obligations. During the pendency of the '93 Reorganization, the Icahn Entities released their claims against and interests in TWA and Mr. Icahn resigned as Chairman of the Board of Directors and as an officer of TWA. The Icahn Entities (as defined) also agreed to provide up to $200 million of financing pursuant to the Icahn Loans (as defined) (see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Legal Proceedings--Icahn Litigation"). '95 Reorganization Notwithstanding the reduction in levels of debt and obligations achieved through the '93 Reorganization, the Company emerged from the '93 Reorganization in a too highly leveraged position and, despite progress in increasing revenues and reducing costs, continued to experience significant operating losses. With the hiring of a new management team in 1994, the assumptions underlying the Company's operating plans, upon which its ability to service its post '93 Reorganization obligations depended, were recognized as unrealistic and unachievable. As a consequence, the Company was forced to seek a second financial restructuring. In the second quarter of 1995, the Company solicited and received sufficient acceptances to effect the proposed "prepackaged" plan of bankruptcy. Therefore, on June 30, 1995, the Company filed a prepackaged Chapter 11 plan of reorganization, which with certain modifications was confirmed by the United States Bankruptcy Court in St. Louis (the "Bankruptcy Court") on August 4, 1995. On August 23, 1995, approximately eight weeks after filing the prepackaged Chapter 11 plan, the '95 Reorganization became effective and the Company emerged from the protection of this second Chapter 11 proceeding. In connection with the '95 Reorganization, the Company (i) exchanged certain of its then outstanding debt securities for a combination of newly issued 12% Preferred Stock, Common Stock, warrants and rights to purchase Common Stock, and debt securities, (ii) converted its then outstanding preferred stock to shares of Common Stock, warrants and rights to purchase Common Stock, (iii) obtained certain short-term lease payment and conditional sale indebtedness deferrals amounting to approximately $91 million and other modifications to certain aircraft leases; and (iv) obtained an extension of the term of the approximately $190 million principal amount of the Icahn Loans. The Company also (i) effected a reverse stock split of its then outstanding common stock and exchanged such shares for Common Stock; (ii) raised approximately $52 million through an equity rights offering; (iii) distributed certain warrants to its then current equity holders; and (iv) implemented certain amendments to the Certificate of Incorporation relating to the recapitalization and various corporate governance matters. In connection with and as a precondition to the '95 Reorganization, in August and September of 1994, the Company entered into the '94 Labor Agreements, amending existing collective bargaining agreements, with the IAM, ALPA and IFFA, the three labor unions who then represented approximately 84% of the Company's employees. The '94 Labor Agreements provided for an extension of certain previously agreed wage concessions, modifications to work rules and the deletion of certain provisions of the then existing labor agreements, including elimination of so-called snapbacks, i.e., the automatic restoration of wage reductions granted in such agreements at the end of their term to levels that prevailed prior to the concessionary agreement. During 1994 and 1995, the Company also implemented a number of similar cost savings initiatives with respect to domestic non-union and management employees, primarily through reducing head count, altering benefit packages, and continuing wage reductions which had been scheduled to expire. See "Business-- Employees." ---------------- TWA is a Delaware corporation organized in 1978 and is the successor to the business of its predecessor corporation, Transcontinental & Western Air, Inc., originally formed in 1934. The Company's principal executive offices are located at One City Centre, 515 N. Sixth Street, St. Louis, Missouri 63101 and its telephone number is (314) 589-3000. 39 MARKET FOR COMMON STOCK AND DIVIDEND POLICY On August 23, 1995, all of the Company's previously outstanding equity securities were canceled and certificates with respect thereto thereafter evidenced only the right to receive Common Stock and the other consideration specified in the '95 Reorganization. Also pursuant to the '95 Reorganization, holders of certain debt securities of the Company received shares of Common Stock. Information regarding the trading price range of pre-'95 Reorganization common stock is not comparable with data provided for the Common Stock and is not included in this Offering Memorandum. For information concerning the '95 Reorganization, see "The Company--Corporate Reorganizations." The Common Stock is listed for trading on the American Stock Exchange. The following table sets forth the range of high and low prices for shares of the Common Stock (as reported in The Wall Street Journal) for the periods indicated:
PERIOD HIGH LOW ------ ------- ------ 1995 Third Quarter (August 23 through September 30).............. $ 8.000 $5.313 Fourth Quarter (October 1 through December 31).............. 14.625 6.500 1996 First Quarter............................................... 20.500 9.125 Second Quarter.............................................. 23.625 14.125 Third Quarter............................................... 15.125 8.125 Fourth Quarter.............................................. 9.688 6.500 1997 First Quarter............................................... 8.125 5.750 Second Quarter (through June 25, 1997)...................... 6.125 10.188
Since 1978, the Company has not paid any cash dividends on any of its common stock. The Company currently plans to retain all earnings to finance its business and to reduce its leverage rather than paying cash dividends on the Common Stock. Payments of any cash dividends in the future will depend on the financial condition, results of operations and capital requirements of TWA as well as other factors deemed relevant by its Board of Directors, including applicable restrictions in various agreements relating to indebtedness. 40 CAPITALIZATION The following table sets forth the capitalization of the Company as of March 31, 1997. This information should be read in conjunction with the Consolidated Financial Statements appearing elsewhere in this Prospectus.
MARCH 31, 1997 ---------------------- (DOLLARS IN THOUSANDS) Long-term debt and capital lease obligations (net of unamortized discounts and including current maturities)(1): 12% Senior Secured Notes due 2002..................... $ 42,500 12% Senior Secured Reset Notes due 1998............... 103,526 8% IAM Backpay Notes.................................. 12,388 PBGC Notes............................................ 200,384 Icahn Loans........................................... 104,522 Various secured notes, 4.0% to 12.4%, due 1997-2001... 68,376 Installment Purchase Agreements, 10.00% to 10.53%, due 1997-2003............................................ 105,644 IRS Deferral Note..................................... 8,708 Predelivery Financing Agreement....................... 54,164 WORLDSPAN Note........................................ 31,224 Capital lease obligations............................. 252,075 ---------- Total long-term debt and capital lease obligations.. 983,511 ---------- Shareholders' equity: Preferred Stock, $0.01 par value; 137,500,000 shares authorized: 8% Preferred Stock, 3,869,000 shares authorized and 3,869,000 shares issued and outstanding and as adjusted............................................. 39 Employee Preferred Stock; 6,425,118 shares authorized; 5,659,412 shares issued and outstanding and as adjusted(2).......................................... 57 Common Stock, $0.01 par value; 150,000,000 shares authorized; 44,083,266 shares issued and outstanding and as adjusted(3)................................... 441 Additional paid-in capital............................ 571,799 Accumulated deficit................................... (386,517) ---------- Total shareholders' equity.......................... 185,819 ---------- Total capitalization.............................. $1,169,330 ========== Debt to Equity Ratio.................................... 5.29 to 1
- -------- (1) Current maturities of long-term debt and capital lease obligations at March 31, 1997 were $81.2 million and $41.0 million, respectively. (2) Comprised of 3,656,576 shares of the Company's IAM Preferred Stock, par value $0.01 per share, 881,880 shares of the Company's IFFA Preferred Stock, par value $0.01 per share, and 1,120,956 shares of the Company's ALPA Preferred Stock, par value $0.01 per share, distributed and allocated to employees through employee stock ownership plans for the benefit of employees represented by IAM, IFFA and ALPA. Pursuant to the '95 Reorganization, a trust was established to receive the distribution of the aggregate of 1,721,764 shares of ALPA Preferred Stock. It is contemplated that such trust will distribute to the employee stock ownership plan for the benefit of ALPA employees one-third of the ALPA shares annually over a three-year period. The first and second distributions of 573,921 shares of ALPA Preferred Stock from the trust occurred in August 1995 and August 1996, respectively. See "Description of Capital Stock--Employee Preferred Stock." (3) On March 31, 1997, the Company had 44,083,266 shares of Common Stock outstanding which did not include (i) approximately 6.3 million shares of Common Stock initially reserved for issuance upon exercise of the Warrants, (ii) approximately 9.5 million shares of Common Stock reserved for issuance upon conversion of the 8% Preferred Stock, (iii) approximately 3.1 million shares of Common Stock which may be issued upon exercise of outstanding stock options granted to officers and employees of the Company under the KESIP at prices ranging from $4.64 to $18.37 per share and Common Stock issuable upon the exercise of warrants, or (iv) shares of Common Stock which may be granted or sold at a discount to employees under the ESIP. See Notes 11 and 12 to the Consolidated Financial Statements and "Risk Factors--Risk Factors Related to the Company--Corporate Governance Provisions; Special Voting Arrangements." 41 SELECTED CONSOLIDATED FINANCIAL DATA The selected financial data presented below relate to periods in the year ended December 31, 1992, the ten months ended October 31, 1993, the two months ended December 31, 1993, the year ended December 31, 1994, the eight months ended August 31, 1995, the four months ended December 31, 1995, the year ended December 31, 1996 and the three months ended March 31, 1996 and 1997. This data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements. The consolidated financial data for periods in the year ended December 31, 1992, the ten months ended October 31, 1993, the two months ended December 31, 1993, the year ended December 31, 1994, the eight months ended August 31, 1995, the four months ended December 31, 1995 and the year ended December 31, 1996 were derived from the audited consolidated financial statements of the Company. Certain amounts have been reclassified to conform with presentations adopted in 1996. See "Risk Factors--Risk Factors Related to the Company--Substantial Indebtedness; Capital Expenditure Requirements; Liquidity" for a description of the auditor's report issued in connection with the 1996 Consolidated Financial Statements. During the period from 1992 through 1995, TWA underwent two separate Chapter 11 reorganizations, the first in 1992-93 and the second in 1995. In connection with the '95 Reorganization, TWA has applied fresh start reporting in accordance with SOP 90-7, which has resulted in the creation of a new reporting entity for accounting purposes and the Company's assets and liabilities being adjusted to reflect fair values on August 23, 1995, the effective date of the '95 Reorganization (the "'95 Effective Date"). For accounting purposes, the '95 Effective Date is deemed to be September 1, 1995. Because of the application of fresh start reporting, the financial statements for periods after the '95 Reorganization are not comparable in all respects to the financial statements for periods prior to the reorganization. Similarly, the Consolidated Financial Statements for the periods prior to the '93 Reorganization are not consistent with periods subsequent to the '93 Reorganization. Accordingly, a vertical black line separates these periods. Preferred stock dividend requirements and earnings per share of the predecessor companies have not been presented as the amounts are not meaningful.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) PRIOR PREDECESSOR COMPANY PREDECESSOR COMPANY REORGANIZED COMPANY -------------------------------------- -------------------------------------- -------------------------------- TEN MONTHS TWO MONTHS EIGHT MONTHS FOUR MONTHS THREE MONTHS ENDED YEAR ENDED ENDED ENDED YEAR ENDED ENDED ENDED YEAR ENDED MARCH 31, DECEMBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31, DECEMBER 31, ------------------- 1992 1993 1993 1994 1995 1995 1996 1996 1997 ------------ ----------- ------------ ------------ ------------ ------------ ------------ -------- --------- STATEMENT OF OPERATIONS DATA: Operating revenues........ $3,618,661 $2,633,937 $520,821 $3,407,702 $2,218,355 $1,098,474 $3,554,407 $782,433 $ 762,306 Operating income (loss) (1)...... (420,432) (225,729) (58,251) (279,494) 14,642 10,446 (198,527) (54,191) (99,486) Loss before income taxes and extraordinary items (2)....... (314,292) (362,620) (88,140) (432,869) (338,309) (32,268) (274,577) (74,278) (105,193) Provision (credit) for income taxes.... 3,361 1,312 (248) 960 (96) 1,370 450 (37,171) (35,161) Loss before extraordinary items........... (317,653) (363,932) (87,892) (433,829) (338,213) (33,638) (275,027) (37,107) (70,032) Extraordinary items (3)....... -- 1,075,581 -- (2,005) 140,898 3,500 (9,788) -- (1,532) Net income (loss).......... (317,653) 711,649 (87,892) (435,834) (197,315) (30,138) (284,815) (37,107) (71,564) Preferred stock dividend requirements (4)............. 4,751 36,649 23,998 (3,869) Loss applicable to common shares.......... (34,889) (321,464) (61,105) (75,433) Per share amounts (5): Loss before extraordinary items and special dividend requirement.... $ (1.15) (6.60) $ (.98) $ (1.51) Extraordinary item........... .10 (.22) -- -- Special dividend requirement-- redemption of 12%......... Preferred Stock (4)............ -- (.45) (.48) (.03) Net loss........ (1.05) (7.27) (1.46) (1.54) Ratio of earnings to fixed charges (6).... -- -- -- -- -- -- --
(See notes on following page) 42
PRIOR PREDECESSOR COMPANY PREDECESSOR COMPANY REORGANIZED COMPANY ----------- ----------------------- ----------------------------------- DECEMBER 31, ------------------------------------ DECEMBER 31, DECEMBER 31, MARCH 31, 1992 1993 1994 1995 1996 1997 ----------- ---------- ----------- ------------ ------------ --------- BALANCE SHEET DATA: Cash and cash equivalents..... $ 67,885 $ 187,717 $ 138,531 $ 304,340 $ 181,586 $ 136,522 Current assets... 602,007 706,462 577,735 715,647 586,442 596,694 Net working capital (deficiency).... (316,165) (150,744) (1,286,487) (124,446) (404,150) (487,745) Flight equipment, net............. 827,747 660,797 508,625 455,434 472,495 468,619 Total property and equipment, net............. 1,114,345 886,116 693,045 600,066 614,207 633,020 Intangible assets, net..... -- 1,024,846 921,659 1,275,995 1,184,786 1,166,355 Total assets..... 2,158,143 2,958,862 2,512,435 2,868,211 2,681,939 2,741,091 Current maturities of long-term debt and capital leases (7)...... 327,251 108,345 1,149,739 110,401 134,948 122,208 Liabilities subject to Chapter 11 reorganization proceedings (8). 2,026,895 -- -- -- -- -- Long-term debt, less current maturities (7).. -- 1,053,644 -- 764,031 608,485 650,223 Long-term obligations under capital leases, less current maturities...... -- 376,646 339,895 259,630 220,790 211,080 Shareholders' equity (deficiency) (9)............. (1,149,733) 18,358 (417,476) 302,855 238,105 185,819
- -------- (1) Includes special charges of $138.8 million in 1994, $1.7 million in the eight months ended August 31, 1995 and $85.9 million in 1996. For a discussion of these and other non-recurring items, see Note 16 to the 1996 Consolidated Financial Statements. (2) The 1992 results include non-recurring gains of $254.6 million from the disposition of assets. The ten months ended October 31, 1993 includes a charge of $342.4 million related to the settlement of pension obligations and income of $268.1 million related to reorganization items. The eight months ended August 31, 1995 includes charges of $242.2 million related to reorganization items. (3) The extraordinary item in 1993 represents the gain on discharge of indebtedness pursuant to the consummation of the '93 Reorganization. The extraordinary item in 1994 represents the charge for a prepayment premium related to the sale and leaseback of four McDonnell Douglas MD-80 aircraft. The extraordinary item in the eight months ended August 31, 1995 represents the gain on the discharge of indebtedness pursuant to the consummation of the '95 Reorganization, while the extraordinary item in the four months ended December 31, 1995 was the result of the settlement of a debt of a subsidiary. The extraordinary items in 1996 and 1997 result from the early extinguishment of certain debt. (4) On March 22, 1996, the Company called for redemption of all of its outstanding 12% Preferred Stock. The excess of the early redemption price over the carrying value of the 12% Preferred Stock is reflected as a $20.0 million "special dividend requirement" in 1996. (5) No effect has been given to stock options, warrants or potential issuances of additional Employee Preferred Stock as the impact would have been anti-dilutive. (6) For purposes of determining the ratio of earnings to fixed charges, "earnings" consist of earnings before income taxes, extraordinary items and fixed charges (excluding capitalized interest) and "fixed charges" consist of interest (including capitalized interest) on all debt and that portion of rental expense that management believes to be representative of interest. Earnings were not sufficient to cover fixed charges as follows (in millions): for the three months ended March 31, 1997 and 1996, $107.0 million and $74.9 million, respectively; for the year ended December 31, 1996, $280.0; for the four months ended December 31, 1995, $32.3; for the eight months ended August 31, 1995, $338.3; for the year ended December 31, 1994, $435.0; for the two months ended December 31, 1993, $88.4; for the ten months ended October 31, 1993, $364.7; and for the year ended December 31, 1992, $317.4. (7) Long-term debt in 1994 was reclassified to current maturities as a result of certain alleged defaults and payment defaults. See Note 7 to the 1995 Consolidated Financial Statements. (8) For periods after January 31, 1992 and before the effective date of the '93 Reorganization, certain prepetition liabilities, which were subject to compromise pursuant to the '93 Reorganization, were classified as liabilities subject to Chapter 11 reorganization proceedings, and the accrual of interest was discontinued on prepetition debt that was unsecured or estimated to be undersecured. (9) No dividends were paid on the Company's outstanding common stock during the periods presented above. 43 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS During the period from 1992 through 1995, TWA underwent two separate Chapter 11 reorganizations, the first in 1992-93 and the second in 1995. In connection with the '95 Reorganization, TWA has applied fresh start reporting in accordance with SOP 90-7 which has resulted in the creation of a new reporting entity for accounting purposes and the Company's assets and liabilities being adjusted to reflect fair values on the '95 Effective Date. A description of the adjustments to financial statements arising from consummation of the '95 Reorganization and the application of fresh start reporting is contained in Note 19 to the Consolidated Financial Statements. For accounting purposes, the '95 Effective Date is deemed to be September 1, 1995. Because of the application of fresh start reporting, the financial statements for periods after the '95 Reorganization are not comparable in all respects to the financial statements for periods prior to the reorganization. Similarly, the Consolidated Financial Statements for the periods prior to the '93 Reorganization are not consistent with periods subsequent to the '93 Reorganization. As discussed below under "--Liquidity and Capital Resources," pursuant to the '95 Reorganization, the Company initially improved its financial condition and operating performance by, among other things, reducing labor and other operating and financing costs, rescheduling debt payments, recapitalizing the Company's equity securities and certain of its debt, revising the Company's route structure to capitalize further on its strength in St. Louis, and developing enhanced marketing systems. Pursuant to the '95 Reorganization, the Company eliminated approximately $500 million in face amount (approximately $300 million book value) of debt from its balance sheet. In addition, the final maturity of the Icahn Loans was extended from January 8, 1995 to January 8, 2001, and the Company negotiated an aggregate of $91 million of aircraft lease and conditional sale agreement deferrals for various periods of time, with a weighted average life of approximately two years. Through the second quarter of 1996 the Company experienced improvements in its operating performance as operating income increased to $7.8 million in the six months ended June 30, 1996, as compared to an operating loss of $21.9 million in the same period of 1995. However, beginning in the third quarter of 1996, the Company's operating performance substantially deteriorated as the Company's operating profit for the third quarter, typically the strongest period of the year, declined to $26.0 million in the three months ended September 30, 1996, as compared to a combined operating profit (excluding special charges and earned stock compensation charges aggregating $57.9 million) of $103.7 million in the comparable period of the prior year. The results for the fourth quarter of 1996 evidenced a further acceleration of this deterioration as the Company reported an operating loss (excluding special charges aggregating $85.9 million) of $146.5 million, as compared to operating income of $1.1 million in the same period of 1995. In the second half of 1996, the Company's revenues increased only 2.4% while capacity measured in ASMs increased by 6.9%, as compared to the second half of 1995. Operating costs, excluding earned stock compensation and special charges, increased 16.0% over this same period. The most significant increases were: salaries, wages and benefits ($82.4 million), which reflected the increased number of employees, wage rate increases and additional overtime costs; fuel ($69.4 million), reflecting significantly higher units costs and increased usage; and maintenance costs. Notwithstanding the actions taken and planned by management to improve the Company's future operating results as described below, the Company's first quarter 1997 operating loss significantly exceeded that reported in the first quarter of 1996. In light of deterioration in the Company's operating results, in late 1996 management began to refocus and accelerate certain aspects of the Company's business strategy, including its fleet modernization and consolidation plan, route structure and facility improvements and efficiencies. Management believes that such operating results in late 1996 and early 1997 were adversely affected by an overly aggressive increase in capacity, which when combined with unexpected maintenance delays and related costs, negatively impacted schedule reliability resulting in excessive levels of flight cancellations and deterioration in its on-time performance. The Company believes that this adversely affected, and continues to affect, its unit revenues (principally yields) and costs. In response to these issues, management has taken action to accelerate the phase out of all 747 and L-1011 aircraft, reduce low-yield domestic JFK feed service, curtail and/or eliminate historically unprofitable international routes and consolidate for the near term most of its JFK operations into a single terminal. The above actions are designed to improve the Company's operational performance and make its product more competitive to the business segment which offers higher yields. The Company has also curtailed the amount of contract maintenance services provided to third parties and redeployed those resources to 44 TWA's aircraft. In connection with the above described plans, management has announced a comparable reduction in employee headcount. Management may undertake further actions to reduce costs which may result in additional reductions of the number of employees. Management believes that the above actions, initiated and performed during the latter part of 1996 and the first half of 1997, have resulted in improved operational performance and schedule reliability; however, the Company's unit revenues, yields and cash position continue to be adversely affected by the negative impact on consumer demand created by the previous deterioration in operating performance, particularly in the higher-yield business traveler segment of the market. As a result of these factors, the Company's financial performance in the first quarter of 1997 was worse than its performance in the first quarter of 1996, and the Company anticipates that its 1997 second quarter financial performance will be worse than its performance in the second quarter of 1996. GENERAL The airline industry operates in an intensely competitive environment. The industry is also cyclical due to, among other things, a close relationship of yields and traffic to general U.S. and worldwide economic conditions. Small fluctuations in RASM and cost per ASM can have a significant impact on the Company's financial results. The Company has experienced significant losses (excluding extraordinary items) on an annual basis since the early 1990s, except in 1995 when the Company's combined operating profit was $25.1 million. Factors contributing to these losses included, among other things, excess financial leverage; adverse publicity associated with the Company's financial difficulties; excessive labor costs; the periods of a relatively weak economy, which resulted in weak air travel demand; poor operating performance; domestic pricing policies of other airlines, which decreased industry revenue yields and generated intense competition; and volatility in jet fuel costs. The Company's ability to improve its financial position and meet its financial obligations will depend upon a variety of factors, including; significantly improved operating results, favorable domestic and international airfare pricing environments, absence of adverse general economic conditions, more effective operating cost controls and efficiencies, and the Company's ability to attract new capital and maintain adequate liquidity. No assurance can be given that the Company will be successful in generating the operating results or attracting new capital required for future viability. The '94 Labor Agreements become amendable after August 31, 1997. While the Company cannot predict the precise wage rates that will be in effect at such time (since such rates will be determined by subsequent events), the wage rates then in effect will likely increase. However, management believes that it is essential that the Company's labor costs remain favorable in comparison to its largest competitors. See "Business--Business Strategy." The Company will seek to continue to improve employee productivity as an offset to any wage increases and will continue to explore other ways to control and/or reduce operating expenses. There can be no assurance that the Company will be successful in obtaining such productivity improvements or unit cost reductions. In the opinion of management, the Company's financial resources are not as great as those of most of its competitors, and therefore, any substantial increase in its labor costs as a result of any new labor agreements or any cessation or disruption of operations due to any strike or work action could be particularly damaging to the Company. As a result of the application of fresh start reporting as of the '95 Effective Date, substantial values were assigned to routes, gates and slots ($458.4 million) and reorganization value in excess of amounts allocable to identifiable assets ($839.1 million). The Company has evaluated its future cash flows and, not withstanding the operating loss experienced since the '95 Effective Date, expects that the carrying value of the intangibles at December 31, 1996 will be recovered. However, the achievement of such improved future operating results and cash flows are subject to considerable uncertainties. In future periods these intangibles will be evaluated for recoverability based upon estimated future cash flows. If expectations are not substantially achieved, charges to future operations for impairment of those assets may be required and such charges could be material. 45 There are a number of uncertainties relating to agreements with employees, the resolution of which could result in charges to future operating results of the Company. Shares granted or purchased at a discount under the ESIP will generally result in a charge equal to the fair value of shares granted and the discount for shares purchased at the time when such shares are earned. If the ESIP's target prices for the Common Stock are realized, the minimum aggregate charge for the years 1997 to 2002 would be approximately $58 million based upon such target prices and the number of shares of Common Stock and Employee Preferred Stock outstanding at December 31, 1996. The charge for any year, however, could be substantially higher if the market price of the Common Stock exceeds the target price for such year ($11.00, $12.10, $13.31, $14.64, $16.11 and $17.72 for the respective years 1997 to 2002). The allocation of approximately 570,000 shares of Employee Preferred Stock issued to a trust for employees represented by ALPA pursuant to the '95 Reorganization will also, when allocated to individual employees so represented in August 1997, result in a charge equal to the fair market value of the shares on the dates allocated. Pursuant to the '92 Labor Agreements, the Company agreed to pay to employees represented by the IAM a cash "bonus' for the amount by which overtime incurred by the IAM from September 1992 through August 1995 was reduced below specified thresholds. This amount was to be offset by the amount by which medical savings during the period for the same employees did not meet certain specified levels of savings. The obligation is payable in three equal annual installments beginning in 1998. The Company has estimated the net overtime bonus owed to the IAM to be approximately $26.3 million and has reflected this amount as a noncurrent liability on the accompanying balance sheets. Such amount reflects a reduction of approximately $10 million pursuant to an agreement to reduce proportionately the obligation based upon the size of the reduction of indebtedness achieved by the '95 Reorganization. The IAM, while not providing a calculation of its own, has disputed the method by which management has computed the net overtime bonus and has indicated that they believe the amount due to the IAM is much greater than the amount which has been estimated by management. In addition, in connection with certain wage increases afforded to non- contract employees, employees previously represented by the IFFA have asserted and won an arbitration ruling that, if sustained, would require that the Company provide additional compensation to such employees. The Company estimates that at December 31, 1996 such additional compensation would aggregate approximately $6 million. The Company denies any such obligation and intends to pursue an appeal of the arbitration ruling. As such, no liability has been recorded by the Company at December 31, 1996. In connection with the '95 Reorganization, the Company entered into a letter agreement with employees represented by the ALPA whereby if the Company's flight schedule, as measured by block hours, does not exceed certain thresholds a defined cash payment would be made to the ALPA. The defined thresholds were exceeded during the measurement periods through December 31, 1996 and no amount was therefore owed to the ALPA as of that date. The Company, however, anticipates that a liability will be incurred during 1997 as a result of the Company's planned reductions in capacity. The amount of the liability, if any, will be dependent on the amount by which the targeted block hours flown during the year exceed the actual block hours flown. Based upon current plans, management believes that its obligation under this agreement in 1997 will not exceed $12 million. See Notes 7 and 12 to the Consolidated Financial Statements. For a description of certain additional employee related uncertainties, see "Risk Factors--Risk Factors Related to the Company--Certain Potential Future Earnings Charges." Significant variations in annual operating revenues and operating expenses have been experienced historically by TWA and are expected to continue in the future. Numerous uncertainties concerning the level of revenues and expenses always exist and it is not possible to predict the potential impact of such uncertainties upon TWA's results of operations. Among the uncertainties that might adversely impact TWA's future results of operations are: (i) competitive pricing and scheduling initiatives; (ii) the availability and cost of capital; (iii) increases in fuel and other operating costs; (iv) insufficient levels of air passenger traffic resulting from, among other things, war, threat of war, terrorism or changes in the economy; (v) governmental limitations on the ability of TWA to service certain airports and/or foreign markets; (vi) regulatory requirements requiring additional capital expenditures; (vii) the outcome of certain upcoming labor negotiations; (viii) the possible reduction in 46 yield due to a discount ticket program entered into by the Company with Karabu in connection with the '95 Reorganization; and (ix) the impact of the public's perception of the crash of TWA Flight 800. See "--Liquidity and Capital Resources." The Company's operating results for any interim period are not necessarily indicative of those for the entire year due to seasonal fluctuations. The second and third quarter results have historically been more favorable for the Company due to increased leisure travel on both domestic and international routes during the spring and summer months. On July 17, 1996, TWA Flight 800 crashed shortly after departure from JFK en route to Paris, France. There were no survivors among the 230 passengers and crew members aboard the Boeing 747 aircraft. The Company is cooperating fully with all federal, state and local regulatory and investigatory agencies to ascertain the cause of the crash, which to date has not been determined. While TWA is currently a defendant in a number of lawsuits relating to the crash, it is unable to predict the amount of claims which may ultimately be made against the Company or how those claims might be resolved. TWA maintains substantial insurance coverage and, at this time, management has no reason to believe that such insurance coverage will not be sufficient to cover the claims arising from the crash. Therefore, TWA believes that the resolution of such claims will not have a material adverse effect on its financial condition or results of operations. The Company is unable to identify or predict the extent of any adverse effect on its revenues, yields or results of operations which has resulted or may result from the public perception of the crash. On May 4, 1993, the bilateral air transport agreement between the U.S. and France lapsed. Any reduction in U.S. carrier access could have an adverse impact on TWA's transatlantic operations. Absent a bilateral agreement, the U.S. and France are operating on a system of comity and reciprocity. Under this regime, carriers are permitted to maintain historical levels of service, but few or no new services are permitted. Cessation of service to any authorized markets from France may cause such underlying authority to terminate. In March 1997, the President signed legislation reinstating the 10% tax on domestic tickets, the 6.25% air cargo tax and the $6.00 international departure tax, effective March 7, 1997. These taxes had expired on December 31, 1995, were reinstated on August 27, 1996 and thereafter expired again on December 31, 1996. The Company is not able to determine the extent to which operating results in 1996 and in early 1997 benefited from the absence of these taxes, although it does believe that such had a positive impact on its operating results. Similarly, the Company believes that the reimposition of the tax in March 1997 will likely have an adverse impact on its operating results in subsequent periods. In October 1996 Congress enacted the Federal Aviation Reauthorization Act of 1996 (the "FAA Reauthorization Act"). The FAA Reauthorization Act established a national commission which, together with the DOT, is to conduct an independent study of FAA funding requirements and recommend alternative methods for apportioning the costs of the system to its users, including commercial airlines. The results of the study are to be presented to the Secretary of Transportation in August 1997, and the Secretary is to make recommendations to Congress in October 1997. The Company believes that the current system of a 10% ticket tax imposed on domestic fares unfairly subsidizes certain low-fare competitors. The Company and a group of other major airlines have proposed that the ticket tax be replaced by a system of user fees including an element based upon a charge per originating passenger and an element based upon a mileage charge. The Company is unable to predict the outcome of these studies or any Congressional actions related thereto. Following the crash of TWA Flight 800 in July 1996, the FAA implemented new security measures primarily impacting international operations. The Company does not believe that these measures have had any material effect on its revenues or operating costs to date. Additionally, a special committee appointed by the President to review aviation safety and airport security issued its final report on February 12, 1997. The report contains several recommendations. However, the Company is unable to predict which recommendations will be adopted or their impact on the Company's future operating results. Additional government mandated security measures could have a direct adverse impact on the Company's operating costs to the extent any such costs are 47 directly assessed to commercial airlines or, if funded through new taxes or user fees, could indirectly have an adverse impact on the Company's future operating results in the event that the Company is not able to fully pass on those charges in the form of ticket price increases. RECENT RESULTS On March 18, 1997, the Company reported a fourth quarter 1996 operating loss of $232.4 million and a net loss of $258.6 million versus an operating profit of $1.1 million and net loss of $27.8 million for the fourth quarter of 1995. For the year ended December 31, 1996, the Company reported an operating loss and net loss of $198.5 million and $284.8 million, respectively, compared to a 1995 operating profit of $25.1 million and a 1995 net loss of $227.5 million. The Company's 1996 results reflect special charges, recorded in the fourth quarter, of $85.9 million, including a $53.7 million write-down related to the planned retirement of older aircraft, a charge of $5.5 million for overseas employee severance costs and a $26.7 million write-down of the Company's JFK- Athens route authority, reflecting the Company's decision to terminate service on such route after April 18, 1997. Material factors contributing to the deterioration in TWA's 1996 results, particularly in the second half of the year, included: (i) an overly aggressive expansion of TWA's capacity and planned flight schedule, particularly during the summer season, which forced the Company to rely disproportionately on lower-yielding feed traffic and bulk ticket sales to fill the increased capacity of its system; (ii) the delayed delivery of four older 747s intended to increase capacity for incremental international summer operations; and (iii) unexpected maintenance delays due to the capacity increase, higher levels of scheduled narrow-body heavy maintenance and increased contract maintenance performed for third parties. These factors caused excessive levels of flight cancellations, poor on-time performance, increased pilot training costs and higher maintenance expenditures. In addition, the crash of TWA Flight 800 on July 17, 1996 distracted management's attention from core operating issues and led to lost bookings and revenues. Finally, the Company experienced a 27.6% increase in fuel costs in 1996, driven primarily by a 22.3% increase in the average fuel price paid per gallon during the year. The Company's auditors included in their report dated March 24, 1997 on the Consolidated Financial Statements an explanatory paragraph to the effect that substantial doubt exists regarding the Company's ability to continue as a going concern due to the Company's recurring losses from operations and limited sources of additional liquidity. See "Risk Factors--Risk Factors Related to the Company--Substantial Indebtedness; Capital Expenditure Requirements; Liquidity" and the Consolidated Financial Statements. During the first quarter of 1997, the Company reported operating revenue of $762.3 million, which represented a $20.1 million (2.6%) decrease from the first quarter of 1996, when the Company's operating revenue totaled $782.4 million. The reduced revenue during the first quarter of 1997 as compared with the same period of 1996 reflected a planned reduction in capacity resulting from the ongoing replacement of larger 747 and L-1011 aircraft with smaller 767 and 757 aircraft and a reduction in the number of narrow-body aircraft in TWA's schedule during the first quarter of 1997 in order to move more aircraft through required scheduled maintenance before the peak travel season. Despite the decrease in operating revenue during the first quarter of 1997, operating expenses of $861.8 million represented a $25.2 million (3%) increase over the first quarter of 1996, when the Company's operating expenses totaled $836.6 million. Approximately $20 million of the increased expense during the first quarter of 1997 was associated with the accelerated maintenance of the Company's narrow-body aircraft, while an additional $10 million resulted from increased crew retaining costs incurred in connection with the downsizing of the Company's fleet. In addition, TWA's average cost per gallon for jet fuel during the first quarter of 1997 increased to 74.02c, an 11.2 percent increase from 66.58c, the average cost per gallon in the first quarter of 1996. As a result of the above, in the first quarter of 1997 TWA experienced a net loss of $71.6 million, which represented a $34.5 million increase over the $37.1 net loss for the first quarter of 1996, and a $99.5 million operating loss, which represented a $45.3 million increase over the operating loss reported for the first quarter of 1996. 48 RESULTS OF OPERATIONS TWA's passenger traffic data, for scheduled passengers only and excluding Trans World Express, Inc. ("TWE") a wholly-owned subsidiary of the Company that provided a commuter feed service to the Company's New York hub prior to November, 1995, are shown in the table below for the indicated periods(1):
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------- -------------- 1994 1995 1996 1996 1997 ------- ------- ------- ------ ------ NORTH AMERICA Passenger revenues ($ million)...... $ 2,221 $ 2,292 $ 2,515 $ 584 $ 596 Revenue passenger miles (millions)(2)...................... 17,543 17,902 19,513 4,528 4,590 Available seat miles (millions)(3).. 27,963 28,194 30,201 7,266 7,048 Passenger load factor(4)............ 62.7% 63.5% 64.6% 62.3% 65.1% Passenger yield (cents)(5).......... 12.66c 12.80c 12.89c 12.90c 12.99c Passenger revenue per available seat mile (cents)(6).................... 7.94c 8.13c 8.33c 8.04c 8.46c
(Table continued on following page)
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------- -------------- 1994 1995 1996 1996 1997 ------- ------- ------- ------ ------ INTERNATIONAL Passenger revenues ($ million)...... $ 597 $ 544 $ 563 $ 94 $ 76 Revenue passenger miles (millions)(2)...................... 7,363 7,000 7,598 1,320 1,084 Available seat miles (millions)(3).. 11,228 9,719 10,393 1,923 1,510 Passenger load factor(4)............ 65.6% 72.1% 73.1% 68.6% 71.8% Passenger yield (cents)(5).......... 8.10c 7.78c 7.41c 7.10c 6.97c Passenger revenue per available seat mile (cents)(6).................... 5.31c 5.60c 5.42c 4.87c 5.00c TOTAL SYSTEM Passenger revenues ($ millions)..... $ 2,818 $ 2,836 $ 3,078 $ 678 $ 672 Revenue passenger miles (millions)(2)...................... 24,906 24,902 27,111 5,847 5,674 Available seat miles (millions)(3).. 39,191 37,905 40,594 9,188 8,558 Passenger load factor(4)............ 63.5% 65.7% 66.8% 63.6% 66.3% Passenger yield (cents)(5).......... 11.31c 11.39c 11.35c 11.59c 11.84c Passenger revenue per available seat mile (cents)(6).................... 7.19c 7.48c 7.58c 7.38c 7.85c Operating cost per available seat mile (cents)(7).................... 8.45c 8.12c 8.76c 8.82c 9.86c Average daily utilization per aircraft (hours)(8)................ 9.30 9.45 9.63 9.63 8.95 Aircraft in fleet being operated at end of period...................... 185 188 192 183 185
- -------- (1)Excludes subsidiary companies. (2)The number of scheduled miles flown by revenue passengers. (3)The number of seats available for passengers multiplied by the number of scheduled miles those seats are flown. (4)Revenue passenger miles divided by available seat miles. (5)Passenger revenue per revenue passenger mile. (6)Passenger revenue dividend by available seat miles. (7)Operating expenses, excluding special charges, earned stock compensation and other nonrecurring charges, divided by available seat miles. (8)The average block hours flown per day in revenue service per aircraft. 49 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1996 The Company's operating loss of $99.5 million for the quarter ended March 31, 1997 was $45.3 million greater than the operating loss of $54.2 million in the first quarter of 1996. The net loss of $71.6 million for the first quarter of 1997 was $34.5 million greater than TWA's net loss of $37.1 million for the first quarter of 1996. Additionally, the 1997 net loss included $1.5 million in extraordinary losses related to the early extinguishment of debt. Operating revenues of $762.3 million during the first quarter of 1997 were $20.1 million (2.6%) less than the comparable 1996 period primarily because of decreases in revenues from contract work ($9.2 million), passenger revenue ($6.1 million) and cargo revenue ($4.4 million). Capacity and traffic decreased in the first quarter of 1997 from the comparable period of 1996. System capacity, as measured by total available seat miles (ASMs), decreased by 7.1% during the first quarter of 1997 (representing decreases in domestic and international ASMs of 3.4% and 21.3%, respectively). The decrease in capacity was primarily attributed to the ongoing replacement of B-747 and L-1011 aircraft with smaller B-767 and B-757 aircraft and the reduced number of narrow-body aircraft operated in the schedule to move more aircraft through required scheduled maintenance prior to the peak travel season. Passenger traffic volume, as measured by revenue passenger miles (RPMs) in scheduled service, during the first quarter of 1997 decreased 3.0% compared to the same period of 1996. Passenger load factor for the quarter ended March 31, 1997 was 66.3% compared to 63.6% in the same period of 1996. TWA's yield per passenger mile increased to 11.84 cents in 1997 from 11.59 cents in 1996. Operating expenses of $861.8 million in the first quarter of 1997 reflected an increase of $25.2 million (3.0%) over the operating expenses of $836.6 million for the three months ended March 31, 1996, representing a net change in the following expense groups: . Employment costs of $315.3 million for the first quarter of 1997 were $19.0 million (6.4%) more than the same period in 1996, primarily due to an increase in the average number of employees and overtime costs related to the accelerated maintenance schedules for the Company's narrow-body fleet and crew retraining in connection with changes in fleet composition. The Company had an average of 24,468 full-time equivalent employees in the first quarter of 1997 as compared to 23,450 in the first quarter of 1996. . Earned stock compensation charges of $1.3 million for the first quarter of 1997 and $5.0 million for the first quarter of 1996 represents primarily the non-cash compensation charge recorded to reflect the expense associated with the distribution of shares of stock on behalf of employees as part of the '95 Reorganization. A substantial portion of the decrease is attributable to the lower trading price of the Common Stock during the first quarter of 1997 as compared to the first quarter of 1996. . Aircraft fuel and oil expense of $129.9 million for the first quarter of 1997 was $0.5 million greater than the expenses of $129.4 million for the three months ended March 31, 1996. Although total expenses increased only slightly the average cost of fuel per gallon increased from 66.58 cents in 1996 to 74.02 cents in 1997, but was offset, in large part, by a reduction in gallons consumed (175.5 million gallons in 1997 versus 194.3 million gallons in 1996). . Passenger sales commission expense of $57.6 million for the first quarter of 1997 was $6.4 million (10.0%) less than the comparable period in 1996 primarily due to a decrease in international passenger revenues related to the reduction in international capacity and reduced sales development commissions. . Aircraft maintenance materials and repairs expense of $43.7 million for the first three months of 1997 represented a decrease of $4.1 million (8.6%) from $47.8 million for the same period of 1996. The decrease was primarily the result of a 7.6% decrease in flying hours and a reduction in contract maintenance work. 50 . Depreciation and amortization expense decreased $0.8 million in the first quarter of 1997 compared to the same period of 1996. Special charges recorded in the fourth quarter of 1996, related to international route authorities and aircraft to be disposed of, reduced depreciation and amortization in the first quarter of 1997 by approximately $3.2 million. The remaining increase is primarily attributed to the acquisition of additional aircraft. . Operating lease rentals of $85.8 million for the first quarter of 1997 were $15.5 million (22.0%) more than the rentals of $70.3 million for the first three months of 1996. The increase was primarily due to an increase in the average number of leased aircraft from 120 in 1996 to 132 in 1997 and higher lease rates attributable primarily to the addition of B-757 and MD-80/83 aircraft to the fleet. . Passenger food and beverage expense of $20.4 million during the first three months of 1997 represented a decrease of $5.1 million (20.0%) from $25.5 million during the first three months of 1996. The decrease is primarily due to the 21.9% reduction in the number of passengers boarded for international flights resulting from a 21.5% reduction in international scheduled ASMs and savings derived from changes and improved efficiencies in food and beverage service. . All other operating expenses of $168.9 million during the first three months of 1997 increased by $10.1 million (6.4%) from $158.8 million for the three months ended March 31, 1996. The increase was primarily due to additional crew accommodation expenses related to flight simulator training for pilots and an increase in computerized reservation system fees. Other charges (credits) were a net charge of $5.7 million for the first quarter of 1997 as compared to $20.1 million for the same period in 1996. Interest expense decreased $5.2 million in 1997 over 1996 as a result of the reduction of debt during 1996. Interest income decreased by $3.1 million in 1997 primarily as a result of lower levels of invested funds. Net gains from the disposition of assets were $9.4 million in the first quarter of 1997 as compared to a net loss of $0.2 million in the same period of 1996. The net gain in 1997 included gains of $7.3 million related to the sale of three gates at Newark International Airport and $2.1 million related to the sale of spare flight equipment. Other charges and credits-net improved $2.8 million in 1997 compared to 1996, primarily due to a $3.2 million improvement in the Company's share of earnings of WORLDSPAN. RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE FOUR-MONTHS ENDED DECEMBER 31, 1995 AND EIGHT MONTHS ENDED AUGUST 31, 1995 Total operating revenues of $3,554.4 million for 1996 were $237.6 million or 7.2% more than the total operating revenues of $3,316.8 million for the year ended December 31, 1995. The increase was primarily reflected in TWA passenger revenues which were $241.6 million higher than in 1995. Additionally, revenues from contract maintenance work increased $15.7 million and revenue from freight and mail increased $9.9 million. Operating revenues for 1995 included $35.9 million in passenger revenues from TWE which discontinued operations in November 1995. Capacity and traffic increased in 1996 as compared to 1995. System-wide capacity, measured in ASMs, increased by 7.1% in 1996 as compared to 1995 (representing increases in domestic and international ASMs of 7.1% and 7.0%, respectively). Passenger traffic volume, as measured by total RPMs in scheduled service, increased 8.9% in 1996 over 1995. Passenger load factor for 1996 was 66.8% compared to 65.7% in 1995. TWA's yield per passenger mile decreased slightly from 11.39 cents in 1995 to 11.35 cents in 1996. Although the yield per passenger mile declined only slightly year over year, the yield during the second half of 1996 was 10.97 cents compared to 11.40 cents during the second half of 1995. Operating expenses of $3,752.9 million in 1996 reflect an increase of $461.2 million (14.0%) over the total operating expenses of $3,291.7 million for the year ended December 31, 1995, representing a net change in the following expense groups: . Salaries, wages and benefits of $1,254.3 million for 1996 were $125.6 million (11.1%) more than 1995, primarily due to an increase in the average number of employees, overtime costs required due to poor operating performance in 1996 and lower productively levels. The Company had an average of 24,254 employees in 1996 as compared to 22,927 in 1995. 51 . Earned stock compensation charges of $9.1 million for 1996 and $58.0 million for 1995 represent primarily the non-cash compensation charge recorded to reflect the expense associated with the distribution of shares of stock on behalf of employees as part of the '95 Reorganization. Additional non-cash compensation charges will be recorded in 1997, a substantial portion of which will depend on the market price of the Common Stock. For a further discussion of future charges related to non- cash compensation, see "Risk Factors--Risk Factors Related to the Company--Certain Potential Future Earnings Charges" and Notes 11 and 12 to the Consolidated Financial Statement. . Aircraft fuel and oil expense of $582.2 million for 1996 was $126.6 million (27.6%) over the total expense of $458.6 million for 1995. This increase is primarily due to an increase in the price of fuel (22.3%), an increase in gallons consumed (4.3%) and the expiration in October 1995 of the airlines' exemption from paying a federal fuel tax of 4.3 cents per gallon, which increased fuel expense by approximately $13.6 million. . Passenger sales commission expense of $268.1 million for 1996 was $2.1 million (0.8%) higher than the combined expense of $266.0 million in 1995, and is primarily related to the $241.6 million increase in TWA passenger revenues offset by an increase in non-commissionable international tickets. . Aircraft maintenance materials and repairs expense of $208.2 million in 1996 represented an increase of $60.5 million (41.0%) from $147.7 million for 1995. The increase was primarily the result of higher levels of scheduled maintenance in 1996, including heavy maintenance, a 3.6% increase in flying hours and increased repair work performed by the Company for other air carriers and third parties. . Depreciation and amortization expense of $161.8 million for 1996 increased slightly from combined expenses of $161.6 million for 1995. . Operating lease rentals of $303.0 million for 1996 were $24.1 million (8.6%) more than the total rentals of $278.9 million for 1995. The increase was primarily due to an increase in the average number of leased aircraft from 119 in 1995 to 123 in 1996 and higher lease rates. . Passenger food and beverage expense of $110.1 million in 1996 represented an increase of $7.3 million (7.1%) from $102.8 million for the twelve months of 1995. The increase is primarily due to the 8% increase in the number of passengers boarded. During the fourth quarter of 1996, special charges of $85.9 million were recorded in connection with the Company's decision to modify its international route structure and related aircraft fleet plan. The charges included a write- down of the JFK-Athens route ($26.7 million), international employee severance liabilities ($5.6 million) related to the termination of service to Athens and Frankfurt, and a write-down of the L-1011 and 747 fleets ($32.2 million) and the related inventories ($21.5 million), reflecting planned retirement of such aircraft. These costs are based upon management's current estimates. Actual costs could materially differ from these current estimates. See Note 16 to the Consolidated Financial Statements for a further discussion of these special charges. Special charges of $1.7 million were recorded in the third quarter of 1995 related to the shutdown of TWE. All other operating expenses of $767.2 million in 1996 represented an increase of $79.6 million (11.6%) from $687.6 million for the year ended December 31, 1995. An increase in flight cancellations during 1996 resulted in increased CRS fees related thereto ($19.4 million) and interrupted trip expenses ($3.7 million). In addition, expenses relating to maintenance services provided under a contract with the military increased approximately $21.6 million in 1996 compared to 1995. The Company also experienced a significant increase in professional/technical fees ($18.7 million) which was primarily due to the use of contract programmers for ongoing development of new systems and external consultants' fees for re-engineering. Other charges (credits) were a net charge of $76.1 million for 1996 as compared to $42.7 million and $353.0 million in the four month and the eight month periods of 1995, respectively (included in the eight month period is a charge of $242.3 million for reorganization items in connection with the application of fresh start reporting pursuant to the '95 Reorganization). Interest expense decreased $42.3 million in 1996 over 1995 as a result of 52 the reduction of debt arising from the '95 Restructuring and additional reductions of debt during 1996. Interest income increased by $3.5 million in 1996 primarily as a result of higher levels of invested funds. Other charges and credits-net improved $35.8 million in 1996 compared to 1995, primarily due to a $19.8 million improvement in the Company's share of earnings of Worldspan and a $2.5 million credit to reflect a litigation settlement. Additionally, other charges and credits-net for 1995 included a $14.0 million charge for restructuring expenses. As a result of the above, the operating loss of $198.5 million for 1996 was $223.6 million unfavorable to the combined operating income of $10.5 million and $14.6 million for the four month and the eight month periods of 1995, respectively. The net loss of $284.8 million for 1996 was $57.4 million greater than the combined loss of $227.4 for 1995. The 1996 net loss included $9.8 million in extraordinary losses related to the early extinguishment of debt, while the 1995 net loss included $144.4 million in extraordinary gains related to the discharge of indebtedness pursuant to the '95 Reorganization and the cancellation of debt between TWE and an aircraft lessor. RESULTS OF OPERATIONS FOR THE FOUR MONTHS ENDED DECEMBER 31, 1995 AND EIGHT MONTHS ENDED AUGUST 31, 1995 COMPARED TO THE FISCAL YEAR ENDED DECEMBER 31, 1994 Total operating revenues of $1,098.5 million and $2,218.4 million for the four months ended December 31, 1995 and the eight months ended August 31, 1995, respectively, were, on a combined basis, $90.9 million (2.7%) less than 1994, primarily because of an $80.5 million decrease in other revenues. This decrease is primarily due to the sale of subsidiary companies in 1994 ($51.9 million), a decrease of $13.0 million in TWA Nippon, Inc. ("Nippon") revenues, and a $12.3 million decrease in TWA Getaway Vacations revenue. During 1995, passenger revenue remained virtually unchanged from 1994, despite the adverse publicity generated by the '95 Reorganization, and in the four months since emerging from bankruptcy, passenger revenue increased by $48.3 million, a 5.5% improvement over the same period of 1994. System capacity as measured by ASMs was trimmed by 3.2% on a system-wide basis in 1995 versus 1994. International capacity decreased 13.7% due to the termination of flights to several international destinations, while domestic capacity increased slightly (1.1%). During 1995, system traffic volume, as measured by total RPMs, improved slightly (0.1%), the result of a decrease in international traffic by 5.1% and an increase in domestic traffic by 2.3%. TWA's yield per passenger mile for 1995 increased to 11.39 cents from 11.31 cents in 1994 (reflecting a domestic increase to 12.80 cents from 12.66 cents and an international decrease to 7.78 cents from 8.10 cents). Operating expenses of $1,088.0 million and $2,203.7 million for the four months ended December 31, 1995 and the eight months ended August 31, 1995, respectively, were, on a combined basis, $395.5 million (10.7%) less than the operating expenses of $3,687.2 million for 1994, representing a net change in the following expense groups: . Salary, wages and benefits for the four months ended December 31, 1995 and the eight months ended August 31, 1995 of $373.0 million and $755.7 million, respectively, were, on a combined basis, $164.8 million (12.7%) less than 1994. The reduction in employment costs reflect a full year of savings realized from the '94 Labor Agreements entered into in August 1994 as the average number of employees was reduced from approximately 25,200 in 1994 to approximately 22,900 in 1995. The four months ended December 31, 1995 included the favorable impacts of changes in estimates which reduced employee benefit costs by approximately $6.2 million. Additionally, 1994 employment costs included a non-recurring contractual benefit accrual of approximately $36.3 million. . During 1995, the Company distributed shares of stock to employees as part of its financial restructuring which, together with certain other non- cash compensation charges, resulted in an aggregate charge of $58.0 million to operating expense. . Aircraft fuel and oil expense of $161.8 million for the four months ended December 31, 1995 and $296.8 million for the eight months ended August 31, 1995, reflected a combined decrease of $18.9 million from 1994. The combined effect of decreased fuel usage (5.6%), offset by a slight increase in the unit price (1.8%), resulted in a decrease of 4.0% in fuel costs for 1995. The average unit price of fuel was $0.57 53 per gallon in 1995 compared to $0.56 in 1994. Effective October 1, 1995, an exemption expired related to a federal fuel tax of 4.3 cents per gallon on commercial jet fuel purchased for use in domestic operations. This additional tax increased fuel costs by $7 million in the fourth quarter of 1995. See "Business--Aircraft Fuel." . Passenger sales commission expense of $80.0 million in the four months ended December 31, 1995 and $186.0 million in the eight months ended August 31, 1995, respectively, together represent a decrease of $22.0 million (7.6%) from 1994. The decrease is primarily due to incentive commissions and a reduction in the commission rate on international tickets. The four months ended December 31, 1995 included the favorable impacts of changes in estimated commissions which reduced commission expense by approximately $6.7 million. . Aircraft maintenance and repairs expense of $52.0 million and $95.7 million for the four-month and the eight-month periods of 1995, respectively, together represent a slight increase of $2.3 million (1.6%) over 1994. . Depreciation and amortization decreased $21.6 million (11.8%) to the combined $55.2 million for the four months ended December 31, 1995 and the $106.5 million for the eight months ended August 31, 1995 from $183.3 million in 1994. The decrease is generally due to the normal decline in depreciation as property reaches the end of its estimated economic life, partially offset by an increase in the amortization of intangible assets arising from fresh start reporting on the '95 Effective Date and the sale (and simultaneous leaseback) of five 727 and two 747 aircraft in March 1995. . Operating lease rentals were $96.4 million for the last four months of 1995 and $182.5 million for the first eight months of 1995, a combined increase of $17.6 million (6.7%) over 1994. The increase was principally due to the sale and simultaneous leaseback of five 727s and two 747s in March 1995 and the addition of three new MD-83 aircraft in late 1995. The increase was also due to the reclassification of the JFK International Terminal lease from capital to operating ($3.8 million). . Passenger food and beverage expenses were $34.7 million and $68.1 million for the four months ended December 31, 1995 and the eight months ended August 31, 1995, respectively, a combined decrease of $18.0 million (14.9%) in 1995 compared to 1994. The decrease is primarily due to decreased international traffic and cost savings as a result of the closing of the JFK and Los Angeles dining units in the fourth quarter of 1994. . Special charges of $1.7 million were recorded in the third quarter of 1995 related to the shut-down of TWE. . All other operating expenses, excluding special charges, aggregated $232.7 million for the four months ended December 31, 1995 and $454.9 million for the eight months ended August 31, 1995, a combined decrease of $90.9 million (11.7%) compared to 1994. The decrease is primarily the result of the operating subsidiaries sold in 1994 ($34.6 million) and decreases in the operating costs of TWE ($14.2 million) and other subsidiaries ($27.3 million). Other charges (credits) were a net charge of $42.7 million for the last four months of 1995 and a net charge of $352.9 million for the first eight months of 1995 compared to a net charge of $153.4 million in 1994. This increase of $242.3 million was primarily due to a $242.2 million non-recurring charge related to the Company's restructuring. Additionally, interest expense declined by $26.2 million and investment income increased by $5.8 million and other charges increased by $4.3 million, reflecting the Company's proportionate share of increased losses experienced during 1995 over 1994 by WORLDSPAN, the computer reservation system owned and operated by the Company, Delta Air Lines and Northwest Airlines. WORLDSPAN's increased loss during 1995 as compared to 1994 was primarily due to restructuring charges recognized by WORLDSPAN in the fourth quarter of 1995. See also Note 15 to the Consolidated Financial Statements. As a result of the above, the operating profit of $10.4 million for the four months ended December 31, 1995 and $14.6 million for the eight months ended August 31, 1995 reflected, on a combined basis, a $304.5 million improvement from the operating loss of $279.5 million in 1994. The net loss of $30.1 million for the last four months of 1995 and $197.3 million for the first eight months of 1995 was, on a combined basis, $208.4 million less than the net loss of $435.8 million in 1994. 54 LIQUIDITY AND CAPITAL RESOURCES The following is a discussion of the impact of significant factors affecting TWA's liquidity position and capital resources. These comments should be read in conjunction with, and are qualified in their entirety by, the Consolidated Financial Statements and Notes thereto. Liquidity The Company's consolidated cash and cash equivalents balance at March 31, 1997 was $136.5 million (including approximately $20.9 million in cash and cash equivalents held in its international operations and by its subsidiaries which, based upon various foreign monetary regulations and other factors, might not be immediately available to the Company), a $45.1 million decrease from the December 31, 1996 balance of $181.6 million. Due to seasonal factors, the Company's cash balances during the first quarter of each year are typically lower than in other periods. These seasonal factors, when combined with the large loss in the first quarter of 1997, which significantly exceeded the loss reported in the comparable quarter of 1996, reduced cash balances during the first quarter of 1997 significantly below the cash balance at December 31, 1996. In February 1997, in order to improve its liquidity, the Company entered into an agreement with and received approximately $26 million from certain St. Louis business enterprises, representing the advance payment for tickets for future travel by such enterprises.In addition, in March 1997, the Company raised approximately $47.2 million in net proceeds from the issuance of the Notes and Warrants. The Company is also pursuing other projects intended to increase cost efficiencies and enhance revenues, thereby increasing its cash balances. The net decrease in cash and cash equivalents during the first quarter of 1997 was due, in part, to the fact that cash used in operating activities in the first quarter of 1997 was $36.3 million as compared to the first quarter of 1996 when $25.0 million was used by operating activities. Pursuant to the eight-year Karabu Ticket Program Agreement between the Company and Karabu (the "Ticket Agreement") net discounted sales from tickets sold under the agreement are excluded from cash provided by operating activities as the related amounts were applied as a $20.6 million reduction to the outstanding balance of financing provided to TWA by Karabu (the "Icahn Loans"). Cash used in investing activities decreased $39.1 million from $64.9 million in the first quarter of 1996 to $25.8 million in the first quarter of 1997. A large part of this decrease was related to the reduction in capital expenditures and new aircraft predelivery deposits ($13.6 million in the first quarter of 1997 versus $46.7 million in the first quarter of 1996) and an increase of $14.0 million in proceeds from asset sales. Gross proceeds from assets sold during the first quarter of 1997 included $10.0 million for three gates at Newark International Airport and $4.3 million for spare flight equipment. Financing activities provided $17.1 million of cash in the first quarter of 1997, while such activities provided cash of $160.3 million in the first quarter of 1996. Proceeds from the issuance of the Notes and Warrants was $47.2 million in the first quarter of 1997. Repayments of long-term debt and capital leases required $5.7 million more cash in the first quarter of 1997 than in the first quarter of 1996. In the first quarter of 1996, net proceeds from the sale of 8% Preferred Stock were $186.2 million. The net decrease in cash and cash equivalents during 1996 was due, in large part, to the fact that cash used in operating activities in 1996 was $16.8 million as compared to 1995 when cash provided by operating activities was $212.2 million. The adverse change was primarily attributable to the decrease in 1996 operating income as compared with 1995. Additionally, pursuant to the eight-year Karabu Ticket Program Agreement between the Company and Karabu (the "Karabu Ticket Agreement") net discounted sales from tickets sold under the agreement are excluded from cash provided by operating activities as the related amounts are applied as a $62.9 million reduction of the Icahn Loans and a $6.4 million reduction of the PBGC Notes. At December 31, 1995 approximately $2.0 million of such proceeds had been applied to the principal balance of the Icahn Loans, while no proceeds had been applied to the PBGC Notes. The increase of $79.5 million in trade accounts payable during 1996 was primarily due to the Company utilizing a safe harbor provision with regard to payment of U.S. transportation taxes of $60 million for the period September through December 1996, a significant portion of which was paid in February 1997. Cash used in investing activities increased $106.1 million from $18.9 million in 1995 to $125.0 million in 1996. A large part of this increase was related to capital expenditures ($121.5 55 million in 1996 versus $59.5 million in 1995) which had been somewhat restricted by fiscal controls in place during most of 1995. Financing activities provided $19.1 million of cash in 1996, compared with a net use of cash of $27.5 million in 1995. Proceeds from long-term debt and sale and leaseback transactions decreased from $22.1 million in 1995 to $16.6 million in 1996. Repayments of long-term debt and capital leases required $15.4 million more cash in 1996 than in 1995. In 1996, net proceeds from the sale of 8% Preferred Stock were $186.2 million while the early redemption of the 12% Mandatorily Redeemable Stock and cash dividends required $81.7 million and $14.5 million, respectively. In 1995, the net proceeds from an equity rights offering generated $51.9 million. As previously described, management has indicated that it is focusing on the improvement of TWA's schedule reliability and on-time performance and that it plans to accelerate the replacement of its L-1011 and 747 fleets with 757, 767 and MD-80 aircraft. Management believes that such operational changes have resulted in improvements of the Company's operating performance. See "Summary--Recent Developments" and "The Company--Business Strategy." However, the Company's unit revenues, yields and cash position continue to be adversely affected by the negative impact on consumer demand created by the previous deterioration in operating performance, particularly in the higher-yield business traveler segment of the market. As a result, it is anticipated that as a result of these factors, the Company's cash balances at June 30, 1997 will be at a level significantly below that reported as of December 31, 1996. The Company believes that a substantial improvement in its operating results is necessary for TWA to maintain adequate liquidity to meet its obligations throughout the remainder of 1997. The achievement of these improved operating results are subject to significant uncertainties, including the Company's ability to achieve higher revenue yields and load factors, the cost of aircraft fuel, the Company's ability to finance or lease suitable replacement aircraft at reasonable rates and the containment of operating costs. No assurance can be given that any of the initiatives already implemented or any new initiatives, if implemented, will be successful, or if successful, that such initiatives will produce sufficient results for the Company to be successful in generating the operating revenues and cash required for profitable operations or future viability. See "--Recent Results." In March 1997, the Company effected the Private Placement, in which it sold 50,000 Units, with each Unit consisting of (i) one Note and (ii) one Warrant. The Notes are secured by a lien on certain assets of the Company, including 1) the Company's beneficial interest in its FAA designated take-off and landing slots at three high-density, capacity-controlled airports, 2) currently owned and hereafter acquired defined ground equipment of the Company used at certain domestic airports and 3) all of the issued and outstanding stock of (a) a wholly-owned subsidiary of TWA holding the leasehold interest in a hangar at Los Angeles International Airport and (b) three wholly-owned subsidiaries of TWA holding leasehold interest in gates and related support space at certain domestic airports served by the Company. The Company realized approximately $47.2 million (net of discounts and commissions and estimated expenses) in proceeds from the Private Placement. The Company used approximately $500,000 of the proceeds from the Private Placement to release certain of the collateral to be used to secure the Notes from a prior existing lien and the remainder of the proceeds for general corporate purposes. In March 1996 the Company completed the sale of 3,869,000 shares of its 8% Preferred Stock for gross proceeds of approximately $193.5 million and net proceeds to the Company of approximately $186.2 million, after commissions and expenses. A portion of the net proceeds from the offering were used to redeem the Company's outstanding 12% Cumulative Preferred Stock, pursuant to the terms thereof, at an aggregate redemption price of approximately $81.7 million, plus accrued dividends from February 1, 1996 to the redemption date of April 26, 1996. The Company utilized the balance of the net proceeds for general corporate purposes, including but not limited to, capital expenditures and increasing working capital. Pursuant to the '95 Reorganization, the Company issued 600,000 ticket vouchers, each with a face value of $50.00, which may be used for up to 50% discount off the cost of a TWA airline ticket for transportation on TWA ("Ticket Vouchers"). Pursuant to certain agreements, the Company repurchased approximately 236,000 of the Ticket Vouchers at an aggregate cost of $8.8 million. Payments in respect of these Ticket Vouchers were approximately $700,000 in 1995 and approximately $8.1 million in 1996. Concurrently, the Company undertook 56 aircraft lease payment deferrals to increase liquidity and improve the Company's financial condition. Gross deferrals of lease and conditional sale indebtedness payments aggregated approximately $91.0 million with a weighted average repayment period of approximately two years. The aircraft lease payment deferrals contemplated by the '95 Reorganization generally anticipated six month deferrals with various payback periods, extending in some instances over the remaining life of the lease, and in other cases over a specified period. Cash repayments of lease deferrals, including interest, were approximately $9.5 million in the fourth quarter of 1995, $23.8 million in 1996 and are expected to approximate $8.7 million in 1997. On June 14, 1995, the Company signed an agreement (the "Extension and Consent Agreement") with Karabu to extend the term of the Icahn Loans from January 8, 1995 to January 8, 2001, to obtain the consent of Karabu and the Icahn Entities to certain modifications to certain promissory notes issued to the PBGC in connection with the '93 Reorganization (the "PBGC Notes") and to obtain agreement with the Icahn Entities to refrain from exercising the right to terminate certain pension plans, covering employees of the Company as to which Mr. Icahn and the Icahn Entities assumed certain obligations in the '93 Reorganization. Any such termination would not increase the obligations of TWA under the PBGC Notes or other obligations of TWA to Mr. Icahn, the Icahn Entities or the PBGC. Collateral for the Icahn Loans includes a number of aircraft, engines and related equipment, along with substantially all of the Company's receivables. On June 26, 1995, the Company made a $12.6 million interest payment on the Icahn Loans. At December 31, 1996, the outstanding balance of the Icahn Loans was approximately $125.1 million (excluding approximately $4.7 million in accrued and unpaid interest). The notes evidencing the Icahn Loans have been pledged by Mr. Icahn and certain affiliated entities as security for certain obligations of the Icahn Entities to the PBGC and/or in respect of funding obligations on the Company's pre-'93 Reorganization pension plans. On June 14, 1995, in consideration of, among other things, the extension of the Icahn Loans, TWA and Karabu entered into the Ticket Agreement, under which there are two categories of tickets: (1) "Domestic Consolidator Tickets," which are subject to a cap of $610 million, based on the full retail price of the tickets ($120 million in the first 15 months and $70 million per year for seven consecutive years through the term of the Ticket Agreement) and (2) "System Tickets," which are not subject to any cap throughout the term of the Ticket Agreement. Tickets sold by the Company to Karabu pursuant to the Ticket Agreement are priced at levels intended to approximate current competitive discount fares available in the airline industry. The Ticket Agreement provides that no ticket may be included with an origin or destination of St. Louis, nor may any ticket include flights on other carriers. Tickets sold by Karabu pursuant to the Ticket Agreement are required to be at fares specified in the Ticket Agreement, net to TWA, and exclusive of tax. No commissions will be paid by TWA for tickets sold under the Ticket Agreement, and TWA believes that under the applicable provisions of the Ticket Agreement, Karabu may not market or sell such tickets through travel agents. Karabu, however, has been marketing tickets through travel agents. TWA has demanded that Karabu cease doing so and Karabu has stated that it disagrees with the Company's interpretation concerning sales through travel agents. In December 1995, the Company filed a lawsuit against Karabu, Mr. Icahn and affiliated companies seeking damages and to enjoin further violations. Mr. Icahn countered threatening to attempt to declare a default on the Icahn Loans on a variety of claims related to his various interpretations of the security documents related to such loans as well as with respect to alleged violations of the Ticket Agreement by the Company. A violation of the Ticket Agreement by the Company could result in a cross-default under the Icahn Loans. Mr. Icahn also alleged independent violations of the Icahn Loans, including, among under things, that the Company has not been maintaining, as required by the terms of the Icahn Loans, certain aircraft which TWA has retired from service and stored which are pledged as security for the Icahn Loans. To endeavor to eliminate this issue from the various disputes with Mr. Icahn, the Company has deposited an amount equal to the appraised fair market value with a security trustee and requested the release of the liens on such aircraft. To date, the Trustee has not released such liens. The parties negotiated a series of standstill agreements pursuant to which TWA's original lawsuit was withdrawn, while the Company and Mr. Icahn endeavored to negotiate a settlement of their differences and respective claims. Those negotiations reached an impasse and the Company re-filed its suit on March 20, 1996 in the St. Louis County Circuit Court. Also on 57 March 20, 1996, Karabu and certain other companies controlled by Mr. Icahn filed suit against the Company alleging violations by the Company of the Ticket Agreement and federal anti-trust laws. On March 24, 1997, the United States District Court for the Southern District of New York, on the Company's motion, dismissed the suit in its entirety. If Karabu's interpretation as to sales of discount tickets to the general public through travel agents was determined by a court or otherwise to be correct and the Company did not otherwise take appropriate action to mitigate the effect of such sales, the Company could suffer significant loss of revenue so as to reduce overall passenger yields on a continuing basis during the term of the Ticket Agreement. In addition, any default by the Company under the ticket agreement or directly on the Icahn loans which resulted in an acceleration of the Icahn Loans could result in a cross-default to the Company's other indebtedness and leases and otherwise have a material adverse effect on the Company. Domestic Consolidator Tickets sold under the Ticket Agreement are limited to certain origin/destination city markets in which TWA has less than a 5% market share limit except for New York where there is a 10% limit. These restricted markets will be reviewed from time to time to determine any change in TWA's market share, and other markets may be designated as necessary. The purchase price for the tickets purchased by Karabu are required to either, at Karabu's option, be retained by Karabu and the amount so retained credited as prepayments against the outstanding balance of the Icahn Loans, or be paid over by Karabu to a settlement trust established in connection with the '93 Reorganization for TWA's account as prepayments on the PBGC Notes. At March 31, 1997, approximately $85.5 million of such proceeds had been applied to the principal balance of the Icahn Loans and $6.4 million had been applied to the PBGC Notes. The Company elected to pay interest, due August 1, 1995 and February 1, 1996, and half the interest due February 1, 1997, on the 12% Reset Notes, in shares of Common Stock. The amount of such interest aggregated approximately $10.4 million, $10.2 million and $4.1 million, respectively, and resulted in the issuance of approximately 1.9 million, 1.1 million and 0.6 million shares of Common Stock on the respective dates. The Company elected to pay dividends due February 1, 1996 on its 12% Preferred Stock for the period from November 1, 1995 to and including January 31, 1996, in the amount of approximately $3.3 million, in shares of Common Stock. Capital Resources TWA has no unused credit lines and must satisfy all of its working capital and capital expenditure requirements from cash provided by operating activities, from external borrowings or from the sale of assets. Substantially all of TWA's strategic assets, including its owned aircraft, ground equipment, gates, slots and overhaul facilities, have been pledged to secure various issues of outstanding indebtedness of the Company. Sales of such assets which are not replaced would, under the terms of applicable financing agreements, generally require payment of the indebtedness secured thereby, which indebtedness in many cases would likely exceed the immediately realizable value of such assets. TWA has relatively few non-strategic assets which it could monetize, substantially all of such assets being subject to various liens and security interests which would restrict and/or limit the ability of TWA to realize any significant proceeds from the sale thereof. To the extent that the Company's access to capital is constrained, the Company may not be able to make certain capital expenditures or implement certain other aspects of its strategic plan, and the Company may therefore be unable to achieve the full benefits expected therefrom. Commitments In February 1996, TWA executed definitive agreements providing for the operating lease of 10 new 757 aircraft to be delivered in 1996 and 1997 with deliveries commencing in July 1996. Although individual aircraft rentals escalate over the term of the leases, aggregate rental obligations are estimated to average approximately $50 million per annum over the lease terms after all 10 aircraft have been delivered. These aircraft have an initial lease term of 10 years. As of February 28, 1997, the Company has taken delivery of six leased 757 aircraft. The 58 Company also entered into an agreement in February 1996 with Boeing for the purchase of ten 757-231 aircraft and related engines, spare parts and equipment for an aggregate purchase price of approximately $500 million. The agreement requires the delivery of the aircraft in 1997, 1998 and 1999, and provides for the purchase of up to ten additional aircraft. Furthermore, to the extent TWA exercises its options for additional aircraft, the Company will have the right to an equal number of additional option aircraft. TWA has obtained commitments for debt financing for approximately 80% of the total costs associated with the acquisition of eight of the original ten aircraft and obtained commitments for 100% lease financing of the total costs of the remaining two original aircraft. Such commitments are subject to, among other things, so-called material adverse change clauses which, given the Company's financial results for 1996 and anticipated results for the first quarter of 1997, could make the availability of such debt and lease financing dependent upon the lender's and lessor's ongoing evaluation of and satisfaction with the financial condition of TWA. TWA has entered into agreements with AVSA, S.A.R.L. and Rolls-Royce plc relating to the purchase of ten A330-300 twin-engine wide body aircraft and related engines, spare parts and equipment for an aggregate purchase price of approximately $1.1 billion. The agreements, as amended, require the delivery of the aircraft in 1999 and 2000 and provide for the purchase of up to ten additional aircraft. TWA has not yet made arrangements for the permanent financing of the purchases subject to the agreements. In the event of cancellation, predelivery payments of approximately $18 million would be subject to forfeiture. The Company has entered into an agreement to acquire from the manufacturer fifteen new MD-83s. The long-term leasing arrangement provides for delivery of the aircraft between the second half of 1997 and April 1999. TWA has elected to comply with the transition requirements of the Noise Act by adopting the Stage 2 aircraft phase-out/retrofit option, which requires that 50% of its base level (December 1990) Stage 2 fleet be phased- out/retrofitted by December 31, 1996, 75% by December 31, 1998 and 100% by December 31, 1999. To comply with the 1996 requirement, the Company has retrofitted, by means of engine hush-kits, 30 of its DC-9 aircraft. The aggregate cost of these hush-kits is estimated to be $49 million, most of which has been financed by lessors with repayments being facilitated through increased rental rates. At May 1, TWA's capital expenditures for 1997 were anticipated to total approximately $107 million, including approximately $91 million for flight equipment related expenditures (e.g., progress payments for aircraft and the purchase of related aircraft engines and spare parts). While the Company is seeking financing for certain of its planned capital expenditures, a substantial portion of such expenditures are expected to utilize internally generated funds. The inability to finance or otherwise fund such expenditures could materially adversely affect the ability of the Company to implement its strategic plan. See "Risk Factors--Risk Factors Related to the Company-- Substantial Indebtedness; Capital Expenditure Requirements; Liquidity." Certain Other Capital Requirements Expenditures for facilities and equipment, other than aircraft, generally are not committed prior to purchase and, therefore, no such significant commitments exist at the present time. TWA's ability to finance such expenditures will depend in part on TWA's financial condition at the time of the commitment. Availability of NOLs The Company estimates that it had, for federal income tax purposes, net operating loss carryforwards ("NOLs") amounting to approximately $625 million at December 31, 1996, which includes increases in the NOLS as originally filed. Such NOLS expire in 2008 through 2011 if not utilized before then to offset taxable income. Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), and regulations issued thereunder impose limitations on the ability of corporations to use NOLs, if the corporation experiences a more than 50% change in ownership during certain periods. In connection with the change of ownership caused by the '95 Reorganization, the Company elected to reduce its NOLs in accordance with Section 382 of the Code and 59 regulations issued thereunder. If another ownership change were to occur prior to September 1997, the annual limitation on the Company's utilization of its then existing NOLs would be reduced to zero. Changes in ownership in periods thereafter could substantially restrict the Company's ability to utilize its tax net operating loss carryforwards. The Company believes that no ownership change has occurred subsequent to the '95 Reorganization or will occur as a result of the Offering. There can be no assurance, however, that the Offering will not be a contributing factor to an ownership change or that an unrelated ownership change will not occur in the future. In addition, the NOLs are subject to examination by the IRS, and, thus, are subject to adjustment or disallowance resulting from any such IRS examination. For the foregoing reasons, prospective purchasers of the Units should not assume the unrestricted availability of the Company's currently existing NOLs, if any, in making their investment decisions. For financial reporting purposes, the tax benefits from substantially all of the tax net operating loss carryforwards will, to the extent realized in future periods, have no impact on the Company's operating results, but instead be applied to reduce reorganization value in excess of amounts allocable to identifiable assets. 60 BUSINESS TWA is the seventh largest U.S. air carrier (based on 1996 RPMs), whose primary business is transporting passengers, cargo and mail. During 1996, the Company carried more than 23.3 million passengers and flew approximately 27.3 billion RPMs. As of May 1, 1997, TWA provided regularly scheduled jet service to 86 cities in the United States, Mexico, Europe, the Middle East, Canada and the Caribbean. As of May 1, 1997, the Company's fleet consisted of 183 active jet powered aircraft. ROUTE STRUCTURE TWA's passenger airline business is the Company's chief source of revenue. TWA also carries cargo (mail and freight) on its North American and international systems. During 1996, the Company's North American operations accounted for 80% of its total revenues, while its transatlantic operations contributed 20% of total revenues. TWA's North American operations have a hub-and-spoke structure, with a primarily domestic hub at St. Louis and a domestic-international hub at JFK. The North American system serves 37 states, the District of Columbia, Puerto Rico, Mexico, Canada, and the Caribbean. TWA also participates in the charter market, flying both domestic and international charter flights. TWA's international operations consist of both nonstop and through-service from JFK and St. Louis to destinations in Europe and the Middle East. TWA's international operations are concentrated at JFK, from which it now serves 28 cities with approximately 39 daily departures. International cities served include Barcelona, Cairo, Lisbon, Madrid, Milan, Riyadh, Rome, and Tel Aviv from JFK; Paris from JFK and St. Louis; and London-Gatwick from St. Louis. OTHER ACTIVITIES In addition to TWA's passenger and cargo services, the Company operates Getaway Vacations, a tour packager offering leisure travel products and services. In addition, TWA earns revenue by providing contract maintenance services for a number of third parties. In 1997, the Company began reducing such contract maintenance service and expects this reduction to continue through 1997. FLIGHT EQUIPMENT As of May 1, 1997, TWA's active operating fleet consisted of 183 aircraft, of which 43 were owned by TWA and 140 were leased. All aircraft in use are maintained in airworthy condition in accordance with procedures approved by the FAA. The active operating aircraft owned by and leased to TWA as of May 1, 1997 are listed below.
AVERAGE AGE OF AIRCRAFT SEATS IN STANDARD TYPE OWNED(2) LEASED TOTAL(3) (IN YEARS) TWA CONFIGURATION - ---- -------- ------ -------- ----------- ----------------- Douglas DC-9-10......... -- 7 7 30.3 68 Douglas DC-9-30......... -- 36 36 27.4 98 Douglas DC-9-40......... -- 3 3 22.5 98 Douglas DC-9-50......... -- 12 12 20.3 107 Douglas MD-80/83........ -- 53 53 9.9 142 Boeing 727-200(1)....... 28 8 36 22.5 146 Boeing 747(1)........... 3 4 7 26.2 434 Boeing 757.............. 2 6 8 0.3 180 Boeing 767.............. 5 9 14 12.6 190 Lockheed L-1011(1)...... 5 2 7 24.0 254 --- --- --- ---- Total............... 43 140 183 18.3 === === ===
- -------- (1) Excludes the following aircraft which are not in the active fleet; eight Boeing 727-100s, four Boeing 727-200s, six Boeing 747-100s, two Boeing 747-200s, seven L-1011s and one MD-82 not yet in service. (2) Substantially all TWA's owned flight equipment is pledged to secure its indebtedness. (3) For information concerning compliance of the above-referenced aircraft with the Noise Act, see "--Regulatory Matters--Noise Abatement." 61 In 1997, the Company intends to replace its 11 remaining L-1011 aircraft with newer and more efficient 757s. Also in 1997, TWA plans to retire all of its 747 aircraft, some of which are to be replaced by 767 aircraft, and 10 of its older 727 aircraft, to be replaced with MD-80s. In 1996, TWA entered into agreements providing for the lease of up to 10 new 757 aircraft from a major operating lessor to be delivered in 1996 and 1997, the purchase of 10 new 757 aircraft from the manufacturer with deliveries scheduled from February 1997 to May 1999, the lease of 15 new MD-83s with deliveries scheduled from 1997 to 1999, and the lease of 9 used MD-82s with deliveries scheduled in 1997. The Company also acquired the right, subject to certain conditions, to purchase up to 20 additional 757 aircraft from the manufacturer. REAL PROPERTY TWA utilizes or has rights to utilize airport and terminal facilities located in or near the cities it serves under lease agreements or other arrangements with the governmental authorities exercising control over such facilities. At St. Louis, TWA has preferential use rights to 57 gates and 40 ticket counter positions, and ramp, baggage and other supporting ground facility space. TWA's domestic-international hub at JFK operates out of two passenger terminal facilities (Terminals 5 and 6). TWA is the lessee at JFK of a total of 27 gates, 102 ticket counter positions, and ramp, baggage and other supporting ground facility space. TWA occupies both Terminal 5 and Terminal 6 as a holdover tenant pursuant to expired agreements of lease with the Port Authority of New York and New Jersey (the "Port Authority"). Such holdover tenancies are with the consent of the Port Authority pursuant to a Term Sheet dated August 12, 1993 (the "Term Sheet"), which extended TWA's right to occupy Terminals 5 and 6, provided TWA paid the rent set forth in the Term Sheet, made certain specified financed improvements to Terminals 5 and 6, and was otherwise in compliance with the expired leases. On February 8, 1996, the Port Authority's Board of Commissioners adopted a resolution authorizing the Port Authority to enter into a new five year lease with TWA for both Terminals 5 and 6 for a term expiring on March 31, 2001; however, the lease has not yet been signed. The Company has recently consolidated for the near term most JFK operations into Terminal 5, using only limited facilities in Terminal 6. TWA is attempting to sublease the remainder of Terminal 6. TWA's overhaul base is located on approximately 250 acres of leased property at the Kansas City International Airport, Kansas City, Missouri. The overhaul base is TWA's principal maintenance base where TWA performs major maintenance and repair services for its aircraft fleet. The overhaul base is owned by the City of Kansas City, Missouri and leased to TWA along with other facilities until May 31, 2000. TWA leases office space and other facilities in a number of locations in the U.S. and abroad. In December 1993, pursuant to a sale/leaseback with the City of St. Louis, TWA leased a two-story ground operations building near the St. Louis Airport and an adjacent 165,000 square foot, five-story flight training facility. The lease of these properties is covered under a month-to-month agreement subject to automatic renewal so long as TWA is not in default thereunder, such agreement having a term otherwise expiring December 31, 2005. Such term is subject to early termination in the event of certain events of default, including non-payment of rents, cessation of service, failure to maintain corporate headquarters within the City or County of St. Louis or failure to maintain a reservations office within the City of St. Louis. For a description of certain environmental corrective actions that TWA anticipates will be required at the overhaul base, see "-- Legal Proceedings." TWA's corporate headquarters are located at One City Centre, 515 N. Sixth Street, St. Louis, Missouri where TWA has subleased approximately 56,700 square feet through February 28, 2000. TWA's St. Louis area reservation facility and customer relations department is located in approximately 48,000 square feet in the City of St. Louis, Missouri. In June 1996, TWA opened a new reservation facility in Norfolk, Virginia, comprised of approximately 40,000 square feet and having 455 work stations. The facility is leased for a twenty- five year term. TRAVEL AGENCIES Travel Agent Commissions Consistent with most other airlines, tickets sold for travel on TWA are sold by travel agents as well as directly by the Company. During 1996, approximately 78% of all tickets sold for travel on TWA were sold by 62 travel agents. In the domestic market, TWA generally pays travel agent commissions at the rate of 10% on all domestic fares. In the international market, TWA pays 11% on international tickets issued in the U.S. and 9% for tickets issued outside the U.S. Carriers (including TWA) may also pay additional commissions to travel agents as incentive for increased volume or other business directed to the carrier. Travel Agency Automation Greater than 90% of all travel agencies in the U.S. obtain their airline travel information through access to Global Distribution Systems (also referred to as Computer Reservation Systems or "CRS"). Such systems are used by travel agents to make travel reservations including airline, hotel, train, car and other bookings and allow travel agents to issue airline tickets and boarding passes. One such system is WORLDSPAN, which is owned 25%, 32%, 38% and 5% by affiliates of TWA, Delta Air Lines, Northwest Airlines, and ABACUS Distribution Systems Pte. Ltd, respectively. Management believes that the distribution of its airline products through WORLDSPAN is a key factor to the success of the Company's future operations. Systems such as WORLDSPAN have expanded distribution to the consumer via the Internet, on-line booking products, corporate and group booking products. TWA believes that its 25% ownership of WORLDSPAN assures new distribution opportunities. FREQUENT FLIGHT BONUS PROGRAM TWA initiated its FFB Program in May 1981. Frequent flyer programs like TWA's FFB Program have been adopted by most major air carriers and are considered the number one marketing tool for developing brand loyalty among travelers and accumulating demographic data pertaining to business flyers. TWA's FFB Program rewards its members with mileage credit for travel on TWA and for purchasing goods and services offered by various travel and non-travel related businesses that participate in the FFB Program including other airlines. Currently, FFB Program members receive mileage credit for airline travel on Air India, Alaska Airlines, Ladeco Airlines, Philippines Airlines and Trans States. FFB Program members may also receive mileage credit pursuant to exchange agreements maintained by TWA with a variety of entities, including hotels, car rental firms, credit card issuers and long distance telephone service companies. TWA accounts for its FFB Program under the incremental cost method, whereby travel awards are valued at the incremental cost of carrying one additional passenger. Such costs are accrued when FFB Program participants accumulate sufficient miles to be entitled to claim award certificates. Incremental costs include unit costs for passenger food, beverages and supplies, fuel, reservations, communications, liability insurance and denied boarding compensation expenses expected to be incurred on a per passenger basis. No profit or overhead margin is included in the accrual for incremental costs. No liability is recorded for airline, hotel or car rental award certificates that are to be honored by other parties because there is no cost to TWA for these awards. At December 31, 1995, FFB participants had accumulated mileage credits for approximately 660,752 free awards, compared with accumulated mileage credits for approximately 751,689 awards at December 31, 1996. Because TWA expects that some award certificates will never be redeemed, the calculations of the accrued liability for incremental costs at December 1995 and 1996 were based on approximately 70% and 71.5%, respectively, of the accumulated credits. Mileage for FFB participants who have accumulated less than the minimum number of mileage credits necessary to claim an award is excluded from the calculation of the accrual. The accrued liability at December 31, 1995 was approximately $19.0 million compared to approximately $20.4 million at December 31, 1996. TWA's customers redeemed awards representing approximately 6.3%, 6.0% and 6.0% of TWA's RPMs in 1994, 1995 and 1996, respectively. AIRCRAFT FUEL TWA's worldwide aircraft fuel requirements are met by in excess of twenty different suppliers. The Company has contracts with some of these suppliers, the terms of which vary as to price, payment terms, 63 quantities and duration. The Company also makes incremental purchases of fuel based on price and availability. To assure adequate supplies of jet fuel and to provide a measure of control over price, the Company trades fuel, ships fuel and maintains fuel storage facilities to support key locations. Petroleum product prices, including jet fuel, are primarily driven by crude oil costs. The market's alternate uses of crude oil to produce petroleum products other than jet fuel (e.g., heating oil and gasoline) as well as the adequacy of refining capacity and other supply constraints affect the price and availability of jet fuel. Changes in the price or availability of fuel could materially affect the financial results of the Company. See also "Risk Factors--Risk Factors Related to the Industry--Aircraft Fuel." During 1996, aircraft fuel prices increased significantly. The following table details TWA's fuel consumption and costs for the three years ended December 31, 1994, 1995 and 1996 and for the quarters ended March 31, 1996 and 1997:
THREE MONTHS ENDED MARCH YEAR ENDED DECEMBER 31, 31, --------------------------- -------------- 1994 1995 1996 1996 1997 -------- -------- ------- ------ ------ Gallons consumed (in mil- lions)........................ 852.2 804.2 838.9 194.3 175.5 Total cost(1) (in millions).... $477.6 $458.6 585.2 $128.4 $129.9 Average cost per gallon (cents)....................... 0.56 0.57 0.70 0.67 0.74 Percentage of operating ex- penses........................ 13.0% 13.9% 15.6% 15.5% 15.1%
- -------- (1) Excludes into-plane fees. COMPETITION Since the passage of the Airline Deregulation Act of 1978, the airline industry has been characterized by intense competition, consolidation of existing carriers and the advent of numerous low-cost low-fare new entrants. A number of airlines have filed for bankruptcy and/or ceased operations. In addition, several carriers have introduced or announced plans to introduce low-cost, short-haul service, which may result in increased competition to TWA. Airlines offer discount fares, a wide range of schedules, frequent flyer mileage programs and ground and in-flight services as competitive tools to attract passengers and increase market share. Intense price competition has accelerated the efforts of airline managements to reduce costs and improve productivity in order to withstand greater levels of discounting. TWA's services are subject to varying degrees of competition, depending in part on whether such services are operated over domestic or international routes. Because of the relative ease with which U.S. carriers can enter new markets, TWA's domestic services are subject to increases or decreases in competition from other air carriers. Changes in intensity of competition in the deregulated domestic environment cannot be predicted. The level of competition in international markets is normally governed by the terms of bilateral agreements between the U.S. and the foreign countries involved. Many of the bilateral agreements permit an unlimited number of carriers to operate between the U.S. and the foreign country. Competition in some international markets is limited to a specified number of carriers and flights on a given route by the terms of the air transport agreements between the U.S. and the foreign country. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--General" and "--Regulatory Matters." The airline industry is subject to substantial price competition as U.S. airlines are free to determine domestic pricing policies without government regulation. While the DOT retains authority over international fares, which are also subject to the jurisdiction of the governments of the foreign countries being served, the Company generally has substantial discretion with respect to its international pricing policies. While DOT authority is now required before any person may operate as an air carrier within or to and from the U.S., the Airline Deregulation Act of 1978 and the International Air Transportation Competition Act of 1979 substantially decreased previous governmental restrictions in this area. In the case of domestic operations, any person who is found to be fit, willing and able may operate as an air carrier between any two points in the U.S. Thus, TWA is able to enter new routes or suspend existing routes within the U.S. without seeking regulatory approval, and other airlines are similarly free to enter or leave TWA's domestic markets. 64 EMPLOYEES As of March 31, 1997 the Company had approximately 24,170 full-time employees (based upon full-time equivalents which include part-time employees). Of these, approximately 82% were represented by ALPA and the IAM. On March 6, 1997, the IAM was certified to replace IFFA as the bargaining representative of the Company's flight attendants. During 1994, the Company entered into the '94 Labor Agreements with ALPA, IAM and IFFA amending then existing labor agreements with each such union to, among other things, (i) eliminate certain raises scheduled to take effect in 1994 and 1995, thereby continuing certain wage and benefit concessions granted to the Company in the '92 Labor Agreements, (ii) modify existing work rules and benefit packages, and (iii) eliminate contractual "snapback" provisions contained therein which would have automatically restored wages to pre- concessionary levels for purposes of future contract negotiations. The terms of the IFFA contract remain in effect, although the flight attendants are now represented by the IAM. In addition, the Company implemented a number of similar savings initiatives with respect to domestic non-union and management employees, primarily through reducing headcount, altering benefit packages, and eliminating certain planned restorations of previous wage concessions. In exchange for the substantial cost savings realizable by the Company as a result of the foregoing, as described in more detail below, TWA (i) agreed to certain wage increases and productivity payments to its employees, (ii) issued certain equity securities of the Company to its employees, (iii) agreed to make certain future grants of equity securities and to permit such employees an opportunity to purchase certain additional securities at a discount, and (iv) effected certain amendments to the Company's Certificate of Incorporation and By-laws with respect to the election of certain directors and director voting requirements in the event of certain specified corporate actions. As part of the '94 Labor Agreements, TWA agreed with its unionized employees to a series of semi-annual 1% wage increases commencing in May 1995 and continuing through August 31, 1997 (the last such wage increase to equal 3% in the case of employees represented by ALPA and IFFA; the IAM will receive a 1% wage increase and a 2% contribution to its retirement plan on August 31, 1997). In addition to such scheduled wage increases, TWA agreed to make certain annual productivity payments to its unionized employees in the event the Company achieves certain operating profit goals set forth in the agreement. If the Company achieves such goals (established at various levels between $50 million and $200 million annually), employees will receive productivity payments in an amount to be determined based upon a sliding scale from 1% to 4% of employees' W-2 wages. Any productivity payments resulting from 1996 operations are required to be converted into wage increases. Similarly, the Company implemented comparable wage increases and productivity incentives to its non-union (including management) employees. On the '95 Effective Date, TWA issued to certain trusts established for the benefit of its unionized employees shares of Employee Preferred Stock; such stock being issued in three separate series designated the ALPA Preferred Stock, the IAM Preferred Stock and the IFFA Preferred Stock. Except for certain rights with respect to the election of directors, the Employee Preferred Stock has rights substantially identical to the Common Stock. See "Description of Capital Stock--Employee Preferred Stock." TWA also issued an aggregate of 1,026,694 shares of Common Stock to a trust established for the benefit of TWA's non-unionized employees. The value of shares issued to the Company's non-union employees was intended to reflect the estimated value to the Company of the concessions granted by employees. The equity securities issued on the '95 Effective Date resulted in the employees of the Company initially owning approximately 30% of the then outstanding Common Stock and Common equivalents of the Company. In recognition of the fact that as a result of the '95 Reorganization, the percentage of the Company's stock owned by the Company's employees was substantially reduced, the Company adopted as of the '95 Effective Date the ESIP pursuant to which the Company would commencing in 1997 grant to certain trusts established for the benefit of its union and non-union employees certain additional shares of Common Stock and Employee Preferred Stock. Under the ESIP, in any year in which the market price of the Common Stock exceeds certain target prices, the Company has agreed to issue shares in amounts sufficient to increase the aggregate percentage 65 ownership of the employees by the following percentages of the then outstanding shares of Common Stock and Common Stock equivalents: 2.0% (1997), 1.5% (1998), 1.5% (1999), 1.0% (2000), 1.0% (2001) and 1.0% (2002). The ESIP also grants to the employee trusts a right to purchase, on a quarterly basis, additional shares ("Stock Purchase Shares") in amounts of up to an aggregate of 2% of the then outstanding Common Stock and Employee Preferred Stock. Stock Purchase Shares may be purchased at 80% of the then market value of the Common Stock. In the event of a merger, consolidation or sale of all or substantially all of the assets of the Company, the ESIP provides for certain limited acceleration rights with respect to the stock grants and employee stock purchase arrangements. In addition to the scheduled grants and purchase rights described above, the ESIP provides for the Company to accelerate grants to be made in 2001 and 2002, if the Company issues additional Common Stock at a price equal to or in excess of $11 per share which results in aggregate proceeds to the Company in excess of $20 million. The ESIP also provides that if additional shares are distributed following the '95 Effective Date in respect of the '95 Reorganization, employees will be entitled to receive an additional number of shares of Common Stock and Employee Preferred Stock such that the employees will retain the same level of ownership. Union representatives and the Company have tentatively agreed that the number of shares of Employee Preferred Stock and Common Stock to be issued pursuant to the ESIP is 525,856. In addition, if the additional ESIP shares are not issued to the employees in July 1997, an additional 405,750 shares of Employee Preferred Stock and Common Stock will be issued, subject to a future credit, in that amount in the event additional shares are granted pursuant to the ESIP. The issuance of the additional shares is subject to approval by the Company's Board of Directors. The number of shares of Employee Preferred Stock outstanding at December 31, 1996 does not reflect any such additional shares. In addition to certain amendments required to effect the recapitalization of the Company, on the '95 Effective Date, TWA further amended its Certificate of Incorporation and By-laws to (i) permit certain employees represented by ALPA, the IAM and IFFA to elect four of the Company's 15 directors (the "Employee Directors"), and (ii) provide that certain extraordinary corporate actions, including mergers, sales of all or substantially all of the Company's assets or certain routes or any filing seeking protection under the bankruptcy laws, must be approved by at least six directors, including each of the Employee Directors. See "Certain Provisions of the Certificate of Incorporation, the By-laws and Delaware Law--Blocking Coalition." The '94 Labor Agreements were three year agreements but become amendable after August 31, 1997. Negotiations on a new collective bargaining agreement with the IAM regarding the Company employees represented by the IAM (other than the flight attendants), commenced in February 1997 and are currently ongoing. Negotiations on a new collective bargaining agreement with ALPA commenced in June 1997 and are currently ongoing. It is expected that negotiations with the IAM with regard to the flight attendants will commence in July 1997. Under the RLA workers whose contracts have become amendable are required to continue to work under the "status quo" (i.e., under the terms of employment antedating the amendable date) until the RLA's procedures are exhausted. Under the RLA, the Company and its unions are obligated to continue to bargain until agreement is reached or until a mediator is appointed and concludes that negotiations are deadlocked and mediation efforts have failed. The mediator must then further attempt to induce the parties to agree to arbitrate the dispute. If either party refuses to arbitrate, then the mediator must notify the parties that his efforts have failed and, after a 30-day cooling-off period, a strike or other direct action may be taken by the parties. In the opinion of management, the Company's financial resources are not as great as those of most of its competitors, and, therefore, any substantial increase in its labor costs as a result of any new labor agreements or any cessation or disruption of operations due to any strike or work action could by particularly damaging to the Company. See "Business-- Employees." REGULATORY MATTERS Slot Restrictions The Company's ability to increase its level of operations at certain domestic cities currently served is affected by the number of slots available for takeoffs and landings. At JFK, LaGuardia, Chicago O'Hare and 66 Washington National, which have been designated "High Density Airports" by the FAA, there are restrictions on the number of aircraft that may land and take off during peak hours. In the future, these take-off and landing time slot restrictions and other restrictions on the use of various airports and their facilities may result in further curtailment of services by, and increased operating costs for, individual airlines, including TWA, particularly in light of the increase in the number of airlines operating at such airports. On April 1, 1986, the FAA implemented a final rule relating to allocated slots at the High Density Airports. This rule, as since amended, contains provisions requiring the relinquishment of slots for nonuse and permits carriers, under certain circumstances, to sell, lease or trade their slots to other carriers. TWA does not anticipate losing any slots as a result of these new rules. The higher use rates required by these rules, however, increase the risk that TWA may lose slots in the future because of nonuse and decrease TWA's ability to adjust its flight schedules at the High Density Airports. For a discussion of certain slots to be used as Collateral for the Notes, see "Description of Notes--Collateral Security." Most international points served by TWA also are slot-controlled. Control over International Routes TWA's international certificates are granted by the DOT for indefinite or fixed-term periods, depending on the route. TWA is authorized to provide transatlantic service from major cities in the U.S. to points in Europe, North Africa, the Middle East and Asia. Some of these authorized routes are not currently served by TWA. Many of the European markets served by TWA are "limited entry" markets in which, as a result of agreements between the United States and foreign governments, TWA has traditionally competed with a limited number of other carriers. During the past several years, however, the U.S. government has encouraged competition in international markets and entered into bilateral agreements with various foreign governments that provide for expanded exchanges of routes and traffic rights, reduction of governmental controls over fares and avoidance of limits on capacity and charter services. Competition in international markets has increased dramatically over the past several years as major U.S. carriers have initiated and/or continued to expand their international operations. Foreign flag carriers have continued to expand service and the DOT has indicated its support for further expansion of opportunities of foreign carriers to serve new points in the U.S. No assurance can be given that TWA will continue to have the advantage of all the "limited entry" markets in which it currently operates or that additional carriers will not be permitted to operate in one or more of these markets or that TWA in general will not face substantial unexpected competition. Competition in the international market is further complicated by the fact that pricing levels on some transatlantic routes are influenced by subsidies that certain foreign carriers receive from their governments and by the presence of smaller, low- cost carriers. Certain portions of TWA's transatlantic route authority have been granted on a fixed-term basis. TWA's right to carry local traffic between London and Frankfurt expired in April 1994. In addition, on May 4, 1993, the bilateral air transport agreement between the U.S. and France lapsed. Absent a bilateral agreement, the U.S. and France are operating on a system of comity and reciprocity. Under this regime, carriers are permitted to maintain historical levels of service, but few or no new services are permitted. Cessation of service to any authorized markets from France may cause such underlying authority to terminate. Any reduction in U.S. carrier access to France could have an adverse impact on TWA's transatlantic operations. TWA's route authority between St. Louis and London-Gatwick has expired. TWA has applied for renewal of its St. Louis-Gatwick authority and continues to operate such route pending a determination of its application. While no assurance can be given, TWA believes that the St. Louis-Gatwick authority will be renewed. The operations of TWA's international system will require continued approval by the U.S. government as well as permission or authorization from the governments of the respective countries served and compliance with the laws and regulations of those countries. These authorizations, permits and rights vary considerably in their terms, particularly as to the imposition of restrictive conditions on U.S. airlines. Other DOT/FAA Regulations The DOT has the authority to regulate competitive practices, advertising and other consumer protection matters such as on-time performance, smoking policies, denied boarding, baggage liability and CRSs provided 67 to travel agents. With respect to foreign air transportation, the DOT may approve agreements between air carriers and grant antitrust immunity to those agreements. The DOT must also approve the transfer between U.S. carriers of international route certificates. The Department of Justice has the authority to approve mergers and interlocking relationships. Noise Abatement The Noise Act provides for a reduction in aircraft noise levels by commercial aircraft. Under the Noise Act, air carriers were permitted to elect to comply with the transitional requirements of the Noise Act at December 31, 1994, either by (i) phasing out, or retrofitting with noise abatement equipment, certain older aircraft known as Stage 2, or (ii) phasing in quieter aircraft, known as Stage 3. Air carriers who elected to comply by phasing out or retrofitting Stage 2 aircraft were required to phase out or retrofit at least 25% of a specified 1990 base level of such aircraft by December 31, 1994 and by at least 50% by December 31, 1996. TWA elected to comply with the final Noise Act requirements by adopting the Stage 2 aircraft phase out/retrofit option, and had reduced its specified base level of Stage 2 aircraft by 25% at December 31, 1994 and by 50% at December 31, 1996. The Company will be required to reduce its specified base level of Stage 2 aircraft by at least 75% by December 31, 1998 and 100% by December 31, 1999 or alternatively, that 75% of its total fleet meet Stage 3 requirements by December 31, 1998 and 100% on December 31, 1999. See "Risk Factors--Risk Factors Related to the Company-- Age of Fleet; Noise." As of December 31, 1996, 122, approximately 64% of TWA's active fleet, met the Stage 3 standards. TWA's ability to comply with the federal requirements within the time specified, or with more restrictive local noise restrictions, by acquiring newer aircraft and by phasing out or retrofitting older aircraft that are not in compliance with the Stage 3 standards, will depend upon its ongoing financial condition, its ability to renegotiate existing leases for such aircraft and its ability to obtain financing to acquire the requisite number of Stage 3 aircraft or retrofit kits. Although TWA has a plan to meet the federal requirements, and has already acquired a number of Stage 3 aircraft while phasing out several Stage 2 aircraft, there can be no assurance that TWA will be able to satisfy all applicable noise level requirements. See also "Risk Factors--Risk Factors Related to the Company-- Substantial Indebtedness; Capital Expenditure Requirements; Liquidity." Numerous airports have imposed restrictions such as curfews, airplane noise levels, mandatory flight paths and runway restrictions, which limit the ability of TWA and other carriers to increase services at such airports. Other jurisdictions are considering similar measures. While the Company has historically had the flexibility to schedule around these restrictions, there can be no assurance that the Company will continue to be able to work around these restrictions. The Port Authority of New York and New Jersey is considering a phaseout of Stage 2 aircraft on a more accelerated basis than that of the FAA requirement, a prohibition on additional Stage 2 flights and an expanded nighttime curfew. The FAA and air carriers, including TWA, have stated their opposition to these proposals. At this time, TWA cannot predict whether the proposals will be implemented or, if so, the timing or effect on TWA of any such implementation, which would depend on the extent to which TWA's aircraft then being used in the affected airports meet the Stage 3 requirements as well as the timing of TWA's flights. Labor The RLA governs the labor relations of employers and employees engaged in the airline industry. Comprehensive provisions are set forth in the RLA establishing the right of airline employees to organize and bargain collectively along craft or class lines and imposing a duty on air carriers and their employees to exert every reasonable effort to make and maintain collective bargaining agreements. See "--Employees." The RLA contains detailed procedures which must be exhausted before a lawful work stoppage can occur. Pursuant to the RLA, TWA has collective bargaining agreements with four domestic unions representing four separate employee groups. See "Risk Factors--Risk Factors Related to the Company--'94 Labor Agreements." Aging Aircraft Maintenance The FAA issued several ADs in 1990 mandating changes to maintenance programs for older aircraft to ensure that the oldest portion of the nation's fleet remains airworthy. The FAA required that these older aircraft 68 undergo extensive structural modifications prior to the later of the accumulation of a designated number of flight cycles or 1994 deadlines established by the various ADs. Most of the Company's aircraft are currently affected by these aging aircraft ADs. The Company monitors its fleet of aircraft to ensure safety levels which meet or exceed those mandated by the FAA. In 1995 and 1996, TWA spent approximately $2.6 million and $3.4 million, respectively, to comply with aging aircraft maintenance requirements. Based on information currently available to TWA and its current fleet plan, TWA estimates that costs associated with complying with these aging aircraft maintenance requirements will aggregate approximately $18.7 million through 2000. These cost estimates assume, among other things, that newer aircraft will replace certain of TWA's existing aircraft and as a result, the average age of TWA's fleet will be significantly reduced. There can be no assurance that TWA will be able to implement fully its fleet plan. Safety TWA is subject to FAA jurisdiction with respect to aircraft maintenance and operations, including equipment, dispatch, communications, training, flight personnel and other matters affecting air safety. The FAA has the authority to issue new or additional regulations. To ensure compliance with its regulations, the FAA requires the Company to obtain operating, airworthiness and other certificates which are subject to suspensions or revocation for cause. In addition, a combination of FAA and Occupational Safety and Health Administrative regulations on both federal and state levels apply to all of TWA's ground-based operations. Passenger Facilities Charges During 1990, Congress enacted legislation to permit airport authorities, with prior approval from the FAA, to impose passenger facility charges ("PFCs") as a means of funding local airport projects. These charges, which are intended to be collected by the airlines from their passengers and remitted to the airports, are limited to $3.00 per enplanement and to no more than $12.00 per round trip. As a result of competitive pressure, the Company and other airlines have been limited in their abilities to pass on the cost of the PFCs to passengers through fare increases. Environmental The Company is subject to regulation under major environmental laws administered by state and federal agencies, including the Clean Air Act, the Clean Water Act, the Comprehensive Environmental Response Compensation and Liability Act of 1980 and the Resource Conservation and Recovery Act. In some locations there are also county and sanitary sewer district agencies which regulate the Company. The Company believes that it is in substantial compliance with applicable environmental regulations. See, however, "--Legal Proceedings." Foreign Ownership of Shares The Federal Aviation Act of 1958 generally prohibits non-U.S. citizens from owning more than 25% of the voting interest in U.S. air carriers, including the Company. LEGAL PROCEEDINGS Icahn Litigation Tickets sold by the Company to Karabu pursuant to the Ticket Agreement are priced at levels intended to approximate current competitive discount fares available in the airline industry. TWA believes that applicable provisions of the Ticket Agreement do not allow Karabu to market or sell such tickets through travel agents to the general public. Karabu, however, has been marketing tickets through travel agents. TWA has demanded that Karabu cease doing so, and Karabu has stated that it disagrees with the Company's interpretation concerning sales through travel agents. In December 1995, the Company filed a lawsuit against Karabu, Mr. Icahn, and 69 certain affiliated companies seeking damages and to enjoin further violations of the Ticket Agreement. Mr. Icahn countered by threatening to file his own lawsuit and to declare a default on the financing of up to $200 million provided to TWA by Karabu in connection with the '93 Reorganization (the "Icahn Loans"), which financing is secured by receivables and certain flight equipment pledged under a security agreement (the "Karabu Security Agreement") with State Street Bank and Trust Company of Connecticut N.A., as security trustee (the "Security Trustee"). Mr. Icahn's position was based upon a variety of claims related to his interpretations of the Karabu Security Agreement as well as certain alleged violations of the Ticket Agreement by the Company. A violation of the Ticket Agreement by the Company could result in a cross-default under the Icahn Loans. An event of Default (as defined in the Icahn Loans), if resulting in an acceleration of the indebtedness due thereunder, would constitute a default under the instruments governing substantially all of the Company's other indebtedness and leases and would have a material adverse effect on the Company. Mr. Icahn has also alleged independent violations of the Icahn Loans, including, among other things, that the Company has not been maintaining, in accordance with the terms of the Karabu Security Agreement, certain aircraft which TWA has retired from service and stored and which are pledged as security for the Icahn Loans. To endeavor to eliminate this issue from the various disputes with Mr. Icahn and his affiliates, the Company has deposited an amount equal to the appraised fair market value of such aircraft with the Security Trustee and requested the release of the liens on such aircraft. To date, the Security Trustee has not released such liens. In addition, Mr. Icahn has asserted that the approval of the Security Trustee is required for any modification to the FAA-approved maintenance program affecting aircraft pledged as security under the Karabu Security Agreement. The parties negotiated a series of standstill agreements, pursuant to which TWA's original lawsuit was withdrawn, while the Company and Mr. Icahn endeavored to negotiate a settlement of their differences and respective claims. The final extension of such standstill agreement expired on March 20, 1996. On March 20, 1996, the Company filed a Petition (the "TWA Petition") commencing a lawsuit against Mr. Icahn, Karabu and certain other entities affiliated with Icahn (collectively, the "Icahn Defendants"). The TWA Petition, which is pending in the Circuit Court for St. Louis County, Missouri, alleges that the Icahn Defendants are violating the Ticket Agreement and otherwise tortiously interfering with the Company's business expectancy and contractual relationships, by among other things, marketing and selling tickets purchased under the Ticket Agreement to the general public through travel agents. The TWA Petition seeks a declaratory judgment finding that the Icahn Defendants have violated the Ticket Agreement, and also seeks liquidated, compensatory and punitive damages, in addition to the Company's costs and attorney's fees. The Company believes the allegations contained in the TWA Petition are meritorious. Also on March 20, 1996, TWA was named as a defendant in a complaint (the "Icahn Complaint") filed by Karabu and certain other affiliates of Mr. Icahn (the "Icahn Entities"). The Icahn Complaint alleges, among other things, that the Company has violated certain federal antitrust laws, breached the Ticket Agreement and interfered with certain existing and prospective commercial relations of the Icahn Entities. The Icahn Complaint is based upon an interpretation by Mr. Icahn and the Icahn Entities that the Ticket Agreement permits sales of tickets to the general public through travel agents. The Icahn Complaint seeks injunctive relief and actual and punitive monetary damages, as well as the Icahn Entities' costs of litigation. On June 13, 1996, following TWA's filing of a motion to dismiss the Icahn Complaint, the Icahn Entities amended the Icahn Complaint to delete the federal antitrust claims and to add new allegations and theories with respect to claimed violations of the federal antitrust laws and the Lanham Act (the "Amended Icahn Complaint"). On March 24, 1997, the United States District Court for the Southern District of New York, on the Company's motion, dismissed the suit in its entirety. The Company believes it has meritorious defenses to the allegations contained in the Amended Icahn Complaint and intends to defend itself vigorously against such allegations. On June 6, 1996, Karabu forwarded a letter to TWA advising the Company of Karabu's possible intention to instruct the PBGC to require the Security Trustee to give a 30 day default notice to TWA in respect of certain alleged instances of non-compliance by TWA with the provisions of the Karabu Security Agreement relating to, among other things, four Boeing 727-100 aircraft which are no longer being flown by TWA in active service and changes by TWA to the FAA-approved scheduled maintenance of such aircraft and other aircraft pledged 70 under the Karabu Security Agreement without obtaining approval of the Security Trustee. Karabu also forwarded with such letter a draft of a proposed complaint which it threatened to file a declaratory judgment that Karabu would be entitled to instruct the PBGC to require the Security Trustee to give TWA such notice of default. The complaint was filed in a New York state court and was served on TWA on June 28, 1996. On June 26, 1996, Karabu formally requested the PBGC to instruct the Security Trustee to give TWA a notice of default under the Karabu Security Agreement. On June 27, 1996, the PBGC declined to so instruct the Security Trustee, advising Karabu that the PBGC did not believe TWA was in default and, even if a default were determined to exist, any such default would be technical only and Karabu would not be harmed by such default. On June 28, 1996, Karabu brought an action against the PBGC in the United States District Court for the Southern District of New York, seeking a declaratory judgment for the purpose of determining Karabu's rights with respect to the Karabu Security Agreement. TWA then sought to intervene in such lawsuit and was granted the right to do so whereupon the Company filed a motion to dismiss Karabu's complaint and for summary judgment. Karabu then withdrew its separate suit in New York state court for a declaratory judgment previously filed on June 28, 1996. Although the Company intends to press its claims vigorously and believes its defenses to Mr. Icahn's claim are meritorious, it is possible that Karabu's interpretation of the Ticket Agreement regarding discount ticket sales by the Icahn Defendants to the general public through travel agents could be determined, either by a court or otherwise, to be correct. In such event, unless the Company took appropriate action to mitigate the effect of such sales, the Company could suffer significant loss of revenue that could reduce overall passenger yields on a continuing basis during the term of the Ticket Agreement. In addition, although the Company believes that no material default exists under the Karabu Security Agreement, any default by the Company under the Ticket Agreement or directly on the Icahn Loans which resulted in an acceleration of the Icahn Loans would result in a cross-default under substantially all of the Company's other indebtedness and leases and otherwise have a material adverse effect on the Company. As of March 31, 1997, an aggregate principal amount of $104.5 million was outstanding under the Icahn Loans (excluding approximately $2.5 million in accrued and unpaid interest). Other Actions On July 17, 1996, TWA Flight 800 crashed shortly after departure from JFK en route to Paris, France. There were no survivors among the 230 passengers and crew members aboard the Boeing 747 aircraft. While TWA is currently a defendant in a number of lawsuits relating to the crash, it is unable to predict the amount of claims which may ultimately be made against the Company or how those claims might be resolved. TWA maintains substantial insurance coverage, and at this time management has no reason to believe that such insurance coverage will not be sufficient to cover the claims arising from the crash. Therefore, TWA believes that the resolution of such claims will not have a material adverse effect on its financial condition or results of operations. On May 31, 1988, the U.S. Environmental Protection Agency ("EPA") filed an administrative complaint seeking civil penalties as well as other relief requiring TWA to take remedial procedures at TWA's maintenance base in Kansas City, Missouri, alleging violations resulting from TWA's past hazardous waste disposal and related environmental practices. Simultaneously, TWA became a party to a consent agreement and a consent order with the EPA pursuant to which TWA paid a civil penalty of $100,000 and agreed to implement a schedule of remedial and corrective actions and to perform environmental audits at TWA's major maintenance facilities. In September 1989, TWA and the EPA signed an administrative order of consent, which required TWA to conduct extensive investigations at or near the overhaul base and to recommend remedial action alternatives. TWA completed its investigations and on February 17, 1996, submitted a Corrective Measures Study ("CMS") to the Missouri Department of Natural Resources ("MDNR") and the EPA. It is anticipated that review and approval of the CMS by the MDNR and EPA will be completed by late 1997. Upon approval of the CMS, an additional order will be issued and the required corrective actions implemented. TWA presently estimates the cost of the corrective action activities under the existing and anticipated orders to be approximately $7 million, a majority of which represents costs associated with long-term groundwater monitoring and maintenance of the remedial systems. Although the Company believes adequate reserves have been provided for all known 71 environmental contingencies, it is possible that additional reserves might be required in the future which could have a material adverse effect on the results of operations or financial condition of the Company. However, the Company believes that the ultimate resolution of known environmental contingencies should not have a material adverse effect on the financial position or results of operations based on the Company's knowledge of similar environmental sites. On October 22, 1991, judgment in the amount of $12,336,127 was entered against TWA in an action in the United States District Court for the Southern District of New York by Travellers International A.G. and its parent company, Windsor, Inc. (collectively, "Travellers"). The action commenced in 1987, as subsequently amended, sought damages from TWA in excess of $60 million as a result of TWA's alleged breach of its contract with Travellers for the planning and operation of Getaway Vacations. In order to obtain a stay of judgment pending appeal, TWA posted a cash undertaking of $13,693,101. In connection with the '93 Reorganization, TWA sought to have the matter ultimately determined by the Bankruptcy Court. Following prolonged litigation with respect to jurisdiction, the United States Supreme Court determined that the matter should be addressed by the bankruptcy court, and in February 1994, the bankruptcy court determined the matter in a manner favorable to TWA. Upon appeal, the District Court affirmed in part and reversed in part the bankruptcy court's decision. Both parties have appealed the matter to the United States Court of Appeals for the Third Circuit. The Company believes that in the event that the District Court's decision is affirmed, the ultimate result will not be materially different than the decision of the bankruptcy court. Pursuant to the Icahn Loans, amounts received by TWA in connection with the Travellers litigation would be used to repay, in part, certain of the Company's obligations to the Icahn Entities. In February 1995, a number of actions were commenced in various federal district courts against TWA and six other major airlines, alleging that such companies conspired and agreed to fix, lower and maintain travel agent commissions on the sale of tickets for domestic air travel in violation of the United States and, in certain instances, state, antitrust laws. On May 9, 1995, TWA announced settlement, subject to court approval, of the referenced actions and reinstated the traditional 10% commission on domestic air fares. A final order has not yet been entered; however, an interim order approving the settlement has been entered. The Company believes the settlement of this case will have a favorable effect on revenues. On November 9, 1995, ValuJet Air Lines, Inc. ("ValuJet") instituted a lawsuit against TWA and Delta Air Lines ("Delta") in the United States District Court for the Northern District of Georgia, alleging breach of contract and violations of certain antitrust laws with respect to the Company's lease of certain takeoff and landing slots at LaGuardia International Airport in New York. On November 17, 1995, the court denied ValuJet's motion to temporarily enjoin the lease transaction and the Company and Delta consummated the lease of the slots. On July 12, 1996, the Federal Court in Atlanta granted summary judgment in TWA's favor in the ValuJet litigation on all claims and counts raised in the ValuJet amended complaint. The order granting summary judgment to TWA was not a final order and was not directly appealable due to an outstanding claim against Delta. While ValuJet's counsel has stated that an appeal will be filed at a later date, the Company intends to defend itself vigorously in any future action and believes that all of the allegations that have been made to date are without merit. In addition, based on certain written grievances or complaints filed by ValuJet, the Company was informed that the United States Department of Justice ("DOJ"), Antitrust Division, was investigating the circumstances of the slot lease of certain takeoff and landing slots to Delta at LaGuardia to determine whether an antitrust violation has occurred. During the course of its investigation, the DOT was informed of the summary judgment described above. Since the date of the judgment, TWA is unaware of whether the DOJ has undertaken further investigative efforts, the status of the investigation or any future plans of the DOJ or other regulatory bodies with respect to the ValuJet allegations. While TWA believes the summary judgment should be persuasive to the various regulatory bodies petitioned by ValuJet, it will cooperate with any further investigations and strongly believes that the slot lease transaction was not in violation of antitrust laws. The Company is also defending a number of other actions which have either arisen in the ordinary course of business or are insured or the cumulative effect of which management of the Company does not believe may reasonably be expected to be materially adverse. 72 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of the Company are as follows:
NAME AGE POSITION ---- --- -------- John W. Bachmann.......... 58 Director William F. Compton........ 50 Director and Executive Vice President--Operations Eugene P. Conese.......... 67 Director Gerald L. Gitner.......... 52 Chairman and Chief Executive Officer William M. Hoffman........ 49 Director Thomas H. Jacobsen........ 57 Director Myron Kaplan.............. 52 Director David M. Kennedy.......... 58 Director Merrill A. McPeak......... 61 Director Thomas F. Meagher......... 66 Director William O'Driscoll........ 68 Director G. Joseph Reddington...... 55 Director Blanche M. Touhill........ 65 Director Stephen M. Tumblin........ 36 Director William W. Winpisinger.... 72 Director Roden A. Brandt........... 61 Senior Vice President--Planning Donald M. Casey........... 61 Executive Vice President--Marketing Richard P. Magurno........ 53 Senior Vice President and General Counsel Michael J. Palumbo........ 50 Senior Vice President and Chief Financial Officer Charles J. Thibaudeau..... 51 Senior Vice President--Employee Relations
John W. Bachmann has been a director of TWA since April 1, 1996. Mr. Bachmann has been managing principal of Edward Jones since January 1980. Mr. Bachmann serves as Chairman of the St. Louis Regional Commerce and Growth Association/Civic Progress panel studying airport expansion and modernization in St. Louis. Mr. Bachmann served as a member of the U.S. Steering Committee for the Group of 30 and chaired its securities settlement implementation taskforce in 1989. He also served as Chairman of the Securities Industry Association from 1987 to 1989. Mr. Bachmann has served as a member of the Board of Governors of the Chicago Stock Exchange and as a member of the Regional Firms Advisory Board of the New York Stock Exchange. He is the Chairman of the St. Louis Symphony Society and a Trustee of Washington University and Wabash College. He is a member of the Board of Visitors of the Peter F. Drucker Center. Mr. Bachmann's term of office as a director expires with the Annual Meeting of Stockholders in 1997. William F. Compton was appointed Executive Vice President--Operations on March 13, 1997, subject to Board approval which was given on March 27, 1997. He had been acting in such position since December 14, 1996. He was the ALPA- designated director of TWA from November 3, 1993 until March 1997, at which time he resigned and was appointed a management-designated director. A pilot for TWA since September 13, 1968, Mr. Compton was an Executive Board Member and Master Chairman of the TWA Master Executive Council ("MEC") of ALPA from September 1991 to September 11, 1995, Coordinator for the Company's Productivity Task Force until September 6, 1995 and a member of the TWA Labor Advisory Committee from August 1992 until September 1995. He was Chairman of the TWA MEC Negotiating Committee from March 1988 to September 1991, a member of the ALPA National Collective Bargaining Committee from June 1988 to June 1990, and a member of the TWA MEC Negotiating Committee from June 1986 to March 1988. Mr. Compton's term of office as a director expires with the Annual Meeting of Stockholders in 1997. Mr. Compton serves as an officer of the Company at the pleasure of the Board of Directors. Eugene P. Conese has been a director of TWA since November 3, 1993. Mr. Conese has been Chairman of the Board and Chief Executive Officer of Greenwich Air Services, Inc. ("GAS") since October 1987, and Chairman of the Board and President of World Air Lease, Inc. since July 1989. He was founder of The Greenwich Company Ltd. ("GCL") and served as Chairman of the Board and Chief Executive Officer from August 1980 until December 30, 1995, when GCL was merged with and into GAS. He also served as Chief 73 Executive Officer and director of Irvin Industries, Inc. ("II") from October 1975 to October 1979, and President and member of the Board of Directors of II from September 1970 to September 1975. He is a Trustee of Iona College. Mr. Conese's term of office as a director expires with the Annual Meeting of Stockholders in 1997. Gerald L. Gitner has been Chairman and Chief Executive Officer of TWA since February 12, 1997 and a director of TWA since November 3, 1993. He has been Chairman of Avalon Group, Ltd. since April 1997, and Co-Chairman of Global Aircraft Leasing Ltd. since 1990. Mr. Gitner was Vice Chairman of Tribeca Corporation from February 1990 to December 1991, Chairman of Tribeca Corporation from December 1991 to March 1992, and President and Chief Executive Officer, ATASCO USA Inc. from September 1986 to December 1989. Mr. Gitner was President of Texas Air Corp. from 1985 to 1986, Chairman and Chief Executive Officer of Pan Am World Services from 1983 to 1985 and Vice Chairman of Pan Am World Airways Inc. from 1983 to 1985. He was a founder of People Express Airlines, Inc. and served as its President from 1980 to 1982. Mr. Gitner is a director of ICTS International, N.V. and was a trustee of Boston University from 1984 to 1996. Mr. Gitner's term of office as a director expires with the Annual Meeting of Stockholders in 1998. Mr. Gitner serves as an officer of the Company at the pleasure of the Board of Directors. William M. Hoffman has been a director of TWA since January 23, 1996. He has been a flight attendant for TWA since March 1970. Mr. Hoffman became Vice President of IFFA during 1990 and served through October 1995. He served as a member of the IFFA Executive Board from October 1980 through September 1995 and became Secretary and Treasurer of IFFA in 1983 and served through 1990. Mr. Hoffman's term of office as a director expires with the Annual Meeting of Stockholders in 1998. Thomas H. Jacobsen has been a director of TWA since March 21, 1995. He has been President, Chief Executive Officer and Chairman of the Board of Mercantile Bancorporation Inc. since 1989. Mercantile Bank National Association, formerly known as Mercantile Bank of St. Louis National Association, and a subsidiary of Mercantile Bancorporation Inc., has provided in the past and from time to time hereafter may provide depository and/or other banking products to the Company and the Company's affiliates. Mr. Jacobsen has been a director of the Student Loan Marketing Association since November 1987 and a director of Union Electric Company since April 1990. Mr. Jacobsen was Vice Chairman and director of Barnett Banks, Inc. from 1984 to 1989. Mr. Jacobsen's term of office as a director expires with the Annual Meeting of Stockholders in 1999. Myron Kaplan has been a director of TWA since November 3, 1993. He has been a partner in the law firm of Kleinberg, Kaplan, Wolff & Cohen, P.C. since 1972. Mr. Kaplan's term of office as a director expires with the Annual Meeting of Stockholders in 1998. David M. Kennedy has been Acting Executive Vice President and Chief Operating Officer since December 14, 1996, and a director of TWA since October 23, 1996. Mr. Kennedy was Chief Executive Officer of Aer Lingus from 1974 to 1988, and has held a variety of positions in the airline industry, including as director of CSA, Czechoslovak Airlines, from 1993 to 1994, member of the International Advisory Committee of Air France from 1991 to 1994, and as Aviation Consultant to the European Bank for Reconstruction and Development and the World Bank. Mr. Kennedy was a director of the Bank of Ireland from 1984 to 1995, where he served as Deputy Governor from 1989-1991. Mr. Kennedy is currently chairman of the Bank of Ireland Pension Fund, and serves as a director of CRH plc, Jurys Hotel Group Plc. and as Chairman of Drury Communications Limited. Mr. Kennedy is a part-time lecturer at the Graduate School of Business of the University College Dublin. Mr. Kennedy is a citizen of Ireland. Mr. Kennedy's term of office as a director expires with the Annual Meeting of Stockholders in 1999. Mr. Kennedy serves as an officer of the Company at the pleasure of the Board of Directors. General Merrill A. McPeak (USAF, Ret.), age 61, has been a director of TWA since May 29, 1997. He is President of McPeak and Associates, an aerospace consulting firm, and a director of ECC International Corp., Praegitzer Industries, Tektronix, Inc., and Thrustmaster, Inc. General McPeak was Chief of Staff, United States Air Force, 1990-1994, Commander-in-Chief, Pacific Air Forces, 1988-1990 and Commander, 12th Air Force, 1987-1988. He serves on the national boards of the Air Force Association, the National Aeronautic Association and the International Aerobatic Club. 74 Thomas F. Meagher has been a director of TWA since November 3, 1993 and was Chairman of the Board from November 14, 1995 to February 12, 1997 and currently serves as Lead Outside Director of the Board. Mr. Meagher has served as Chairman of the Board and Chief Executive Officer of Howell Tractor & Equipment Co. since 1980, and serves as a director of UNR Industries and Everen Securities. Mr. Meagher was Chairman of Continental Air Transport from 1983 until July 1, 1995 and was Chief Executive Officer of Continental Air Transport from 1983 to 1993. He is a retired director of Lakeside Bank of Chicago and is a former Chairman of the Airport Ground Transportation Association. He is a Trustee of St. Mary's University and DePaul University. Mr. Meagher's term of office as a director expires with the Annual Meeting of Stockholders in 1999. William O'Driscoll has been a director of TWA since November 3, 1993. Mr. O'Driscoll has been President and Directing General Chairman of IAM District Lodge 142 since August 1990. Mr. O'Driscoll's term of office as a director expires with the Annual Meeting of Stockholders in 1998. G. Joseph Reddington has been a director of TWA since November 3, 1993. He has been President and Chief Executive Officer and director of Breuner Home Furnishings Corp. since February 1997. Mr. Reddington has been a director of Loblaw Companies Ltd. since August 1994. Mr. Reddington was a director of Sears Canada, Inc. from January 1985 to February 1994. Mr. Reddington was Chairman and Chief Executive Officer of the Signature Group from April 1994 to February 1997. President and Chief Executive Officer of Sears Canada from 1989 to December 1993, and Chief Administrative Officer of Sears Merchandising Group from December 1988 to December 1989. Mr. Reddington's term of office as a director expires with the Annual Meeting of Stockholders in 1999. Blanche M. Touhill, age 65, has been a director of TWA since May 29, 1997. Since 1991, she has been Chancellor of the University of Missouri-St. Louis, where she is Professor of History and Education. She was Interim Chancellor from 1990 to 1991 and Vice Chancellor for Academic Affairs from 1987-1991. Ms. Touhill is a director of Boatmen's National Bank, Delta Dental, Christian Health Services, the Missouri Botanical Garden, the Urban League of Metropolitan St. Louis and the American Conference for Irish Studies. Stephen M. Tumblin has been a director of TWA since March 27, 1997. Mr. Tumblin is an associate with the law firm of LeBoeuf, Lamb, Greene & MacRae L.L.P. and had been with that firm since 1987. Mr. Tumblin's term of office as a director expires with the Annual Meeting of Stockholders in 1998. William W. Winpisinger has been a director of TWA since January 14, 1994. He was International President of the IAM from July 1977 to June 1989, Resident (Headquarters) Vice President of IAM from February 1972 to June 1977, Vice President for Transportation membership of IAM from August 1967 to January 1972, and Vice President of the AFL-CIO from October 1977 to October 1989. Mr. Winpisinger's term of office as a director expires with the Annual Meeting of Stockholders in 1999. Roden A. Brandt has been Senior Vice President--Planning since May 29, 1997 and served as Senior Vice President--Planning and Marketing of TWA from November 4, 1996 to May 29, 1997 and as Senior Vice President--Planning since September 3, 1996. Mr. Brandt was formerly president of Air South, a South- Carolina based start-up carrier, from 1995 to 1996. Mr. Brandt has been an airline consultant since 1984, serving clients in Europe, Asia and the Americas. Prior to 1984, he held a number of senior positions in the airline industry, including Pan American World Airways' Senior Vice President-- Planning; Vice President--Western and Pacific Division; and Vice President-- Southern Division, as well as various executive positions with Eastern Airlines. Mr. Brandt serves as an officer of the Company at the pleasure of the Board of Directors. Donald M. Casey has been Executive Vice President--Marketing since May 29, 1997. Mr. Casey was formerly a principal with Deskey Luxon Carra, a design consulting firm. In 1993, he formed Seabrook Consultants and was President, leaving the firm in 1995. From 1983 to 1993 Mr. Casey worked with Young and Rubicam in a number of executive positions. He previously worked for TWA from 1968 until 1981, including serving as Senior Vice President--Marketing from 1976 to 1981. Richard P. Magurno has been Senior Vice President and General Counsel of TWA since May 2, 1994. Mr. Magurno was a partner at Lord Day & Lord, Barrett Smith law firm, New York, New York from 1989 until May 1994. From 1970 to 1988, Mr. Magurno served in various legal capacities at Eastern Air Lines, Inc., including 75 Senior Vice President--Legal Affairs. Mr. Magurno serves as an officer of the Company at the pleasure of the Board of Directors. Michael J. Palumbo has been Senior Vice President and Chief Financial Officer of TWA since December 20, 1996. Mr. Palumbo was formerly the Company's Vice President and Treasurer and has been employed by TWA since 1994. Before joining the Company, Mr. Palumbo was a partner in HPF Associates from 1988 to 1994 and Senior Vice President and Transportation Group Head for E.F. Hutton from 1984 to 1988. Mr. Palumbo had previously served as Senior Vice President--Finance and Treasurer of Western Airlines from 1983 to 1984 and Assistant Treasurer of Pan American World Airways from 1977 to 1983. Mr. Palumbo serves as an officer of the Company at the pleasure of the Board of Directors. Charles J. Thibaudeau has been Senior Vice President -- Employee Relations of TWA since January 1993. He was also Vice President -- Employee Relations of TWA from February 1990 to January 1993 and Staff Vice President -- Employee Relations of TWA from September 1988 to February 1990. Mr. Thibaudeau serves as an officer of the Company at the pleasure of the Board of Directors. 76 PRINCIPAL HOLDERS OF CAPITAL STOCK The following table sets forth, as of June 25, 1997, certain information concerning ownership of each class of voting securities of the Company by: (i) each person who is known by the Company to own beneficially more than 5% of the voting securities of the Company, (ii) each current director individually, (iii) the chief executive officer and the five other senior executive officers and (iv) all current directors and executive officers of the Company as a group. The determinations of "beneficial ownership" of voting securities are based upon Rule 13d-3 under the Exchange Act. Such rule provides that the securities will be deemed "beneficially owned" where a person has, either solely or in conjunction with others, the power to vote or to direct the voting of securities and/or the power to dispose, or to direct the disposition of, the securities or where a person has the right to acquire any such power within 60 days after the date such "beneficial ownership" is determined. Except as described below, each of the persons and groups listed below has sole voting and investment power with respect to the securities shown. PRINCIPAL HOLDERS OF COMMON STOCK(1)
AMOUNT OF PERCENT OF NAME AND ADDRESS OF BENEFICIAL OWNER OR BENEFICIAL OUTSTANDING IDENTITY OF GROUP OWNERSHIP(2) VOTING SECURITIES(2) - --------------------------------------- ------------ -------------------- John W. Bachmann(3)(4)...................... 3,909 * William F. Compton(5)....................... 849 * Eugene P. Conese(3)(6)(7)(8)(9)............. 12,185 * Gerald L Gitner(3)(6)(10)................... 507,776 1.0% William M. Hoffman(11)...................... 319 * Thomas H. Jacobsen(3)(6)(7)(9).............. 19,185 * Myron Kaplan(3)(4)(6)(9)(12)................ 10,731 * David M. Kennedy(3)......................... 1,000 * Merrill A. McPeak(3)........................ 1,514 * Thomas F. Meagher(3)(9)(13)(14)............. 12,164 * William O'Driscoll(15)...................... 202,455 * G. Joseph Reddington(3)(4)(6)(9)(13)........ 11,231 * Blanche M. Touhill(3)....................... 1,000 * Stephen M. Tumblin(3)....................... 1,000 * William W. Winpisinger(3)(9)(13)(16)........ 6,888 * Roden A. Brandt(17)......................... 0 * Donald M. Casey(17)......................... 2,500 * Richard P. Magurno(17)(18)(19).............. 1,155,698 2.3% Michael J. Palumbo(17)(18)(20).............. 62,319 * Charles J. Thibaudeau(17)(18)............... 921,474 1.8% Total Shares owned by Current Directors and Current Executive Officers, as a group (20 individuals)(21)....................... 2,934,197 5.8%
- -------- (notes continued on following page) * Less than 1% (1) On March 19, 1997, Prince Al-Waleed Bin Talal Bin Abdulaziz Al-Saud of Saudi Arabia informed the Company that he had purchased 2,088,000 shares of Common Stock, representing approximately 5% of the outstanding stock. (2) Includes securities issuable pursuant to options exercisable within 60 days. (3) Pursuant to the Company's 1995 Outside Directors' Stock Ownership and Stock Option Plan (the "Outside Directors Plan"), each outside director may elect to defer some or all of his or her annual retainer by participating in a Deferred Retained Program (as defined in the Outside Directors Plan). Participating directors are entitled to receive annual credits to their deferred retainer accounts equaling the percentage of his or her retainer to be received in shares of Common Stock times the annual retainer amount payable to such outside director divided by (i) with respect to 1996, $4.1875, the subscription price of the Company's September 1995 equity rights offering (the "Subscription Price") and (ii) with respect to 1997, $6.875, the fair market value of the Common Stock on January 2, 1997. Upon the earlier to occur of December 31, 2000 and the last date of a participating director's service on the Board, such director is entitled to a payment equal to (i) the total number of shares of Common Stock in the director's deferred retainer account, (ii) cash equaling the number of shares of Common Stock contained in the deferred retainer account times the Fair Market Value (as defined in the Outside Directors Plan) of the Common Stock on the date the retainer becomes payable or (iii) a combination of (i) and (ii). 77 (4) Messrs. Bachmann, Kaplan and Reddington each elected to defer 50% of 1997 retainer amounts payable to them in a deferred retainer account. Constitutes or includes 1,455 shares of Common Stock issuable to such outside director pursuant to the Outside Directors Plan in the event of his termination from service on the Board within 60 days assuming such director elects to receive the entire balance of his deferred retainer account in shares of Common Stock. (5) Excludes approximately 932 shares of Employee Preferred Stock attributable to Mr. Compton's beneficial interest in the TWA Air Line Pilots Supplemental Stock Plan. Excludes shares owned by his wife pursuant to her beneficial interest in the IAM Trans World Airlines Employees' Stock Ownership Plan for Flight Attendants (the "Flight Attendant Trust") and other shares as to which she is the record holder. Mr. Compton disclaims beneficial ownership of all shares held by his wife. Mr. Compton is the record holder of 849 shares of Common Stock. (6) Messrs. Conese, Gitner, Jacobsen, Kaplan, and Reddington each elected to defer all 1996 retainer amounts payable to them in a deferred retainer account. Constitutes or includes 4,776 shares of Common Stock issuable to such outside director pursuant to the Outside Directors Plan in the event of his termination from service on the Board within 60 days, assuming such director elects to receive the entire balance of his deferred retainer account in shares of Common Stock. (7) Messrs. Conese and Jacobsen each elected to defer all 1997 retainer amounts payable to them in a deferred retainer account. Constitutes or includes 2,909 shares of Common Stock issuable to such outside director pursuant to the Outside Directors Plan in the event of his termination from service on the Board within 60 days, assuming such director elects to receive the entire balance of his deferred retainer account in shares of Common Stock. (8) Includes warrants to purchase 49 shares of Common Stock at a price of $14.40 per share. (9) Includes 1,500 options granted pursuant to the Outside Directors' Plan and which will vest within 60 days for Messrs. Conese, Jacobsen, Kaplan, Meagher, Reddington and Winpisinger. (10) Includes 500,000 shares of Common Stock issuable upon the exercise of vested options granted to Mr. Gitner pursuant to the KESIP. (11) Includes approximately 16 shares held for Mr. Hoffman's benefit as a TWA employee in the Flight Attendant Trust. Except for the 16 shares described above, Mr. Hoffman disclaims beneficial ownership of the shares held by the IFFA Trust. Mr. Hoffman is also the beneficial owner of an undetermined amount of Common Stock which has not yet been issued or allocated, which is to be distributed to Mr. Hoffman as a TWA employee as a result of IFFA litigation against TWA settled in the course of the '93 Reorganization. Mr. Hoffman is the record holder of 295 shares of Common Stock. (12) These shares are held by Mr. Kaplan for the benefit of the firm of Kleinberg, Kaplan, Wolff & Cohen, P.C., of which Mr. Kaplan is a member. (13) Pursuant to the Outside Directors Plan, such outside director was granted the right to purchase up to 3,000 shares of Common Stock at the Subscription Price. Includes 3,000 shares of Common Stock issuable upon exercise of this right. (14) Mr. Meagher elected to defer all 1996 retainer amounts payable to him in a deferred retainer account. Constitutes 7,164 shares of Common Stock issuable to Mr. Meagher pursuant to the Outside Directors Plan in the event of his termination from service on the Board within 60 days, assuming Mr. Meagher elects to receive the entire balance of his deferred retainer account in shares of Common Stock. (15) 163,145 shares are held by Mr. O'Driscoll as a member of the IAM Plan Trust Committee of the IAM Trans World Airlines Employees' Stock Ownership Plan (the "IAM Trust"), along with Mr. Gary Poos. 39,310 shaes are held by Mr. O'Driscoll as a member of the Trustee Committee of the Flight Attendant Trust, along with Sherry Cooper and Rocky Miller. Mr. O'Driscoll disclaims beneficial ownership of the shares held by the IAM Trust and the Flight Attendant Trust. (16) Mr. Winpisinger elected to defer 50% of 1996 retainer amounts payable to him in a deferred retainer account. Includes 2,388 shares of Common Stock issuable to Mr. Winpisinger pursuant to the Outside Directors Plan in the event of his termination from service on the Board within 60 days, assuming Mr. Winpisinger elects to receive the entire balance of his deferred retainer account in shares of Common Stock. (17) Does not include unvested options to purchase shares of Common Stock pursuant to the KESIP. (18) Approximately 1,958, 1,119 and 1,725 shares attributable to the respective beneficial interests of Messrs. Magurno, Palumbo and Thibaudeau are held by the employee stock ownership trust established for the benefit of TWA's non-contract employees (the "Non-Contract Employees Trust"). Except for such shares, Messrs. Magurno, Palumbo and Thibaudeau disclaim beneficial ownership of the shares held by the Non-Contract Employees Trust. Messrs. Magurno and Thibaudeau serve as members of the committee having the power to direct the vote of the shares of Common Stock held in the Non-Contract Employees Trust. Such trust holds 921,474 shares. (19) Includes 234,234 shares of Common Stock issuable upon the exercise of vested options granted to Mr. Magurno pursuant to the KESIP. (20) Includes 61,200 shares of Common Stock issuable upon the exercise of vested options granted to Mr. Palumbo pursuant to the KESIP. (21) When combined with shares of Employee Preferred Stock beneficially held by current directors and current executive officers, as a group, represents a total of 7,444,869 shares of the Company's voting securities. 78 DESCRIPTION OF NOTES The Company issued the Old Notes and will issue the New Notes under the Indenture dated as of March 31, 1997 by and between the Company and First Security Bank, National Association, as trustee (the "Trustee"), a copy of which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The Notes are entitled to the benefits of and are subject to those terms set forth in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "TIA") as in effect on the date of the Indenture. Copies of the Indenture can be obtained from the Company upon request. The following description of material provisions of the Indenture, the Notes, the Pledge and Security Agreement (as defined), the Slot Trust Agreement (as defined) and the Master Sub-License Agreement (as defined) is intended as a summary only and is qualified by reference to those documents, including the definitions in those documents of material terms. (The Pledge and Security Agreement, the Slot Trust Agreement and the Master Sub-License Agreement, collectively, the "Collateral Documents".) Whenever particular articles, sections or defined terms of the Notes, the Indenture, the Registration Rights Agreement or the Collateral Documents are referred to, it is intended that those articles, sections or defined terms are to be incorporated herein by reference. GENERAL The Notes are senior secured obligations of the Company and will mature on April 1, 2002. The Notes are not redeemable prior to maturity. The Notes will bear interest at the annual rate of 12% from the date of original issuance, or from the most recent interest payment date to which interest has been paid or provided for, payable semiannually in arrears on April 1 and October 1 of each year, commencing on October 1, 1997, to the person in whose name the Note is registered at the close of business on the preceding March 15 and September 15, as the case may be. Interest and Liquidated Damages, if any, will be payable to the holders of record as they appear on the register of the Company kept by the registrar on such record dates. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Notes will not be subject to any sinking fund. Principal of and premium, if any, and interest on, and Liquidated Damages, if any, with respect to, the Notes will be payable, and the transfer of the Notes will be registrable, at the office or agency of the Company maintained for such purposes. In addition, payment of interest and Liquidated Damages, if any, may, at the option of the Company, be made by check mailed to the address of the person entitled thereto as it appears in the register of the holders of Notes. The Trustee will initially act as paying agent, registrar and tender agent (for tender of the Notes in payment of the exercise price of the Warrants) for the Notes. The Company may change the paying agent, registrar and tender agent in accordance with the Indenture. The Notes are issued only in fully registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. Holders will not be charged for any registration of transfer or exchange of the Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection with any such transaction. The Indenture does not contain any restriction on the payment of dividends or the repurchase of securities of the Company (except with respect to the capital stock of the Company and, subject to certain exceptions, in the case of an event of default or a default of the type set forth in clauses (i), (ii), (iv), or (vii) under the heading "Description of Notes--Events of Default.") or any financial covenants. The covenants and provisions contained in the Notes and the Indenture would not necessarily afford the holders of the Notes protection in the event of a highly leveraged transaction involving the Company. RANKING The Notes are senior secured obligations of the Company and rank pari passu in right of payment with other senior obligations of the Company. None of the Company's outstanding indebtedness is senior to the Notes. As of March 31, 1997, after giving effect to the issuance of the Units and the application of the proceeds therefrom, the Company's senior indebtedness outstanding was approximately $1,072 million. While unsecured indebtedness ranks pari passu with the Notes in right of payment, the holders of the Notes may, to the exclusion of unsecured creditors, look to the Collateral as security for the Notes unless and until the Notes are satisfied in full. See "--Collateral Security" and "--Certain Bankruptcy Limitations." 79 There is no limitation in the Indenture on the amount of additional indebtedness which ranks pari passu in right of payment with the Notes or additional subordinated indebtedness which may be incurred. EXCHANGE OFFER; REGISTRATION RIGHTS The Company has filed the Registration Statement of which this Prospectus is a part, and will commence the Exchange Offer, pursuant to the Registration Rights Agreement. In the event that applicable interpretations of the staff of the Commission do not permit the Company to effect the Exchange Offer, or if for any other reason the Exchange Offer is not consummated within 180 days of the date of the Registration Rights Agreement, or if the Initial Purchaser so requests with respect to Old Notes not eligible to be exchanged for New Notes in the Exchange Offer, or if any holder of Old Notes is not eligible to participate in the Exchange Offer or does not receive freely tradable New Notes in the Exchange Offer, the Company will, at its cost, (a) as promptly as practicable, file a shelf registration statement (the "Shelf Registration Statement") covering resales of the Old Notes or the New Notes, as the case may be, (b) use its best efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act and (c) keep the Shelf Registration Statement effective until the earlier of (i) the time when Notes covered by the Shelf Registration Statement can be sold pursuant to Rule 144 without any limitations under clauses (c), (e), (f) and (h) of Rule 144 and (ii) two years from the date of original issuance thereof. The Company will, in the event a Shelf Registration Statement is filed, among other things, provide to each holder for whom such Shelf Registration Statement was filed copies of the prospectus which is a part of the Shelf Registration Statement, notify each such holder when the Shelf Registration Statement has become effective and take certain other actions as are required to permit unrestricted resales of the Old Notes or the New Notes, as the case may be. A holder selling such Old Notes or New Notes pursuant to the Shelf Registration Statement generally would be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement which are applicable to such holder (including certain indemnification obligations). If (i) on or prior to 60 days after the date of original issuance of the Notes, neither the Exchange Offer Registration Statement nor the Shelf Registration Statement has been filed with the Commission; (ii) on or prior to 120 days after the original issuance of the Old Notes, neither the Exchange Offer is consummated nor the Shelf Registration Statement is declared effective; or (iii) after either the Exchange Offer Registration Statement or the Shelf Registration Statement is declared effective, such registration statement thereafter ceases to be effective or usable (subject to certain exceptions) in connection with resales of Notes or Exchange Notes in accordance with and during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (i) through (iii), a "Registration Default"), the Company will pay liquidated damages ("Liquidated Damages") to each Holder of Old Notes or New Notes that are, at the time of the Registration Default, subject to certain transfer restrictions under the Securities Act ("Transfer Restricted Notes") as more fully described in the Registration Rights Agreement, during the first 90-day period immediately following such Registration Default in an amount equal to $0.05 per week per Transfer Restricted Note held by such Holder. The amount of the Liquidated Damages will increase by an additional $0.05 per week per Transfer Restricted Note for each subsequent 90-day period until the Exchange Offer Registration Statement or Shelf Registration Statement is declared effective or such registration statement again becomes effective, as the case may be, up to a maximum Liquidated Damages with respect to any Registration Default of $0.25 per week per Transfer Restricted Note. Such Liquidated Damages are payable in addition to any other interest payable from time to time with respect to the Notes and the Exchange Notes. If the Company effects the Exchange Offer, it will be entitled to close the Exchange Offer 30 days after the commencement thereof provided that it has accepted all Notes theretofore validly tendered in accordance with the terms of the Exchange Offer. The summary herein of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject, and is qualified in its entirety by reference, to all of the provisions of the Registration Rights Agreement, a copy of which is available upon request to the Company. 80 PURCHASE OF NOTES AT THE OPTION OF HOLDERS UPON A CHANGE IN CONTROL Upon a Change in Control of the Company, each holder of Notes shall have the right upon receipt of a Repurchase Right Notice (as defined in the Indenture), at such holder's option, to require the Company to repurchase all of such holder's Notes, or a portion thereof which is $1,000 or any integral multiple thereof, on the date that is no later than 45 days after the date of the Repurchase Right Notice (the "Repurchase Date") at a repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, with respect to the Notes, in each case, to the Repurchase Date. On or before the 30th day following any Change in Control, the Company, or, at the request of the Company, the Trustee shall mail the Repurchase Right Notice to each holder of record of the Notes and the Trustee stating (i) that a Change in Control has occurred and that such holder has the right to require the Company to repurchase such holder's Notes, (ii) the Repurchase Date, (iii) the date by which the right to cause repurchase must be exercised, (iv) the price at which such repurchase is to be made, if the right to cause repurchase is exercised and (v) a description of the procedure which such holder must follow to exercise a right to cause repurchase. The Company shall deliver a copy of the Repurchase Right Notice to the Trustee and also place such notice in a financial newspaper of general circulation in New York City. No failure of the Company to give the foregoing notice shall limit any such holder's right to exercise a repurchase right. To exercise the repurchase right, on or before the 30th day after the date of the Repurchase Right Notice, holders of Notes must deliver written notice to the Company (or an agent designated by the Company for such purposes) of the holder's election to exercise such right, together with the Notes with respect to which the right is being exercised, duly endorsed for transfer. Such written notice shall be irrevocable on or after the 5th business day prior to the Repurchase Date. The right to require the repurchase of Notes shall terminate after a discharge of the Company from its obligations under the Notes and the Indenture in accordance therewith. See "--Satisfaction and Discharge of the Indenture." Repurchase of the Notes may, under certain circumstances, constitute a default or event of default under senior indebtedness then outstanding and, in such instances, repurchase of the Notes would be prohibited unless and until such default has been cured or waived. The failure to repurchase the Notes in such instance would constitute an Event of Default. See "--Events of Default." If the Repurchase Date is between a regular record date for the payment of interest and the next succeeding interest payment date, Notes to be repurchased must be accompanied by payment of an amount equal to the interest and Liquidated Damages, if any, payable on such succeeding interest payment date on the principal amount to be repurchased, and the interest on the principal amount of the Note being repurchased, and Liquidated Damages, if any, with respect thereto, will be paid on such next succeeding interest payment date to the registered holder of such Note on the immediately preceding record date. A Note repurchased on an interest payment date need not be accompanied by any payment, and the interest on the principal amount of the Note being repurchased and Liquidated Damages, if any, with respect thereto, will be paid on such interest payment date to the registered holder of such Note on the corresponding record date. Future indebtedness of the Company may contain prohibitions on the occurrence of certain events that would constitute a Change in Control or require such indebtedness to be purchased upon a Change in Control. Moreover, the exercise by the holders of their right to require the Company to repurchase the Notes could cause a default under such indebtedness, even if the Change in Control itself does not, due to the financial effect of such purchase on the Company. Finally, the Company's ability to pay cash to the holders of Notes following the occurrence of a Change in Control may be limited by the Company's then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases. The provisions under the Indenture relative to the Company's obligation to make an offer to repurchase the Notes as a result of a Change in Control may be waived or modified with the written consent of the holders of a majority in principal amount of the Notes. 81 If any repurchase pursuant to the foregoing provisions constitutes an "issuer tender offer" as defined in Rule 13e-4 under the Exchange Act, the Company will comply with the requirements of Rule 13e-4, Rule 14e-1 and any other tender offer rules under the Exchange Act which then may be applicable, including the filing of an Issuer Tender Offer Statement on Schedule 13E-4 with the Commission and the furnishing of certain information contained therein to the Note holders. One of the events which constitutes a Change in Control under the Indenture is the disposition of "all or substantially all" of the Company's assets. This term has not been interpreted under New York law (the law governing the Indenture) to represent a specific quantitative test. As a consequence, in the event the holders of the Notes elect to require the Company to repurchase the Notes and the Company elects to contest such election, there can be no assurance as to how a court interpreting New York law would interpret the phrase. The Company could, in the future, enter into certain significant transactions that would not constitute a Change in Control with respect to the Change in Control purchase feature of the Notes. The Change in Control purchase feature of the Notes may in certain circumstances make more difficult or discourage a takeover of the Company and, thus, the removal of incumbent management. The Change in Control purchase feature, however, is not the result of, to management's knowledge, any specific effort to obtain control of the Company by means of a merger, tender offer, solicitation or otherwise, nor is it part of a plan by management to adopt a series of anti-takeover provisions. MERGER, SALE OR CONSOLIDATION Without limitation of the provisions of the Indenture described above regarding a Change in Control, the Company may merge, consolidate or transfer all or substantially all of its properties and assets and the Company may permit any person to consolidate with or merge into the Company, or transfer or lease all or substantially all of its properties and assets to the Company; provided that, among other things, (a) the successor person is the Company or another corporation organized and existing under the laws of the United States, any state thereof or the District of Columbia that assumes the Company's obligations on the Notes and under the Indenture and (b) immediately before and immediately after giving effect to such transaction, no Event of Default (as defined in the Indenture) shall have occurred and be continuing. Upon any permitted consolidation, merger or conveyance or transfer of the properties and assets of all or substantially all of the assets of the Company, the surviving or acquiring entity, as the case may be (if other than the Company), shall succeed to, and be substituted for, the Company under the Indenture, the Securities and the other Operative Documents, and the Company shall be discharged from liability therefore. EVENTS OF DEFAULT The following shall constitute "Events of Default" with respect to the Notes: (i) failure to pay the principal of, premium, if any, on, or Change in Control repurchase amount, if any, with respect to, any Note when such amounts become due and payable at maturity, upon acceleration or otherwise, (ii) failure to pay interest or Liquidated Damages on the Notes when due, where such failure continues for a 30-day period; (iii) a default in the observance or performance of certain covenants or agreements of the Company in the Indenture and the Collateral Documents that continues for the relevant period specified therein, (iv) any representation or warranty of the Company in the Indenture or any of the Collateral Documents shall prove to have been untrue in any material respect when made and such default continues for the period and after the notice specified below, or a default in any material respect in the observance or performance of any other covenant or agreement of the Company in the Notes, the Indenture or any of the Collateral Documents, in each case that continues for the period and after the notice specified below; (v) an event of default shall have occurred and be continuing under any other evidence of indebtedness of the Company, whether such indebtedness now exists or is created hereafter, which event of default results in the acceleration of such indebtedness which, together with any such other indebtedness so accelerated, aggregates more than $15 million and such acceleration is not rescinded or indebtedness is not paid or discharged for the period and after the notice specified below; (vi) any final judgment 82 or judgments for payment of money in excess of $15 million in the aggregate shall be rendered against the Company and shall remain unstayed, unsatisfied and undischarged for the period and after the notice specified below and (vii) certain events of bankruptcy, insolvency or reorganization. The Company is required to deliver to the Trustee within 120 days after the end of each fiscal year of the Company, an officer's certificate stating whether or not the signatories know of any default by the Company under the Indenture and the Notes and, if any default exists, describing such default. A default under clause (iv), (v) or (vi) above is not an Event of Default until the Trustee or the holders of at least 25% in principal amount of the then outstanding Notes notify the Company of the default and the Company does not cure the default within 60 days with respect to clauses (iv) or (vi), or within 30 days with respect to clause (v), after receipt of the notice. The notice must specify the default, demand that it be remedied and state that the notice is a "Notice of Default." If the holders of 25% or more in principal amount of the then outstanding Notes request the Trustee to give such notice on their behalf, the Trustee shall do so. In case an Event of Default (other than an Event of Default resulting from bankruptcy, insolvency or reorganization) shall have occurred and be continuing, the Trustee, by notice to the Company, or the holders of 25% or more of the principal amount of the Notes than outstanding, by notice to the Company and the Trustee, may declare the principal amount of the Notes, plus accrued interest and Liquidated Damages, if any, to be immediately due and payable. In case an Event of Default resulting from certain events of bankruptcy, insolvency or reorganization shall occur, such amounts shall be due and payable without any declaration or any act on the part of the Trustee or the holders of the Notes. Such declaration of acceleration may be rescinded and past defaults may be waived by the holders of a majority of the principal amount of the Notes then outstanding upon conditions provided in the Indenture, except a default in the payment of principal, or interest on, or Liquidated Damages, if any, with respect to, any Note cannot be waived or amended without payment of the amount then due otherwise than for the acceleration. Except to enforce the right to receive payment when due of principal, premium, if any, interest, and Liquidated Damages, if any, no holder of a Note may institute any proceeding with respect to the Indenture or the Notes or for any remedy thereunder unless such holder has previously given to the Trustee written notice of a continuing Event of Default and unless the holders of 25% or more of the principal amount of the Notes then outstanding have requested the Trustee to institute proceedings in respect of such Event of Default and have offered the Trustee reasonable indemnity against loss, liability and expense to be thereby incurred, the Trustee has failed so to act for 60 days after receipt of the same and during such 60-day period the holders of a majority of the principal amount of the Notes then outstanding have not given the Trustee a direction inconsistent with the request. Subject to certain restrictions, the holders of a majority in principal amount of the Notes then outstanding will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee with respect to the Collateral or otherwise or exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture, that is unduly prejudicial to the rights of any holder of a Note or that would involve the Trustee in personal liability and the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. MODIFICATIONS AND WAIVERS OF THE INDENTURE Supplemental indentures modifying or amending the Indenture may be made by the Company and the Trustee with the consent of the holders of not less than a majority in aggregate principal amount of the then outstanding Notes; provided, however, that no such modification or amendment may, without the consent of the holders of each Note affected thereby, (a) extend the fixed maturity of any Note, reduce the rate or extend the time of payment of interest on, or Liquidated Damages, if any, with respect to, any Note, reduce the principal amount, or premium, if any, on, or Liquidated Damages, if any, with respect to, any Note, impair the right of a holder to institute suit for payment thereof, or change the place of payment of the Notes, or the currency in which the Notes are payable or (b) reduce the percentage of Notes, the consent of the holders of which is required for any modification or waiver. Without the consent of any holders of the Notes, the Company and the Trustee may amend or supplement the Notes, the Indenture or any Collateral Document to (i) provide for uncertificated Notes in addition to or in place of certificated Notes, (ii) provide for the assumption of the Company's obligations to 83 holders of the Notes in the case of a merger or consolidation or transfer of all or substantially all of the Company's assets, (iii) comply with the TIA, or (iv) cure any ambiguity, defect or inconsistency, or make any other change, in each case provided that such action does not materially adversely affect the interests of the holders of the Notes. The holders of a majority in aggregate principal amount of outstanding Notes may waive any past default under the Indenture, except a default in the payment of principal, premium, if any, interest or Liquidated Damages, if any, or default with respect to certain covenants under the Indenture. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS No past, present or future director, officer, employee, agent, manager, stockholder or other affiliate, as such, of the Company shall have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of the Notes by accepting a Note waives and releases all such liability. SATISFACTION AND DISCHARGE OF THE INDENTURE The Indenture provides that the Company may terminate its obligations under the Indenture and obtain the release of the Collateral at any time by delivering all outstanding Notes to the Trustee for cancellation and paying all sums required to be paid pursuant to the terms of the Indenture. In addition, the Company will be permitted to terminate all of its obligations under the Indenture and obtain the release of the Collateral by irrevocably depositing with the Trustee money or U.S. government obligations sufficient to pay principal of and interest on and Liquidated Damages, if any, with respect to the Notes to maturity or redemption and all other sums payable pursuant to the terms of the Indenture, after complying with certain other procedures set forth in the Indenture. TRANSFER AND EXCHANGE A holder may transfer or exchange the Notes in accordance with the Indenture. The Company may require a holder to, among other things, furnish appropriate endorsements and transfer documents and pay any taxes and fees required by law or permitted by the Indenture. For a description of the restrictions on the transfer of Notes, see "Transfer Restrictions." The registered holder of a Note may be treated as the owner of it for all purposes. DELIVERY AND FORM The Notes are issued in registered form. REPORTS As soon as practicable after it files them with the Commission, the Company shall deliver to the Trustee and to each holder of a Note, at the address as set forth in the register of the Company with respect thereto, copies of the annual reports, quarterly reports and the information, documents and other reports which the Company furnished by it to its stockholders generally. Concurrently with the reports delivered to the preceding paragraph, the Company is required to furnish the Trustee an officer's certificate to the effect that such officer has conducted or supervised a review of the activities of the Company and of performance under the Indenture and that, to the knowledge of such officer, based on such review, the Company has fulfilled all of its obligations under the Indenture or, if there has been a default, specifying each default known to him, its nature and status. 84 CONCERNING THE TRUSTEE The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. Subject to the TIA, the Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest, as described in the TIA, it must eliminate such conflict or resign. The Trustee shall have a lien prior to the Notes on all money or property held or collected by the Trustee or otherwise distributable to holders of Notes (except money, securities or property held in trust to pay principal and/or interest on particular Notes) to secure the Company's payment and indemnity obligations to the Trustee (as trustee under the Indenture, as collateral agent under the Pledge and Security Agreement (defined below) and as slot trustee under the Slot Trust described below). GOVERNING LAW The Indenture provides that it and the Notes will be governed by, and construed in accordance with, the laws of the State of New York. COLLATERAL SECURITY The indebtedness evidenced by the Notes is secured by a lien on (i) the Company's beneficial interest in its FAA-designated take-off and landing time slots at three high-density, capacity-controlled airports, (ii) certain ground equipment and (iii) the capital stock of certain TWA wholly-owned subsidiaries as described below. Slots The FAA designates certain congested airports in the United States as high density traffic airports. At such airports, the FAA determines the maximum hourly number of instrument flight rule ("IFR") take-offs and landings which may be reserved for use by air carriers and other aircraft operators. The authority granted by the FAA to conduct one IFR take-off or landing in a specified period, at one of these airports is referred to in the industry as a "slot." While the FAA has sanctioned the right to buy and sell slots, it has also been specific in stating that a slot does not represent a property right, but merely an operational authority. As such, slots are subject to complete control by the FAA and may be withdrawn without compensation at any time to fulfill the FAA's operational needs, including, but not limited to, providing slots for international or essential air service operations or eliminating slots. Further, FAA regulations provide that except in certain circumstances, the FAA shall recall any slots not utilized by an airline 80% of the time over a two consecutive month period. The FAA has proposed that this utilization requirement be increased to up to 90% under certain circumstances and with respect to certain Slots. TWA currently has the right to use (as a result of either direct distributions from the FAA or agreements with other airlines) a total of approximately 220 slots at JFK and LaGuardia airports in New York and O'Hare International Airport in Chicago each of which will be placed in a "Slot Trust" governed by a Slot Trust Agreement (the "Slots"). The Company's interest in the Slot Trust will be evidenced by a beneficial ownership certificate (the "Beneficial Interest Certificate") which will be pledged to the Trustee under the Pledge and Security Agreement. While TWA currently has sufficient slots to conduct its business and has in the past utilized such slots sufficiently to retain the right to use such slots, there can be no assurance that such slots, including one or more Slots, will not be revoked in the future by the FAA for any reason, including, but not limited to, TWA's failure to use such slots to the extent required now or in the future, or that such slots will be adequate for TWA's operations in the future. In addition, the FAA could lower or eliminate the value of a slot, including one or more Slots, by withdrawing it from the holder as part of a reallocation of slots, by creating additional Slots, by discounting the requirements for slots at the affected airport or at the affected hour or by amending or revoking the regulations or practice with respect to the sale, lease or transfer of slots. Such actions could adversely affect the value of the Collateral. The Company will retain a reversionary interest in the Slots. In addition, the Slot Trust will sub-license the right to operate the Slots to TWA for a period equal to the term of the Notes, subject to the terms of a Master Sub-License Agreement. The Master Sub-License Agreement will, subject to certain restrictions, permit TWA to, among other things, sub-license and agree to further sub-license, 85 directly or indirectly, to other air carriers the right to use Slots. These transactions, which must be confirmed by the FAA, will permit TWA to continue to operate the Slots. Upon the acceleration of TWA's obligations under the terms of Notes, the Master Sub-License Agreement automatically will terminate, whereupon TWA could no longer have the right to operate the Slots and, subject to certain limitations, all of TWA's rights (other than its reversion interest) with respect to operating the Slots would terminate. Upon the occurrence of an Event of Default under the Indenture and during the continuance thereof, TWA agrees to deliver to the Collateral Agent all consideration to be received by TWA after such Event of Default (other than the right to use a Slot as to which a person other than TWA is the holder of record at the FAA) in connection with any third party license. Ground Equipment and Stock of Certain Subsidiaries Pursuant to a pledge and security agreement (the "Pledge and Security Agreement") the Notes are also secured by (i) the pledge by the Company of all the outstanding capital stock of the Pledged Subsidiaries and (ii) a floating lien on the Company's defined "ground equipment" owned and used by the Company from time to time and located at domestic airport locations served by the Company, other than any such ground equipment (i) located from time to time at St. Louis, LaGuardia, JFK, Newark, TWA's Kansas City overhaul base or any other maintenance base of TWA or (ii) subject to any existing or future purchase money liens and encumbrances and ordinary course refinancing thereof (such non-excluded defined "ground equipment," the "Ground Equipment"). The value of the Pledged Securities depends upon, among other things, the value of the assets of the Pledged Subsidiaries, which consist largely of such subsidiaries' interest in their respective Subsidiary Facilities Leases. The lessors under the Subsidiary Facilities Leases are various governmental authorities. The Subsidiary Facilities Leases generally are not assignable without consent of such lessors and many such lessors do not enter into airport facilities leases with, or permit assignment of airport facilities leases to, non-airline lessees (including subsidiaries of airlines). The Subsidiary Facilities Leases were assigned to the Pledged Subsidiaries without the consent of the lessors by special order of the bankruptcy court in the '93 Reorganization. TWA will not be required to assign any additional airport facilities leases to the Pledged Subsidiaries. In addition so long as no Event of Default has occurred and is continuing, there will be no limitation in the Indenture or the Collateral Documents on the Pledged Subsidiaries paying dividends to TWA or disposing of or otherwise dealing in their assets as such subsidiaries deem appropriate in the ordinary course of business. Accordingly, the level of assets in the Pledged Subsidiaries, and thus the value of the Pledged Securities as Collateral for the Notes, could decline significantly (for example, when Subsidiaries Facilities Leases are sold or traded for operational considerations in the course of TWA's or a Gate Subsidiaries' business). In addition, the Pledged Subsidiaries have entered into subleases (the "Facilities Subleases") of the Pledged Subsidiary Facilities with the Company. Until such time as a Pledged Subsidiary ceases to be a wholly-owned subsidiary of TWA, the rent under the Subsidiary Facilities Subleases essentially only is equal to the rent payable by the relevant Pledged Subsidiary under the relevant Subsidiary Facility Lease. General The Beneficial Interest Certificate, the Pledged Securities and Ground Equipment are sometimes herein referred to as the "Collateral." That portion of the Collateral consisting of TWA's beneficial interest in the Slots is currently pledged to secure the 12% Reset Notes. The Company is required to secure the release of that portion of the Collateral from the lien securing the 12% Reset Notes concurrently with the issue of the Notes and to pledge TWA's beneficial interest in such Slots, along with the balance of the Collateral, to the Trustee to secure the Notes. Upon the payment in full of all amounts outstanding under the Notes and the Indenture, the Master Sub-License Agreement, the Slot Trust and the Pledge and Security Agreement will terminate. In such event, the 86 primary operating authority with respect to the Slots, the Ground Equipment and the Pledged Securities will revert to TWA, provided, that if such reversion is prohibited by any then applicable law, the Master Sub-License Agreement and the Slot Trust will continue in effect until such time as the reversion of the primary operating authority with respect to the Slots is permitted. The Indenture and the Pledge and Security Agreement provide, among other things, that the Company may, among other things, (i) use and deal with the Collateral in any manner consistent with the Company's ordinary course of business, (ii) unless an Event of Default has occurred and is continuing, cause certain Collateral to be leased or subleased in accordance with the Pledge and Security Agreement and (iii) unless an Event of Default has occurred and is continuing, cause Collateral to be released from the lien of the Operative Documents upon providing specified substitute collateral, cash and/or acquired or cancelled Notes. In addition, the Collateral Documents permit the release of Collateral from the lien of the Trustee if certain collateral coverage ratios are satisfied. Generally, the Company may dispose of Ground Equipment in the ordinary course of its business so long as the defined net book value of the remaining Ground Equipment (including the net book value of all Ground Equipment acquired subsequent to the issuance of the Notes and not previously disposed) is not less than 80% of the initial defined net book value of Ground Equipment covered by the Original Appraisal (the "Ground Equipment Threshold"), The Ground Equipment Threshold can be reduced by providing specified substitute collateral, cash and/or acquired or cancelled Notes. In addition, the Company may instruct the Slot Trust to dispose of Slots in the ordinary course of business so long as (i) the ratio of fair market value (based on an appraisal not more than 20 months old and a current Company certificate) of the remaining Slots (together with any permitted substitute collateral) to the principal amount outstanding under the Notes (less cash collateral) would not thereby be reduced to below 1.2 to 1.0, and (ii) the ratio of fair market value (based on an appraisal not more than 20 months old and a current Company certificate) of the remaining Slots and Ground Equipment to the principal amount outstanding under the Notes (less cash collateral) would not thereby be reduced to below 1.5 to 1.0. The Collateral Documents also provide that (a) at such time as the aggregate outstanding principal amount of the Notes is reduced (whether through cancellation, purchase by the Company or otherwise) to 75% of the initial amount thereof, the Company will be entitled to the release of (i) the stock of one of the Gate Subsidiaries (holding various Subsidiary Gate Leases having an expected indicated aggregate fair market value according to the Original Appraisals of $7.5 million) and (ii) stock of the LAX Hangar Subsidiary (holding the LAX Hangar Lease having an expected indicated fair market value according to the Original Appraisals of $3.1 million); (b) at such time as the aggregate outstanding principal amount of the Notes has been reduced to 50% of the initial amount thereof, the Company will be entitled to the release of (i) all JFK Slots (such Slots having an aggregate expected indicated fair market value according to the Original Appraisals of $32.4 million) or Slots acquired in substitution therefor and made part of the Collateral and (ii) the stock of another Gate Subsidiary (holding various Subsidiary Gate Leases having an aggregate expected indicated fair market value according to the Original Appraisals of $10.5 million); and (c) at such time as the aggregate outstanding principal amount of the Notes has been reduced to 20% of the initial amount thereof, the Company will be entitled to the release of (i) all O'Hare Airport Slots (such Slots having an aggregate expected indicated fair market value according to the Original Appraisals of $1.25 million) or Slots acquired in substitution therefor and made part of the Collateral and (ii) all of the Ground Equipment (such Ground Equipment having an aggregate expected fair market value according to the Original Appraisals of approximately $24.2 million). All of the releases of Collateral referred to in the immediately preceding sentence will occur on the first date, on or after the satisfaction of the foregoing Note retirement thresholds, when (i) after giving effect to such release, the ratio of the aggregate fair market value of the Slots and the Ground Equipment (based on an appraisal not more than 12 months old and a current Company certificate) to the aggregate outstanding principal amount of the Notes (less cash collateral), would equal or exceed 1.5 to 1.0 and (ii) no Event of Default or Default of the type described in clauses (i), (ii), (iv) or (vii) under the heading "Description of Notes--Events of Default") shall have occurred and be continuing. Under the terms of the Pledge and Security Agreement, the Trustee, acting upon instructions from holders of at least a majority in aggregate principal amount of Notes then outstanding (the "Required Holders") will determine the circumstances under and the manner in which the Collateral may be disposed of, including, but not limited to, the determination of whether to release all or any portion of the Collateral from the liens created by the 87 Pledge and Security Agreement other than in accordance with the terms thereof and whether to foreclose on the Collateral. Upon any foreclosure, cash or other property realized by the Trustee will be applied first to pay the expenses of such foreclosure and fees and other amounts then payable to the Trustee under the Pledge and Security Agreement and the Indenture, and thereafter for the equal and ratable benefit of the holders pro rata to the aggregate principal amounts of Notes held by such holders. In connection with any release of Collateral, the Trustee shall determine whether they have received all documentation required by Section 314 of the TIA (to the extent applicable) to permit such release. Simat, Helliesen & Eichner, Inc. ("SH&E") prepared appraisals (the "Original Appraisals") of the Slots, the Ground Equipment, the LAX Hangar Lease and certain of the Subsidiary Gate Leases (the "Appraised Assets"), which appraisals indicated a fair market value of $68.2 million for the Slots, $38.6 million for the Subsidiaries Facilities Leases and of approximately $24.2 million for the Ground Equipment. In determining fair market value, SH&E first estimated the value of such Appraised Assets to TWA as a going concern, which is effectively the replacement value of such property (or approximately the current fair market value for the sale thereof by a willing buyer and a willing seller, neither being under any pressure to complete the transaction). SH&E relied substantially upon previous valuations of the Appraised Assets made by them in 1994 and 1995, and, in part, on prior research and analysis to the extent deemed relevant. Among other things, SH&E also reviewed other prior sale transactions over a period of years in order to derive comparables, made certain limited inspections where deemed appropriate, performed telephone surveys of relevant industry sources and consulted with TWA's management to the extent deemed necessary or appropriate. The appraisals by SH&E are matters of opinion only, disregard in the case of Subsidiary Facilities Leases the effects of the rights and interests of TWA under the Facilities Subleases and in any event may not reflect actual realizable values to be obtained in connection with any exercise of remedies. The value of the Appraised Assets and the Collateral in the event of liquidation will likely be less than fair market value and could be considerably below such value depending on market and economic conditions, the rapidity with which the Collateral is sought to be sold, the availability of buyers, the existence of lien or claims with respect to the Appraised Assets or the Collateral and similar factors. Accordingly, there can be no assurances that the proceeds of any sale of Collateral, including the Appraised Assets, pursuant to the Indenture and Pledge and Security Agreement following a default would be sufficient to satisfy payments due on the Notes. If such proceeds were not sufficient to repay all such amounts due on the Notes, then holders (to the extent not repaid from the proceeds of the sale of Collateral) would have only an unsecured claim against the Company's remaining assets. In addition, the ability of holders to realize upon the Collateral may be subject to certain federal bankruptcy law limitations and, due to the nature of the Collateral and Appraised Assets (particularly the Slots and Subsidiary Facilities), significant restrictions imposed by governmental authorities including the DOT and FAA. Filing and Perfection Requirements for Collateral The security interest in the Ground Equipment, Beneficial Interest Certificate and Pledged Securities was required to be duly perfected generally in accordance with applicable federal, state and local laws. The transfer of Slots to the Slot Trust was confirmed by the FAA and has been noted by the FAA in its records. RESTRICTION ON LIENS The Indenture, Pledge and Security Agreement and the Master Sub-License Agreement require that the Collateral, the Slots and the Subsidiary Facilities Leases be maintained free of any liens, other than the liens created by the Pledge and Security Agreement, certain liens currently existing, certain leasehold improvements or facility expansion liens in the case of the Subsidiary Facilities Leases, liens for taxes either not yet due and payable, liens for taxes due but whose validity is being contested in good faith by TWA, materialmen's, mechanics' or other similar liens which are not overdue for more than 60 days (except to the extent being contested in good faith by appropriate proceedings that, in the opinion of TWA, do not involve a material danger of the loss of such Slots, Gate Leases or LAX Hangar Lease), liens resulting from any litigation that is being contested in good faith by appropriate proceedings which, in the opinion of TWA, do not involve a significant danger of the loss of any of such Slots or Subsidiary Facilities Leases, judgment liens which are being appealed 88 in good faith and with respect to which a stay of execution pending appeal has been secured and other non-consensual liens that do not secure indebtedness which in the aggregate exceeds 1% of the principal amount of Notes and certain other liens. TWA has further covenanted not to permit any of the Pledged Subsidiaries to (i) own any assets other than their rights under the Subsidiary Facilities Leases, and assets related or incidental thereto, or (ii) subject to certain exceptions, incur any indebtedness for borrowed money. Any indebtedness of, or lien upon the assets of, a expansion Pledged Subsidiary could reduce the value of the Pledged Securities as collateral. CERTAIN BANKRUPTCY LIMITATIONS The right of the Trustee to repossess and dispose of the Collateral, or otherwise to exercise rights or remedies with respect to the Collateral, upon the occurrence of an Event of Default is likely to be significantly impaired by applicable bankruptcy law if a bankruptcy proceeding were to be commenced by or against the Company prior to the date when, or possibly even after, the Trustee has effected any such action. Under bankruptcy law, secured creditors such as the holders are prohibited from repossessing their security from a debtor in a bankruptcy case, or from disposing of security repossessed from such debtor, without bankruptcy court approval. Moreover, bankruptcy law permits the debtor to continue to retain and to use collateral even though the debtor is in default under the applicable debt instruments, provided generally that the secured creditor is given "adequate protection." The meaning of the term "adequate protection" may vary according to circumstances, but it is intended in general to protect the value of the secured creditor's interest in the collateral and may include cash payments or the granting of additional security, if and at such times as the court in its discretion determines, for any diminution in the value of the collateral as a result of the stay of repossession or disposition or any use of the collateral by the debtor during the pendency of the bankruptcy case. In view of the lack of a precise definition of the term "adequate protection" and the broad discretionary powers of a bankruptcy court, it is impossible to predict how long payments under the Notes could be delayed following commencement of a bankruptcy case, whether or when the Trustee could repossess or dispose of the Collateral and/or cause any Pledged Subsidiary to dispose of any of the Subsidiary Facilities Leases or whether or to what extent holders would be compensated for any delay in payment or loss or value of the Collateral through the requirement of "adequate protection." Furthermore, in the event that the bankruptcy court determines the value of the Collateral is not sufficient to repay all amounts due on the Notes, the holders would hold "undersecured claims." Applicable federal bankruptcy laws do not permit the payment and/or accrual of interest, costs and attorney's fees for "undersecured claims" during the pendency of a debtor's bankruptcy case. 89 BOOK-ENTRY, DELIVERY AND FORM GENERAL Each of the Old Notes was issued in the form of one or more fully registered Notes in global form ("Old Global Notes"), except that each of the Notes offered and sold to institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) who are not Qualified Institutional Buyers ("QIBs") or, outside the United States, to a person who is not a "U.S. person," as defined in Regulation S under the Securities Act, was delivered in certificated fully registered form only and bears a legend containing restrictions on transfers. All New Notes issued in the Exchange Offer for Old Notes represented by Old Global Notes will be represented by one or more Notes in global form (the "New Global Notes," and together with the Old Global Notes, the "Global Notes"), which will be deposited with, or on behalf of, the Depositary and registered in the name of the Depositary or its nominee. Upon issuance of the Global Notes, the Depositary or its nominee will credit, on its book-entry registration and transfer system, the number of New Notes represented by such Global Notes to the accounts of institutions that have accounts with the Depositary or its nominee ("participants"). Ownership of beneficial interests in the Global Notes will be limited to participants or persons that may hold interests through participants. Ownership of beneficial interest in such Global Notes will be shown on, and the transfer of that ownership will be effected only through, records maintained by the Depositary or its nominee (with respect to participants' interests) for such Global Securities, or by participants or persons that hold interests through participants (with respect to beneficial interests of persons other than participants). The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and laws may impair the ability to transfer or pledge beneficial interests in the Global Notes. So long as the Depositary, or its nominee, is the registered holder of any Global Notes, the Depositary or such nominee, as the case may be, will be considered the sole legal owner and holder of such Notes represented by such Global Notes for all purposes under the Indenture and the New Notes. Except as set forth below, owners of beneficial interests in Global Notes will not be entitled to have such Global Notes represented thereby registered in their names, will not receive or be entitled to receive physical delivery or Certificated Notes in exchange therefor and will not be considered to be the owners or holders of such Global Notes represented thereby for any purpose under the New Notes or the Indenture. The Company understands that under existing industry practice, in the event an owner of a beneficial interest in a Global Note desires to take any action that the Depositary, as the holder of such Global Note, is entitled to take, the Depositary would authorize the participants to take such action, and that the participants would authorize beneficial owners owning through such participants to take such action or would otherwise act upon the instructions of beneficial owners owning through them. Any payment of principal or interest due on the New Notes on any interest payment date or at maturity will be made available by the Company to the Trustee by such date. As soon as possible thereafter, the Trustee will make such payments to the Depositary or its nominee, as the case may be, as the registered owner of the Global Notes representing such New Notes in accordance with existing arrangements between the Trustee and the Depositary. The Company expects that the Depositary or its nominee, upon receipt of any payment of principal or interest in respect of the Global Notes, will credit immediately the accounts of the related participants with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Note as shown on the records of the Depositary. The Company also expects that payments by participants to owners of beneficial interests in the Global Notes held through such participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such participants. None of the Company, the Trustee, or any payment agent for the Global Notes will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests 90 in any of the Global Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests or for other aspects of the relationship between the Depositary and its participants or the relationship between such participants and the owners of beneficial interests in the Global Securities owning through such participants. As long as the New Notes are represented by a Global Note, DTC's nominee will be the holder of the New Notes and therefore will be the only entity that can exercise a right to repayment or repurchase of the New Notes. See "Description of the Notes--Change of Control." Notice by participants or by owners of beneficial interests in a Global Note held through such participants of the exercise of the option to elect repayment of beneficial interests in Notes represented by a Global Note must be transmitted to DTC in accordance with its procedures on a form required by DTC and provided to participants. In order to ensure that DTC's nominee will timely exercise a right to repayment with respect to a particular New Note, the beneficial owner of such New Note must instruct the broker or other participant to exercise a right to repayment. Different firms have cut-off times for accepting instructions from their customers and, accordingly, each beneficial owner should consult the broker or other participant through which it holds an interest in a New Note in order to ascertain the cut-off time by which such an instruction must be given in order for timely notice to be delivered to DTC. The Company will not be liable for any delay in delivery of notices of the exercise of the option to elect repayment. Unless and until exchanged in whole or in part for New Notes in definitive form in accordance with the terms of the New Notes, the Global Notes may not be transferred except as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary of any such nominee to a successor of the Depositary or a nominee of each successor. Although the Depositary has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Notes among participants of the Depositary, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Trustee nor the Company will have any responsibility for the performance by the Depositary or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. The Company and the Trustee may conclusively rely on, and shall be protected in relying on, instructions from the Depositary for all purposes. CERTIFICATED SECURITIES Upon transfer of Certificated Notes to a QIB, such Certificated Notes will be transferred to the corresponding Global Notes. Global Notes shall be exchangeable for corresponding Certificated Notes registered in the name of persons other than the Depositary or its nominee only if (A) the Depositary (i) notifies the Company that it is unwilling or unable to continue as Depositary for any of the Global Notes or (ii) at any time ceases to be a clearing agency registered under the Exchange Act, (B) there shall have occurred and be continuing an Event of Default (as defined in the Indenture) with respect to the Notes or (C) the Company executes and delivers to the Trustee an order that the Global Notes shall be so exchangeable. Any Certificated Notes will be issued only in fully registered form and shall be issued without coupons in denominations of $1,000 and integral multiples thereof. Any Certificated Notes so issued will be registered in such names and in such denominations as the Depositary shall request. THE CLEARING SYSTEM The Depositary has advised the Company as follows: The Depositary is a limited-purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and "a clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. The Depositary was created to hold securities of participants and to facilitate the clearance and settlement of securities transactions among its participants in such securities through electronic book-entry changes in accounts of participants, thereby 91 eliminating the need for physical movement of securities certificates. The Depositary's participants include securities brokers and dealers (which may include the Initial Purchaser), banks, trust companies, clearing corporations and certain other organizations. Access to the Depositary's book-entry system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, whether directly or indirectly. SETTLEMENT Initial settlement in the New Notes will be in same-day funds. Investors holding their New Notes through the Depositary will follow settlement practices applicable to United States corporate debt obligations. The Indenture will require that payments in respect of Notes (including principal, premium and interest) be made by wire transfer of same-day funds to the accounts specified by the holders thereof or, if no such account is specified, by mailing a check to each such holder's registered address. 92 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following is a general discussion of material U.S. federal income tax considerations applicable to the exchange of Old Notes for New Notes pursuant to the Exchange Offer, and to the ownership and disposition of the New Notes. This summary is based upon provisions of the Internal Revenue Code of 1986, as amended (the "Code"), regulations, rulings and decisions currently in effect, all of which are subject to change (possibly with retroactive effect). The discussion does not purport to deal with all aspects of federal taxation that may be relevant to particular investors in light of their personal investment circumstances (for example, to persons holding Notes as part of a conversion transaction or as part of a hedge or hedging transaction, or as a position in a straddle for tax purposes), nor does it discuss federal income tax considerations applicable to certain types of investors subject to special treatment under the federal income tax laws (for example, life insurance companies, tax-exempt organizations and financial institutions). In addition, the discussion does not consider the effect of any foreign, state, local, gift, estate, or other tax laws that may be applicable to a particular investor. The discussion assumes that investors hold the Notes as "capital assets" within the meaning of Section 1221 of the Code. Each holder is strongly urged to consult his, her or its tax advisor regarding the particular tax consequences to such holder of exchanging the Old Notes for the New Notes, and of the ownership and disposition of the New Notes. EXCHANGE The exchange of the Old Notes for the New Notes pursuant to the Exchange Offer should not be treated as a taxable transaction for federal income tax purposes because the New Notes do not differ materially in kind or extent from the Old Notes. Accordingly, no gain or loss should be recognized by a holder who exchanges an Old Note for a New Note pursuant to the Exchange Offer, and each New Note should be viewed as a continuation of the corresponding Old Note. For purposes of determining gain or loss upon a subsequent sale or exchange of the New Notes, a holder's initial basis in the New Notes will be the same as such holder's adjusted basis in the Old Notes exchanged therefor, and the holding period of a holder in the New Note should include the period during which such holder held such corresponding Old Note. INITIAL TAX BASIS The Old Notes were issued in the Private Placement as part of an investment unit that included the Old Notes and Warrants to acquire Common Stock. Consequently, a purchaser of a Unit was required to allocate the purchase price of a Unit between the Old Notes and the Warrants based on their relative fair market values on the date of purchase for the purpose of determining the initial basis of the Notes and Warrants for federal income tax purposes. For purposes of determining original issue discount on the Notes, the Company allocated the issue price of the Units between the Notes and Warrants based on valuation advice furnished to it by [the Initial Purchaser], as described below under "--Tax Treatment of Notes--Interest and Original Issue Discount." The Company's allocation will be binding on each holder unless the holder discloses that the holder's allocation differs from the Company's allocation on a statement attached to the holder's timely filed federal income tax return for the year in which the holder acquires the Unit. TAX TREATMENT OF NOTES Status as Debt The Company intends to treat the Notes as indebtedness and not as equity for federal income tax purposes, and the federal income tax consequences described below are based on that characterization. Such treatment, however, is not binding on the Internal Revenue Service (or the courts), and there can be no assurance that the Internal Revenue Service would not argue (or that a court would not hold) that all or some portion of the Notes should be treated as equity for federal income tax purposes. Among other consequences, treatment as equity would result in all or some portion of the interest payments and/or original issue discount on the Notes being treated as distributions with respect to stock which would not be deductible by the Company. 93 Interest and Original Issue Discount The Old Notes were issued with original issue discount for federal income tax purposes. Because the New Notes are treated as a continuation of the Old Notes, the original issue discount on the Old Notes will carry over to the New Notes, and continue to be treated in the same manner. In general, original issue discount on the Notes, defined as the excess of "stated redemption price at maturity" over "issue price," must be included in the holder's gross taxable income in advance of the receipt of cash representing that income, and such amounts will increase periodically over the life of the Notes. Under the Treasury regulations, the issue price of the Units under the Private Placement was the first price at which a substantial amount of the Units were sold for money. For this purpose, sales to bondhouses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers including, without limitation, the Initial Purchaser, were ignored. The issue price for a Unit as so determined was allocated between the debt instrument (i.e., the Old Note) and the property rights (i.e., the Warrants) that comprised the Unit based on their relative fair market values at the time of issuance. Pursuant to these rules, and based on advice furnished to it by the Initial Purchaser, the Company treated each Old Note as having an issue price of $850.00 and each Warrant as being issued for $150.00. This allocation, however, is not binding on the Internal Revenue Service, and there can be no assurance that the Internal Revenue Service will not challenge the Company's determination of the issue price of the Old Notes. Moreover, the Company's allocation is binding on each holder unless the holder discloses that his, her or its allocation differs from the Company's allocation on a statement attached to the holder's timely filed federal income tax return for the year in which he, she or it acquires the investment unit. If a holder uses an allocation different from the Company, or a holder acquired a Unit at a price different than that on which the Company's allocation is based, the holder will be treated as having acquired the Note for a greater or lesser amount than the Note's issue price, resulting in "acquisition premium" or "market discount" as defined below. Holders intending to use an issue price allocation different from that used by the Company should consult their tax advisors as to the consequences to them of their particular allocation. Under the Treasury regulations, a debt instrument's stated redemption price at maturity is the sum of all payments provided by the instrument other than payments of "qualified stated interest," which is defined as stated interest that is unconditionally payable (other than in debt instruments of the issuer) at least annually at a single fixed rate. The Company believes that the stated interest on the Notes will be qualified stated interest, and therefore that the stated redemption price at maturity of the Notes will equal their principal amount at maturity. Thus, each Note will bear original issue discount in an amount equal to the excess of (i) the sum of its principal amount at maturity over (ii) its issue price. A holder generally will be required to include in gross income the original issue discount attributable to the Notes over their term and before receipt of the cash attributable to such income under a method embodying an economic accrual of such discount and calculated on the basis of a constant yield to maturity. A Registration Default, as described under "Description of the Notes-- Exchange Offer; Registration Rights," will cause Liquidated Damages to be payable with respect to the Notes in the manner described therein. However, under the Treasury regulations, the possibility of any such additional payment will not affect the accrual of original issue discount or the yield to maturity on the Notes unless, based on all the facts and circumstances as of the issue date, it is more likely than not that such additional interest will be paid. The Company does not intend to treat the possibility of such additional payment as affecting the computation of original issue discount or yield to maturity. If a holder of a Note becomes entitled to a payment, then, for purposes of determining the accrual of original issue discount, the yield to maturity of the Notes will be redetermined by treating the Notes as reissued on the date that it is determined that such additional payments will be required to be paid, for an amount equal to its adjusted issue price on such date. If a holder acquires a Note for an amount less than the "revised issue price" (generally the original issue price increased by the aggregate amount of previously accrued original issue discount (without regard to any 94 reductions described in the following sentence) less payments other than qualified stated interest), such holder may be subject to the market discount rules described below. If a holder acquires a Note by purchase for an amount greater than its revised issue price, such holder will be considered to have purchased such Note with "acquisition premium," and the amount of original issue discount that such purchaser must include in income with respect to such Note for any taxable year will be reduced by the portion of acquisition premium properly allocable to such year. A holder may make an election to include in gross income all interest that accrues on a Note (including original issue discount, market discount and de minimis market discount, as adjusted by any amortizable bond premium) in accordance with an economic yield method (under which none of the interest payments provided for in the instruments are qualified stated interest payments) calculated by treating the Note as being issued on the holder's acquisition date at an issue price equal to the holder's adjusted basis in the Note immediately after its acquisition. Sale or Redemption A holder generally will recognize taxable gain or loss on the sale of the Notes equal to the difference between the amount realized from such sale and his, her or its adjusted tax basis for such Notes. Except as discussed under "--Market Discount," such gain or loss generally will be capital gain or loss and will be long-term capital gain or loss if the holding period for such Notes is more than one year. A holder's adjusted tax basis in a Note is generally equal to the amount paid therefor, increased by accrued original issue discount and market discount previously included in the holder's gross income with respect to the Note, and decreased by (i) payments on the Note other than payments of qualified stated interest and (ii) amortized bond premium with respect to the Note (discussed below). A Holder generally will not recognize any taxable gain or loss on the exchange of Notes for Exchange Notes pursuant to the Registered Exchange Offer. Market Discount A holder who purchases a Note for an amount that is less than its revised issue price will be subject to the market discount provisions of the Code. Market discount is the excess, if any, of the Note's revised issue price (defined above) over its basis in the hands of the acquirer immediately after its acquisition. However, market discount will not be considered to exist if, at the time of acquisition, the discount is less than 1/4 of 1% of the Note's stated redemption price at maturity multiplied by the number of full years remaining until maturity ("de minimis market discount"). When a holder disposes of a Note acquired with market discount, the lesser of the gain recognized or the accrued market discount will be taxable to the holder as ordinary income (and will generally be treated as interest). Accrued market discount at such time is the total market discount multiplied by a fraction, the numerator of which is the number of days the acquirer held the Note and the denominator of which is the number of days from the date the acquirer acquired the Note until (and including) its maturity date. As an alternative to this ratable method, the holder may elect to compute the accrued market discount based upon an economic yield to maturity. A holder of a market discount obligation is generally required, until the holder disposes of the obligation in a taxable transaction, to defer a portion of the deduction of interest expense on any indebtedness incurred or maintained to purchase or carry the obligation in an amount equal to the lesser of (i) the amount of such interest expense in excess of the amount of interest (including original issue discount) includible in gross income with respect to the obligation or (ii) the amount of market discount allocable to the number of days in the taxable year the holder held the obligation. A holder of a debt instrument acquired at a market discount may elect to include the market discount in income as the discount accrues. The current inclusion election, once made, applies to all market discount 95 obligations acquired on or after the first day of the taxable year to which the election applies and may not be revoked without the consent of the Internal Revenue Service. If a holder of Notes elects to include market discount in income as it accrues, the above-described rules regarding ordinary income recognition on dispositions and partial redemptions of such Notes and the deferral of interest deductions on indebtedness related to such Notes would not apply. Bond Premium A holder who acquires an obligation for an amount in excess of the amount payable at maturity (or at an earlier call date, if a smaller premium would result) may elect to amortize and deduct (on a constant yield basis) the amount of such excess over the period from the acquisition date to the maturity date, or to the earlier "call date," where appropriate, if a smaller deduction would result, with corresponding reductions in such holder's tax basis in the debt instrument. Amortizable bond premium is treated as an interest deduction, except as may be provided in Treasury Regulations. An election to amortize bond premium applies with respect to all bonds held on the first day of the taxable year for which the election is made and to all bonds thereafter acquired and may not be revoked without the consent of the Internal Revenue Service. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO FOREIGN HOLDERS The following discussion summarizes certain United Stated federal income tax consequences generally applicable to the ownership and disposition of the Notes by "non-resident aliens" (as defined in Section 7701(b) of the Code and "foreign corporations" that acquire such Notes as part of the initial offer at the initial offering price ("Non-U.S. Holder"). This summary does not address the tax treatment of Non-U.S. Holders who hold Notes through a partnership or other pass-through entity. This discussion does not purport to deal with all aspects of United States federal income taxation that may be relevant to a Non-U.S. Holder and does not describe any tax consequences arising out of the laws of any state, locality or foreign jurisdiction or out of United States federal estate and gift tax laws. NON-U.S. HOLDERS ARE ADVISED TO CONSULT THEIR TAX ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE EXCHANGE OF OLD NOTES FOR NEW NOTES AND OWNERSHIP AND DISPOSITION OF THE NEW NOTES. Interest and Original Issue Discount Interest paid by the Company to a Non-U.S. Holder that is not effectively connected with the conduct of a trade or business within the United States by such Non-U.S. Holder generally will not be subject to withholding of United States federal income tax if (i) the Non-U.S. Holder does not actually or constructively own (under the provisions of Sections 318 and 871(h)(3)(a) of the Code) 10% or more of the total voting power of all voting stock of the Company, (ii) the Non-U.S. Holder is not a controlled foreign corporation with respect to which the Company is a "related person" within the meaning of Section 267 of the Code and (iii) the beneficial owner, under penalty of perjury, certifies that the beneficial owner is not a United States person and provides the beneficial owner's name and address. A Non-U.S. Holder that does not qualify for exemption from withholding under the preceding sentence generally will be subject to withholding of U.S. federal income tax at the rate of 30% (or a lower applicable treaty rate) on interest payments and payments attributable to original issue discount on the Notes. Interest paid by the Company to a Non-U.S. Holder that is effectively connected with the conduct of a trade or business within the United States by such foreign holder generally will be subject to the United States federal income tax on net income that applies to United States persons generally (and, with respect to corporate holders under certain circumstances, the branch profits tax). Original issue discount that accrues while a Note is held by a Non-U.S. Holder is generally treated in the same manner as interest described above. Withholding attributable to original issue discount, where required, is made at the time interest on the Note is paid or, to the extent such original issue discount was not previously taxed, at the time the Note is sold, exchanged or redeemed. 96 Gain of Disposition A Non-U.S. Holder generally will not be subject to United States federal income tax (subject to the discussion under "Information Reporting and Backup Withholding" below) on gain recognized on a sale or other disposition (including a redemption) of Notes unless (i) the gain is effectively connected with the conduct of a trade or business within the United States by the Non- U.S. Holder, or effectively connected with a U.S. permanent establishment maintained by a Non-U.S. Holder if a tax treaty applies, (ii) in the case of a Non-U.S. Holder who is a nonresident alien individual and holds the Notes as a capital asset, such holder is present in the United States for 183 or more days in the taxable year of the sale or disposition and either has a "tax home" (as defined for the United States federal income tax purposes) in the United States or an office or other fixed place of business in the United States to which the sale or disposition is attributable or (iii) the Company is or has been a "U.S. real property holding corporation." Information Reporting and Backup Withholding In the case of payment of interest to Non-U.S. Holders, temporary Treasury Regulations provide that the 31% backup withholding and other reporting will not apply to such payments with respect to which either the requisite certifications, as described above, have been received or an exemption has otherwise been established (provided that neither the Company nor its paying agent has actual knowledge that the holder is a United States person or the conditions of any other exemption are not in fact satisfied). Under temporary Treasury Regulations, these information reporting and backup withholding requirements will apply, however, to the gross proceeds paid to a foreign person upon the disposition of the Notes by or through a United States office of a United States or foreign broker, unless the holder certifies to the broker under penalties of perjury as to its name, address and status as a foreign person or the holder otherwise establishes an exemption. Information reporting requirements (but not backup withholding) will also apply to a payment of the proceeds of a disposition of the Notes by or through a foreign office of (i) a United States broker, (ii) a foreign broker 50% or more of whose gross income for certain periods is effectively connected with the conduct of a trade or business in the United States or (iii) a foreign broker that is "controlled foreign corporation", unless the broker has documentary evidence in its records that the holder is a non-United States holder and certain other conditions are met, or the holder otherwise establishes an exemption. Neither information reporting nor backup withholding will generally apply to a payment of the proceeds of a disposition of the Notes by or through a foreign office of a foreign broker not subject to the preceding sentence. The Company must report annually to the Internal Revenue Service the total amount of federal income taxes withheld from dividends (including constructive dividends) distributed to Non-U.S. Holders. In addition, the Company must report annually to the Internal Revenue Service and to each Non-U.S. Holder the amount of dividends distributed to and the tax withheld with respect to such holder. These information reporting requirements apply regardless of whether withholding was reduced by an applicable treaty. The 31% backup withholding tax will not generally apply to dividends distributed to Non-U.S. Holders outside the United States that are subject to the 30% withholding discussed above or that are not so subject because a tax treaty applies that reduces or eliminates such withholding. In that regard, under current Treasury Regulations, dividends payable at an address located outside of the United States to a Non-U.S. Holder are not subject to the backup withholding rules. Proposed regulations would impose backup withholding in certain cases in which dividends are paid to an address outside the United States. REFUNDS Any amounts withheld under the backup withholding rules from a payment to a holder will be allowed as a refund or a credit against such holder's United States federal income tax liability, provided that the required information is furnished to the Internal Revenue Service. 97 There may be other federal, state, local or foreign tax considerations applicable to the circumstances of a particular prospective purchaser of Units, Notes and Warrants. ACCORDINGLY, EACH HOLDER OF NOTES SHOULD CONSULT HIS, HER OR ITS TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE EXCHANGE OF OLD NOTES FOR NEW NOTES AND OWNERSHIP AND DISPOSITION OF THE NEW NOTES. PLAN OF DISTRIBUTION Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 199 , all dealers effecting transactions in the New Notes may be required to deliver a prospectus. The Company will not receive any proceeds from any sale of New Notes by broker-dealers. New Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such New Notes. Any broker- dealer that resells New Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such New Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of New Notes and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer (including the reasonable expenses of one counsel for the Holders of the Notes) other than commissions or concessions of any brokers or dealers and will indemnify the Holders of the Notes (including any broker- dealers) against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS The validity of the New offered hereby will be passed upon for the Company by Smith, Gambrell & Russell, LLP of Atlanta, Georgia. EXPERTS The consolidated financial statements of the Company as of December 31, 1995 and 1996 and for each of the periods in the three year period ended December 31, 1996 included in this Prospectus, have been audited by KPMG Peat Marwick LLP, independent auditors, as set forth in their report appearing herein and are included in reliance upon the report of such firm given and upon their authority as experts in accounting and auditing. The report of KPMG Peat Marwick LLP contains an explanatory paragraph indicating that the Company's recurring losses from operations and its limited sources of additional liquidity raise substantial doubt about the Company's ability to continue as a going concern. In addition, their report refers to the application of fresh start reporting in connection with the '95 Reorganization. See the Consolidated Financial Statements. 98 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS
PAGE NO. -------- FINANCIAL STATEMENTS: Independent Auditors' Report.......................................... F-2 Statements of Consolidated Operations for the Year Ended December 31, 1996, the Four Months Ended December 31, 1995, the Eight Months Ended August 31, 1995, and the Year Ended December 31, 1994................ F-3 Consolidated Balance Sheets, December 31, 1996 and 1995............... F-4 Statements of Consolidated Cash Flows for the Year Ended December 31, 1996, the Four Months Ended December 31, 1995, the Eight Months Ended August 31, 1995, and the Year Ended December 31, 1994................ F-6 Consolidated Statements of Shareholders' Equity (Deficiency) for the Year Ended December 31, 1996, the Four Months Ended December 31, 1995, the Eight Months Ended August 31, 1995, and the Year Ended December 31, 1994.................................................... F-8 Notes to Consolidated Financial Statements............................ F-9 Unaudited Condensed Statements of Consolidated Operations for the Three Months Ended March 31, 1996 and 1997.............................................. F-44 Condensed Consolidated Balance Sheets, December 31, 1996 and March 31, 1997 (unaudited)..................................................... F-45 Unaudited Condensed Statements of Consolidated Cash Flows for the Three Months Ended March 31, 1996 and 1997.............................................. F-47 Notes to Unaudited Condensed Consolidated Financial Statements........ F-49
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Trans World Airlines, Inc. We have audited the accompanying consolidated balance sheets of Trans World Airlines, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related statements of consolidated operations, cash flows and shareholders' equity (deficiency) for the year ended December 31, 1996, the four months ended December 31, 1995, the eight months ended August 31, 1995 and the year ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Trans World Airlines, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for the year ended December 31, 1996, the four months ended December 31, 1995, the eight months ended August 31, 1995 and the year ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note 3 to the consolidated financial statements, the consolidated financial statements reflect the application of fresh start reporting as of September 1, 1995 and, therefore, are not comparable in all respects to the consolidated financial statements for periods prior to such date. The accompanying consolidated financial statements have been prepared assuming that Trans World Airlines, Inc. and subsidiaries will continue as a going concern. The Company's recurring losses from operations and its limited sources of additional liquidity raise substantial doubt about the entity's ability to continue as a going concern. Management's plans in regard to these matters are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. KPMG PEAT MARWICK LLP Kansas City, Missouri March 24, 1997 F-2 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996, THE FOUR MONTHS ENDED DECEMBER 31, 1995, THE EIGHT MONTHS ENDED AUGUST 31, 1995, AND THE YEAR ENDED DECEMBER 31, 1994 (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
REORGANIZED COMPANY PREDECESSOR COMPANY ------------------------- ------------------------- YEAR FOUR MONTHS EIGHT MONTHS YEAR ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31, 1996 1995 1995 1994 ------------ ------------ ------------ ------------ Operating revenues: Passenger................ $3,077,905 $ 943,077 $1,929,166 $2,875,851 Freight and mail......... 153,076 48,384 94,784 149.932 All other................ 323,426 107,013 194,405 381,919 ---------- ---------- ---------- ---------- Total.................. 3,554,407 1,098,474 2,218,355 3,407,702 ---------- ---------- ---------- ---------- Operating expenses: Salaries, wages and benefits................ 1,254,341 373,041 755,708 1,293,570 Earned stock compensation (Note 12)............... 9,056 2,192 55,767 - Aircraft fuel and oil.... 585,163 161,799 296,833 477,555 Passenger sales commissions............. 268,131 80,045 185,981 288,000 Aircraft maintenance materials and repair.... 208,183 51,998 95,657 145,321 Depreciation and amortization............ 161,822 55,168 106,474 183,283 Operating lease rentals.. 302,990 96,393 182,548 261,365 Passenger food and beverages............... 110,092 34,676 68,137 120,804 Special charges (Note 16)..................... 85,915 -- 1,730 138,849 All other................ 767,241 232,716 454,878 778,449 ---------- ---------- ---------- ---------- Total.................. 3,752,934 1,088,028 2,203,713 3,687,196 ---------- ---------- ---------- ---------- Operating income (loss).... (198,527) 10,446 14,642 (279,494) ---------- ---------- ---------- ---------- Other charges (credits): Interest expense (contractual interest of $141,967 for the eight months ended August 31, 1995).................... 126,822 45,917 123,247 195,352 Interest and investment income................... (21,309) (7,484) (10,366) (12,058) Disposition of assets, gains and losses-net (Note 15)................ 1,135 (3,330) 206 (1,072) Reorganization items (Note 19)...................... -- -- 242,243 - Other charges and credits- net (Note 17)............ (30,598) 7,611 (2,379) (28,847) ---------- ---------- ---------- ---------- Total.................. 76,050 42,714 352,951 153,375 ---------- ---------- ---------- ---------- Loss before income taxes and extraordinary items... (274,577) (32,268) (338,309) (432,869) Provision (credit) for in- come taxes (Note 5)....... 450 1,370 (96) 960 ---------- ---------- ---------- ---------- Loss before extraordinary items..................... (275,027) (33,638) (338,213) (433,829) Extraordinary items, net of income taxes (Note 14).... (9,788) 3,500 140,898 (2,005) ---------- ---------- ---------- ---------- Net loss................... (284,815) (30,138) (197,315) (435,834) Preferred stock dividend requirements.............. 36,649 4,751 11,554 15,000 ---------- ---------- ---------- ---------- Loss applicable to common shares.................... $ (321,464) $ (34,889) $ (208,869) $ (450,834) ========== ========== ========== ========== Per share amounts: Loss before extraordinary item and special dividend requirements............. $ (6.60) $ (1.15) Extraordinary item and special dividend requirements............. (.67) .10 ---------- ---------- Net loss.................. $ (7.27) $ (1.05) ========== ==========
See notes to consolidated financial statements F-3 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (AMOUNTS IN THOUSANDS)
REORGANIZED COMPANY --------------------- 1996 1995 ---------- ---------- ASSETS Current assets: Cash and cash equivalents............................... $ 181,586 $ 304,340 Receivables, less allowance for doubtful accounts, $12,939 in 1996 and $13,517 in 1995 (Note 8)........... 239,496 226,451 Spare parts, materials and supplies, less allowance for obsolescence, $11,563 in 1996 and $2,201 in 1995 (Note 8)..................................................... 111,239 143,374 Prepaid expenses and other.............................. 54,121 41,482 ---------- ---------- Total................................................ 586,442 715,647 ---------- ---------- Property (Notes 8,9 and 18): Property owned: Flight equipment....................................... 339,150 303,248 Prepayments on flight equipment........................ 39,072 - Land, buildings and improvements....................... 59,879 54,722 Other property and equipment........................... 60,750 39,032 ---------- ---------- Total owned property................................. 498,851 397,002 Less accumulated depreciation.......................... 71,810 18,769 ---------- ---------- Property owned--net.................................. 427,041 378,233 ---------- ---------- Property held under capital leases: Flight equipment....................................... 172,812 172,812 Land, buildings and improvements....................... 54,761 54,761 Other property and equipment........................... 6,570 6,862 ---------- ---------- Total property held under capital leases............. 234,143 234,435 Less accumulated amortization.......................... 46,977 12,602 ---------- ---------- Property held under capital leases--net.............. 187,166 221,833 ---------- ---------- Total property--net.................................. 614,207 600,066 ---------- ---------- Investments and other assets: Investments in affiliated companies (Note 4)............ 108,173 98,156 Investments, receivables and other (Note 9)............. 188,331 178,347 Routes, gates and slots--net............................ 401,659 450,916 Reorganization value in excess of amounts allocable to identifiable assets--net............................... 783,127 825,079 ---------- ---------- Total................................................ 1,481,290 1,552,498 ---------- ---------- $2,681,939 $2,868,211 ========== ==========
See notes to consolidated financial statements F-4 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
REORGANIZED COMPANY ---------------------- 1996 1995 ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Current maturities of long-term debt (Note 8)........... $ 92,447 $ 67,566 Current obligations under capital leases (Note 9)....... 42,501 42,835 Advance ticket sales.................................... 241,516 209,936 Accounts payable, principally trade..................... 216,675 137,140 Accounts payable to affiliated companies (Note 4)....... 4,894 6,104 Accrued expenses: Employee compensation and vacations earned............. 116,846 101,637 Contributions to retirement and pension trusts (Note 6).................................................... 14,091 17,716 Interest on debt and capital leases.................... 39,420 44,710 Taxes.................................................. 19,018 16,995 Other accrued expenses................................. 203,184 195,454 ---------- ---------- Total accrued expenses............................... 392,559 376,512 ---------- ---------- Total................................................ 990,592 840,093 ---------- ---------- Long-Term Liabilities and Deferred Credits: Long-term debt, less current maturities (Note 8)........ 608,485 764,031 Obligations under capital leases, less current obligations (Note 9)................................... 220,790 259,630 Postretirement benefits other than pensions (Note 6).... 471,171 461,346 Noncurrent pension liabilities (Note 6)................. 30,716 21,253 Other noncurrent liabilities and deferred credits....... 122,080 157,573 ---------- ---------- Total................................................ 1,453,242 1,663,833 ---------- ---------- Mandatorily redeemable 12% preferred stock,(aggregate liquidation preference of $111,179 in 1995)(Note 10).... -- 61,430 ---------- ---------- Commitments and Contingent Liabilities (Notes 1,2,3,6,7,8,9,11,12,16,18) Shareholders' equity: 8% cumulative convertible exchangeable preferred stock, $50 liquidation preference; 3,869 shares issued and outstanding............................................ 39 - Employee preferred stock, $0.01 liquidation preference; special voting rights; shares issued and outstanding; 1996-5,681; 1995-5,277................................. 57 53 Common Stock, $0.01 par value; shares issued and outstanding; 1996-41,763; 1995-35,129.................. 418 351 Additional paid-in capital.............................. 552,544 332,589 Accumulated deficit..................................... (314,953) (30,138) ---------- ---------- Total................................................ 238,105 302,855 ---------- ---------- $2,681,939 $2,868,211 ========== ==========
See notes to consolidated financial statements F-5 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996, THE FOUR MONTHS ENDED DECEMBER 31, 1995, THE EIGHT MONTHS ENDED AUGUST 31, 1995, AND THE YEAR ENDED DECEMBER 31, 1994 (AMOUNTS IN THOUSANDS)
REORGANIZED COMPANY PREDECESSOR COMPANY ------------------------- ------------------------- YEAR FOUR MONTHS EIGHT MONTHS YEAR ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31, 1996 1995 1995 1994 ------------ ------------ ------------ ------------ Cash Flows from Operating Activities: Net loss.................. $ (284,815) $ (30,138) $ (197,315) $ (435,834) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Employee earned stock compensation............ 9,056 2,192 55,767 -- Depreciation and amortization............ 161,822 55,168 106,474 183,283 Amortization of discount and expenses on debt.... 14,744 3,063 12,472 18,571 Extraordinary loss (gain) on extinguishment of debt.................... 9,788 (3,500) (140,898) -- Interest paid in common stock................... 11,332 11,587 -- -- Equity in undistributed earnings of affiliates not consolidated........ (10,017) 12,169 (2,339) 5,517 Revenue from Icahn ticket program................. (71,534) (4,356) -- -- Net gains-losses on disposition of assets... 1,135 (3,330) 206 (1,072) Non-cash special charges. 85,915 -- -- 119,829 Reorganization items..... -- -- 242,243 -- Change in operating assets and liabilities: Decrease (increase) in: Receivables........... 3,927 69,121 (62,094) 37,628 Inventories........... (4,897) 510 5,866 1,259 Prepaid expenses and other current assets. (10,639) 7,686 2,244 6,963 Other assets.......... 111 (3,088) (1,586) (10,079) Increase (decrease) in: Accounts payable and accrued expenses..... 62,594 (40,047) 105,084 48,587 Advance ticket sales.. 19,698 (39,350) 81,598 (33,890) Benefits, other noncurrent liabilities and deferred credits..... (15,057) (5,559) (27,667) 65,182 ---------- --------- ---------- ---------- Net cash provided (used).............. (16,837) 32,128 180,055 5,944 ---------- --------- ---------- ---------- Cash Flows from Investing Activities: Proceeds from sales of property................. 3,234 7,069 2,221 76,240 Capital expenditures...... (121,547) (42,973) (16,554) (44,897) Net decrease (increase) in investments, receivables and other................ (6,708) 16,397 14,926 23,733 ---------- --------- ---------- ---------- Net cash provided (used).............. (125,021) (19,507) 593 55,076 ---------- --------- ---------- ---------- Cash Flows from Financing Activities: Proceeds from long-term debt issued.............. 2,750 22,100 -- 6,213 Proceeds from sale and leaseback of certain aircraft................. 13,800 -- -- -- Repayments on long-term debt and capital lease obligations.............. (117,203) (39,654) (62,158) (116,331) Net proceeds from sale of preferred stock.......... 186,163 -- -- -- Net proceeds from exercise of equity rights, warrants and options..... 1,034 51,930 -- -- Redemption of 12% Preferred Stock.......... (81,749) -- -- -- Cash dividends paid on preferred stock.......... (14,489) -- -- -- Increase (decrease) in checks outstanding and other.................... 28,798 (2,770) 3,092 276 ---------- --------- ---------- ---------- Net cash provided (used).............. 19,104 31,606 (59,066) (109,842) ---------- --------- ---------- ---------- Net increase (decrease) in cash and cash equivalents. (122,754) 44,227 121,582 (48,822) Cash and cash equivalents at beginning of period.... 304,340 260,113 138,531 187,353 ---------- --------- ---------- ---------- Cash and cash equivalents at end of period.......... $ 181,586 $ 304,340 $ 260,113 $ 138,531 ========== ========= ========== ==========
See notes to consolidated financial statements F-6 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996, THE FOUR MONTHS ENDED DECEMBER 31, 1995, THE EIGHT MONTHS ENDED AUGUST 31, 1995, AND THE YEAR ENDED DECEMBER 31, 1994 (AMOUNTS IN THOUSANDS) SUPPLEMENTAL CASH FLOW INFORMATION
REORGANIZED COMPANY PREDECESSOR COMPANY ------------------------- ------------------------- YEAR FOUR MONTHS EIGHT MONTHS YEAR ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31, 1996 1995 1995 1994 ------------ ------------ ------------ ------------ Cash Paid During the Period for: Interest.............. $102,311 $27,318 $ 55,878 $110,287 ======== ======= ======== ======== Income taxes.......... $ 159 $ 7 $ 39 $ 24 ======== ======= ======== ======== Information About Noncash Operating, Investing and Financing Activities: Promissory notes issued to finance aircraft acquisition. $ 10,565 $ -- $ -- $ -- ======== ======= ======== ======== Promissory notes issued to finance aircraft predelivery payments............. $ 19,862 $ -- $ 12,690 $ 7,000 ======== ======= ======== ======== Property acquired and obligations recorded under new capital lease transactions... $ 4,266 $ -- $ 12,690 $ 7,000 ======== ======= ======== ======== Partial interest on debt paid in kind, issued and valued at principal amount..... $ -- $ 574 $ 18,496 $ -- ======== ======= ======== ======== Common Stock issued in lieu of cash dividends on mandatorily redeemable 12% preferred stock...... $ 3,255 $ -- $ -- $ -- ======== ======= ======== ======== Exchange of long-term debt for common stock: Debt cancelled including accrued interest, net of unamortized discount........... $ 41,021 $ -- $ -- $ -- Common stock issued, at fair value...... 49,182 -- -- -- -------- ------- -------- -------- Extraordinary loss.. $ 8,161 $ -- $ -- $ -- ======== ======= ======== ========
ACCOUNTING POLICY For purposes of the Statements of Consolidated Cash Flows, TWA considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. See Notes to Consolidated Financial Statements F-7 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY) FOR THE YEAR ENDED DECEMBER 31, 1996, THE FOUR MONTHS ENDED DECEMBER 31, 1995, THE EIGHT MONTHS ENDED AUGUST 31, 1995, AND THE YEAR ENDED DECEMBER 31, 1994 (AMOUNTS IN THOUSANDS)
ADDITIONAL 12% 8% EMPLOYEE PAID-IN PREFERRED PREFERRED PREFERRED COMMON CAPITAL ACCUMULATED STOCK STOCK STOCK STOCK (DEFICIENCY) DEFICIT TOTAL --------- --------- --------- ------ ------------ ----------- --------- PREDECESSOR COMPANY: Balance, December 31, 1993................... $ 125 $ - $ - $ 200 $ 105,925 $ (87,892) $ 18,358 Net loss for 1994....... -- -- -- -- -- (435,834) (435,834) ----- ---- ---- ----- --------- ---------- --------- Balance, December 31, 1994................... 125 -- -- 200 105,925 (523,726) (417,476) Net loss for the eight months ended August 31, 1995................... -- -- -- -- -- (197,315) (197,315) Eliminate Predecessor equity accounts in connection with fresh start reporting........ (125) -- -- (200) (105,925) 35,817 (70,433) Record additional excess of reorganization value over identifiable assets................. -- -- -- -- -- 685,224 685,224 Issuance of Common and Employee Preferred Stock pursuant to Plan of Reorganization...... -- -- 53 172 269,775 -- 270,000 ----- ---- ---- ----- --------- ---------- --------- Balance, August 31, 1995................... -- -- 53 172 269,775 -- 270,000 REORGANIZED COMPANY: Equity rights exercised. -- -- -- 132 51,727 -- 51,859 Interest on 12% Notes paid in Common Stock... -- -- -- 19 11,568 -- 11,587 Options and warrants exercised.............. -- -- -- 28 43 -- 71 Earned Stock Compensation........... -- -- -- -- 2,046 -- 2,046 Amortization of the excess of redemption value over carrying value of Mandatorily Redeemable 12% Preferred Stock........ -- -- -- -- (2,570) -- (2,570) Net loss for the four months ended December 31, 1995............... -- -- -- -- -- (30,138) (30,138) ----- ---- ---- ----- --------- ---------- --------- Balance, December 31, 1995................... -- -- 53 351 332,589 (30,138) 302,855 Warrants exercised...... -- -- -- 4 68 -- 72 Options exercised....... -- -- -- 2 1,248 -- 1,250 Earned Stock Compensation........... -- -- -- -- 6,875 -- 6,875 Allocation of employee preferred stock to ALPA ESOP................... -- -- 6 -- (6) -- -- Conversion of employee preferred stock to Common Stock........... -- -- (2) 2 -- -- -- Net proceeds from issuance of 8% preferred stock........ -- 39 -- -- 186,124 -- 186,163 Dividends on 8% preferred stock paid in cash................... -- -- -- -- (11,349) -- (11,349) Dividends on mandatorily redeemable 12% preferred stock paid in Common Stock........... -- -- -- 3 (3) -- -- Dividends on mandatorily redeemable 12% preferred stock paid in cash................... -- -- -- -- (3,140) -- (3,140) Amortization of the excess of redemption value over carrying value of mandatorily redeemable 12% preferred stock........ -- -- -- -- (328) -- (328) Excess of cash paid for early redemption of mandatorily redeemable 12% preferred stock over carrying value.... -- -- -- -- (19,992) -- (19,992) Common Stock issued in exchange for 12% notes. -- -- -- 45 49,137 -- 49,182 Interest on 12% Notes paid in Common Stock... -- -- -- 11 11,321 -- 11,332 Net loss for 1996....... -- -- -- -- -- (284,815) (284,815) ----- ---- ---- ----- --------- ---------- --------- Balance, December 31, 1996................... $ - $ 39 $ 57 $ 418 $ 552,544 $ (314,953) $ 238,105 ===== ==== ==== ===== ========= ========== =========
See notes to consolidated financial statements F-8 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. FINANCIAL CONDITION AND LIQUIDITY: Trans World Airlines, Inc. ("TWA" or the "Company") has undergone two reorganizations under Chapter 11 of the Bankruptcy Code since 1992, as further described in Note 3--Chapter 11 Reorganizations. In August 1995 the Company emerged from the most recent bankruptcy proceeding and thereafter, through the second quarter of 1996, the Company had experienced improvements in its operating performance as operating income had increased to $7.8 million in six months ended June 30, 1996, as compared to an operating loss of $21.9 million in the same period of 1995. However, beginning in the third quarter of 1996, the Company's operating performance substantially deteriorated as the Company's operating profit for the third quarter, typically the strongest period of the year, declined to $26.0 million in the three months ended September 30, 1996, as compared to a combined operating profit (excluding special charges and earned stock compensation charges aggregating $57.9 million) of $103.7 million in the comparable period of the prior year. The results of the fourth quarter of 1996 evidenced a further acceleration of deterioration as the Company reported an operating loss (excluding special charges) of $146.5 million, as compared to operating income of $1.1 million in the same period of 1995. In the second half of 1996, the Company's revenues increased only 2.4%, while capacity operated, measured in ASMs, increased by 6.9%, as compared to the second half of 1995. Operating costs, excluding earned stock compensation and special charges, increased 16.0% over this same period. The most significant increases were; salaries, wages and benefits ($82.4 million), which reflected the increased number of employees and additional overtime costs; fuel ($69.4 million), reflecting significantly higher units costs and increased usage; and maintenance costs. Notwithstanding the actions taken and planned by management to improve the Company's future operating results as described below, management expects that its first quarter 1997 operating loss will significantly exceed that reported in the first quarter of 1996. In light of the deterioration in the Company's operating results, management has over the last several months refocused and accelerated certain aspects of its business strategy, including its fleet modernization and consolidation plan, route structure and facility improvements and efficiencies. Management believes that its recent operating results have been adversely affected by an aggressive increase in capacity, which when combined with unexpected maintenance delays and related costs, has negatively impacted schedule reliability resulting in excessive levels of flight cancellations and deterioration in its on-time performance. The Company believes that this has adversely affected its unit revenues (principally yields) and costs. In response to these issues, management has taken action to accelerate the phase out of all B-747 and L-1011 aircraft, reduce low yield domestic JFK feed service, curtail and/or eliminate historically unprofitable international routes and consolidate for the near term most operations at JFK to a single terminal. The above actions are designed to improve its operational performance and make its product more attractive to the business segment which offers higher yields. The Company has also curtailed the amount of contract maintenance services provided to third parties and redeployed those resources to TWA's aircraft. Furthermore, the Company has reviewed its route structure and fleet plan. The Company recently announced that it would discontinue service to Athens and Frankfurt and that it would undertake to accelerate the replacement of its L-1011 and B-747 aircraft with newer and smaller sized aircraft, specifically B-757, B-767 and MD-80 aircraft. Management believes such aircraft will better match the market demands in cities served and provide efficiencies relative to the costs of fuel, flight crews and maintenance. The Company plans to retire its remaining fleet of L-1011 and B- 747 aircraft in 1997, although the implementation of this plan could be delayed if suitable replacement aircraft can not be obtained within this time frame. The Company has also determined to consolidate a substantial potion of its operations at JFK into a single terminal which should result in reductions in labor and other costs and improve the overall utilization of this facility. In connection with the above described plans, management has announced a comparable reduction in employee headcount. Management may undertake further actions to reduce costs which may result in additional reductions of the number of employees. The Company's consolidated cash and cash equivalents balance at December 31, 1996 was $181.6 million (including approximately $28.3 million in cash and cash equivalents held in its international operations and by F-9 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) its subsidiaries which, based upon various foreign monetary regulations and other factors, might not be immediately available to the Company), a $122.7 million decrease from the December 31, 1995 balance of $304.3 million. Due to seasonal factors, the Company's cash balances during the first quarter of each year are typically lower than in other periods. These seasonal factors, when combined with the large anticipated loss in the first quarter of 1997 which would significantly exceed the loss reported in the comparable quarter of 1996, will reduce cash balances significantly below the cash balance at December 31, 1996. In February 1997, in order to improve its liquidity, the Company entered into an agreement with and received approximately $26 million from certain St. Louis business enterprises, representing the advance payment for tickets for future travel by such enterprises. The Company is currently pursuing other projects intended to increase its cash balances. The Company's collective bargaining agreements with all of its union- represented employee groups, which represent approximately 82% of the Company's work force, become amendable after August 31, 1997. While the Company cannot predict the precise wage rates that will be in effect at such time (since such rates will be determined by subsequent events), the wage rates then in effect will likely increase. However, management believes that it is essential that the Company's labor costs remain favorable in comparison to its largest competitors. The Company will seek to continue to improve employee productivity as an offset to any wage increases and will continue to explore other ways to control and/or reduce operating expenses. There can be no assurance that the Company will be successful in obtaining such productivity improvements or unit cost reductions. In the opinion of management, the Company's financial resources are not as great as those of most of its competitors and, therefore, any substantial increase in its labor cost as a result of any new labor agreements or any cessation or disruption of operation due to any strike or work action could be particularly damaging to the Company. As a result of application of fresh start reporting in August of 1995, substantial values were assigned to routes, gates and slots ($458.4 million) and reorganization value in excess of amounts allocable to identifiable assets ($839.1 million). The Company has evaluated its future cash flows and, notwithstanding its substantial operating losses in recent periods, expects that the carrying value of the intangibles at December 31, 1996 will be recovered. However, the achievement of such improved future operating results and cash flows are subject to considerable uncertainties. In future periods these intangibles will be evaluated for recoverability based upon estimated future cash flows. If expectations are not substantially achieved, charges to future operations for impairment of those assets may be required and such changes could be material. The accompanying consolidated financial statements have been prepared on a going concern basis which assumes continuity of operations and realization of assets and liquidation of liabilities in the ordinary course of business. The Company remains highly leveraged and substantially all of TWA's assets are and will likely remain subject to various liens and security interest, and many of its loan agreements contain mandatory prepayment provisions in the event that the assets are sold. Accordingly, management expects that TWA will not be able to rely, in any significant degree, on the proceeds from sales of assets to fund operations and that TWA may have limited sources of additional liquidity other than cash generated by operations. The Company's ability to improve its financial position and meet its financial obligations will depend upon a variety of factors including; significantly improved operating results, favorable domestic and international airfare pricing environments, absence of adverse general economic conditions, more effective operating cost controls and efficiencies, and the Company's ability to attract new capital and maintain adequate liquidity. No assurance can be given that the Company will be successful in generating the operating results or attracting new capital required for future viability. As a result of the redemption of the 12% Mandatorily Redeemable Preferred Stock, certain of TWA's leasehold interests in domestic airport gates were released as collateral and are now unencumbered. As a result of the exchange of common stock for 12% Senior Secured Notes as described in Note 8, liens on the stock of F-10 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) wholly owned subsidiary which owns TWA's interest in a hangar at Los Angeles International Airport and a floating lien on certain of TWA's domestic airport ground equipment were released as collateral and are also now unencumbered. In addition, based on the current level of outstanding 12% Senior Secured Notes, TWA expects that certain slots at New York's LaGuardia and JFK airports and Chicago's O'Hare airport will be released as security for the 12% Senior Secured Notes. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Accounting policies and methods of their application that significantly affect the determination of financial position, cash flows, and results of operations are as follows: (a) Description of Business: TWA is one of the major airlines in the United States serving many of the principal domestic and transatlantic destinations. TWA's principal domestic routes include service to and from its St. Louis and New York-JFK hubs and between other cities in the U.S., both nonstop and through St. Louis. TWA's domestic routes also provide connections with its international service to and from U.S. cities and certain major cities in Europe and the Middle East (see Note 21). The airline industry is highly competitive and the factors affecting competition are subject to rapid change. Many of the Company's competitors are larger and have significantly greater financial resources. In addition, several carriers have introduced or have announced plans to introduce low- cost, short-haul service, which may result in increased competition to the Company. Internationally, TWA competes in several "limited entry" markets in which, as a result of governmental regulations and agreements with foreign governments, TWA has traditionally competed with a limited number of carriers. No assurance can be given that TWA will continue to have the advantage of all of the "limited entry" markets in which it currently operates or that it will not face substantial additional competition. Historically, the airline industry has experienced substantial volatility in profitability as a result of, among other factors, general economic conditions, competitive pricing initiatives, the overall level of capacity operated in the industry and fuel prices. TWA continues to be highly leveraged and has and will continue to have significant debt service obligations. TWA presently has no unused credit lines and substantially all of TWA's strategic assets have been pledged to secure indebtedness of the Company. (b) Fresh Start Reporting: Financial accounting during a Chapter 11 proceeding is prescribed in "Statement of Position 90-7 of the American Institute of Certified Public Accountants", titled "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), which TWA adopted effective June 30, 1995. The emergence from the 1995 Chapter 11 proceeding (the "'95 Reorganization") on August 23, 1995 (the "'95 Effective Date"), resulted in the creation of new reporting entities without any accumulated deficit and with the Company's assets and liabilities restated to their estimated fair values (also see Note 19-Fresh Start Reporting). Because of the application of fresh start reporting, the financial statements for periods after reorganization are not comparable in all respects to the financial statements for periods prior to the '95 Reorganization. For periods during the Chapter 11 proceedings, prepetition liabilities which were unsecured or estimated to be undersecured were classified as "Liabilities Subject to Compromise in the Chapter 11 Reorganization Proceedings." The accrual of interest on such liabilities was discontinued for the period from June 30, 1995 to the '95 Effective Date. (c) Consolidation: The consolidated financial statements include the accounts of TWA and its subsidiaries. All significant inter-company transactions have been eliminated. The results of Worldspan, L.P. ("Worldspan"), a 25% owned affiliate are recorded under the equity method and are included in the Statements of Consolidated Operations in Other Charges (Credits). Certain amounts previously reported have been reclassified to conform with revised classifications. F-11 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (d) Property and Depreciation: Property and equipment owned are depreciated to residual values over their estimated useful service lives on the straight- line method. Property held under capital leases is amortized on the straight-line method over its estimated useful life, limited generally by the lease period. Estimated remaining useful service lives and residual values are reviewed periodically for reasonableness and any necessary change is effected at the beginning of the accounting period in which the revision is adopted. In connection with the application of fresh start reporting, no significant changes in the estimated useful lives of assets have been made. Estimated useful service lives in effect for the purpose of computing the provision for depreciation, were: Flight equipment (aircraft and engines, including related spares)--16 to 25 years, varying by aircraft fleet type Buildings--20 to 50 years Other equipment--3 to 20 years Leasehold improvements--Estimated useful life limited by the lease period Maintenance and repairs, including periodic aircraft overhauls, are expensed in the year incurred; major renewals and betterments of equipment and facilities are capitalized and depreciated over the remaining life of the asset. (e) Intangible Assets: Route authorities are amortized on a straight line basis over 30 years (1), gates over the term of the related leases and slots over 20 years. Routes, gates and slots consist of the following amounts at December 31 (in thousands):
1996 1995 --------- -------- Routes................................................... $ 248,100 $276,000 Gates.................................................... 86,649 86,649 Slots.................................................... 95,800 95,800 --------- -------- 430,549 458,449 Accumulated Amortization................................. 28,890 7,533 --------- -------- $ 401,659 $450,916 ========= ========
-------- (1) Prior to January 1, 1995, the Company utilized an estimated useful life for route authorities of 40 years (also see Note 16-Special Charges and Other Nonrecurring Items). The reorganization value in excess of amounts allocable to identifiable assets is being amortized over a twenty year period on the straight-line method. Accumulated amortization at December 31, 1996 and 1995 was $55,937,000 and $13,984,000, respectively. When facts and circumstances suggest that intangible and other long-term assets may be impaired, the Company evaluates their recoverability based upon estimated undiscounted future cash flows over the remaining estimated useful lives. The amount of impairment, if any, is measured based on projected discounted future operating cash flows. (f) Foreign Exchange: Foreign currency and amounts receivable and payable in foreign currencies are translated into U.S. dollars at current exchange rates on the date of the financial statements. Revenue and expense transactions are translated at average rates of exchange in a manner that produces approximately the same dollar amounts that would have resulted had the underlying transactions been translated into dollars on the dates they occurred. Exchange gains and losses are included in net income for the period in which the exchange rate changes. F-12 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (g) Inventories: Inventories, valued at standard cost, which approximates actual average unit cost, consist primarily of expendable spare parts used for the maintenance and repair of flight equipment, plus aircraft fuel and other operating supplies. A provision for obsolescence of spare parts is accrued at annual rates which will provide an allowance such that the unused inventory, at the retirement date of the related aircraft fleet, is reflected at the lower of cost or estimated net realizable value. (h) Passenger Revenue Recognition: Passenger ticket sales are recognized as revenue when the transportation service is rendered. At the time of sale a current liability for advance ticket sales is established and subsequently is eliminated either through carriage of the passenger by TWA, through billing from another carrier that renders the service, or by refund to the passenger. Under TWA's "Frequent Flight Bonus Program" ("FFB"), frequent travelers may accumulate certain defined unit mileage credits which entitle them to a choice of various awards, including certain free air transportation on TWA at a future date. When the free travel award level is achieved by a frequent traveler, a liability is accrued and TWA's operating expense is charged for the estimated incremental cost which will be incurred by TWA upon the future redemption of the free travel awarded. Pursuant to the 1995 Restructuring, TWA issued 600,000 ticket vouchers, each having a face value of $50, which may be used for a discount of up to 50% off the cost of a ticket for transportation on TWA. Concurrently, TWA entered into an agreement, as amended, to purchase for cash from a third party any ticket vouchers acquired by the stand-by purchaser. The ticket vouchers were initially recorded as a liability at their estimated fair value, approximately $26.2 million. The liability will be relieved in future periods as vouchers are redeemed for cash or will be reflected as revenue when the transportation is provided for tickets purchased with vouchers. Approximately 180,000 and 396,000 vouchers were outstanding at December 31, 1996 and 1995, respectively. (i) Interest Capitalized: Interest cost associated with funds expended for the acquisition of qualifying assets is capitalized. Interest capitalized was $5,463,000 in 1996 and $2,133,000 in 1994. There was no interest capitalized during 1995. (j) Income Taxes: TWA accounts for income taxes based on Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". This statement requires the use of the liability method to record the deferred income tax consequences of differences between the financial reporting and income tax bases of assets and liabilities. (k) Postretirement Benefits Other Than Pensions: TWA accounts for postretirement benefits other than pensions based on SFAS No. 106 which requires that the expected cost of providing such benefits be accrued over the years that the employee renders service, in a manner similar to the accounting for pension benefits. (l) Deferred Credit-Aircraft Operating Leases: The present value of the excess of contractual rents due under aircraft operating leases over the fair rentals for such aircraft were recorded as deferred credits as part of the application of fresh start reporting. The deferred credit will be increased through the accrual of interest expense and reduced through a reduction in operating lease rentals over the terms of the respective aircraft leases. At December 31, 1996 and 1995, the unamortized balance of the deferred credits were $31,408,000 and $41,727,000 respectively. (m) Environmental Contingencies: TWA is subject to numerous environmental laws and regulations and is subject to liabilities and compliance costs arising from its past and current handling, processing, recycling, storing and disposing of hazardous substances and hazardous wastes. It is TWA's policy to accrue environmental remediation costs when it is probable that a liability has been incurred and an amount can be F-13 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) reasonably estimated. As potential environmental liabilities are identified and assessments and remediation proceed, these accruals are reviewed periodically and adjusted, if necessary, as additional information becomes available. The accruals for these liabilities can significantly change due to factors such as the availability of additional information on the nature or extent of the contamination, methods and costs of required remediation and other actions by governmental agencies. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. (n) Mandatorily Redeemable 12% Preferred Stock: The Mandatorily Redeemable 12% Preferred Stock issued in connection with the 1995 Reorganization was initially recorded at its estimated fair value. Until its redemption in April 1996, the carrying amount was being increased by amortization of the difference between the redemption value and the carrying amount, using the interest method. Such amounts were recorded as additional preferred stock dividend requirements. A special dividend requirement of approximately $20.0 million was recorded in 1996 to reflect the excess of the early redemption price over the carrying value of the Mandatorily Redeemable 12% Preferred Stock. (o) Earnings (Loss) Per Share: In computing the loss applicable to common shares for 1996 and the four months ended December 31, 1995, the net loss has been increased by dividend requirements on the Mandatorily Redeemable 12% Preferred Stock (including amortization of the difference between the carrying amount and the redemption value and the special dividend requirement related to the early redemption in 1996) and on the 8% Cumulative Convertible Exchangeable Preferred Stock from the date of issuance in March 1996. In computing the related net loss per share, the loss applicable to common shares has been divided by the aggregate average number of outstanding shares of Common Stock (38.5 million in 1996 and 28.0 million in 1995) and Employee Preferred Stock (5.7 million in 1996 and 5.3 million in 1995) which, with the exception of certain special voting rights, is the functional equivalent of Common Stock. No effect has been given to stock options, warrants or potential issuances of additional Employee Preferred Stock as the impact would have been anti-dilutive. Earnings per share of the predecessor company are not presented as the amounts are not meaningful. (p) Concentration of Credit Risk: TWA does not believe it is subject to any significant concentration of credit risk. At December 31, 1996 most of the Company's receivables related to tickets sold to individual passengers through the use of major credit cards (37%) or to tickets sold by other airlines (16%) and used by passengers on TWA. These receivables are short- term, generally being settled shortly after sale or in the month following usage. Bad debt losses, which have been minimal in the past, have been considered in establishing allowances for doubtful accounts. (q) Use of Estimates: Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (r) Stock-Based Compensation: TWA applies APB Opinion No. 25 and related interpretations in accounting for its plans. This opinion allows for stock-based employee compensation to be recognized based on the intrinsic value. (s) Presentation: Certain prior period amounts have been reclassified to conform with current year presentation. 3. CHAPTER 11 REORGANIZATIONS: On January 31, 1992, TWA commenced a reorganization case (the "'93 Reorganization") by filing a voluntary petition for relief under Chapter 11, Title 11 of the United States Bankruptcy Code (the "Bankruptcy F-14 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Code") in the U.S. Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). TWA's subsidiary companies did not file for Chapter 11 protection. On August 12, 1993 the Bankruptcy Court entered an order confirming the '93 Reorganization, which was jointly proposed by TWA and the Official Unsecured Creditors' Committee. The '93 Reorganization became effective on November 3, 1993 (the "'93 Effective Date"). Pursuant to the '93 Reorganization Plan, on the '93 Effective Date: (i) all prepetition interests in TWA (including TWA's previously existing preferred stock, preference stock and common stock) were cancelled without any consideration being distributed on account of those interests; (ii) nine million shares of newly authorized TWA common stock, representing 45% of TWA's then authorized common stock, were issued to trusts established for the benefit of TWA's domestic unionized and domestic non-unionized and management employees (the "Employee Stock Trusts") in exchange for certain wage, benefit and claim concessions granted pursuant to certain agreements entered into by TWA with its domestic unionized and domestic non-unionized and management employees (the "'92 Labor Agreements"); (iii) 11 million shares of newly authorized common stock, representing 55% of TWA's authorized common stock, were issued to a voting trust established on the '93 Effective Date for the benefit of certain creditors of TWA in partial satisfaction and discharge of their claims, which trust issued 11 million Voting Trust Certificates ("VTCs") evidencing the rights of the VTC holders in the Voting Trust; (iv) 12.5 million shares of newly authorized preferred stock were issued for the benefit of certain creditors of TWA in partial satisfaction and discharge of their claims; (v) new five year notes (the "10% Senior Secured Notes"), new seven year notes (the "8% Senior Secured Notes"), new eight year, 8% secured notes (the "IAM Back Pay Notes"), new equipment trust certificate notes (the "11% ETC Notes") and Aircraft Financing Secured Notes with varying interest rates and maturity dates (the "Aircraft Financing Notes"), the aggregate principal amount of which was approximately $730.6 million, were issued to certain creditors of TWA in full satisfaction and discharge of their claims; (vi) all claims except for certain claims to be reinstated under the '93 Reorganization Plan were discharged; (vii) certain contingent and/or unliquidated claims were settled and (viii) executory contracts and unexpired leases to which TWA was a party were assumed or rejected, in each case on the terms and subject to the conditions set forth in the '93 Reorganization. Notwithstanding the reductions in levels of debt and obligations achieved through the '93 Reorganization, TWA's operating results and cash flows did not meet the projected levels upon which the '93 Reorganization Plan was formulated, and in 1994 it was determined that a recapitalization of the Company was needed. In the second quarter of 1995, the Company solicited and received sufficient acceptances to effect the proposed "prepackaged" plan of bankruptcy. Therefore, on June 30, 1995, the Company filed a prepackaged Chapter 11 plan of reorganization, which with certain modifications was confirmed by the United States Bankruptcy Court for the Eastern District of Missouri (the "Bankruptcy Court") on August 4, 1995. On August 23, 1995, approximately eight weeks after filing the prepackaged Chapter 11 plan, the '95 Reorganization became effective and the Company emerged from the protection of this second Chapter 11 proceeding. In connection with the '95 Reorganization, the Company (i) exchanged certain of its then outstanding debt securities for a combination of newly issued Mandatorily Redeemable 12% Preferred Stock, Common Stock, warrants to purchase Common Stock and debt securities, (ii) converted the then outstanding preferred stock of the Company to shares of Common Stock, warrants and equity rights, (iii) obtained certain short-term lease payment and conditional sale indebtedness deferrals amounting to approximately $91 million and other modifications to certain aircraft leases and (iv) obtained an extension of the Company's approximately $190 million principal amount of indebtedness to certain entities controlled by Mr. Carl C. Icahn (the "Icahn Loans"). The Company also (i) effected a reverse stock split of its then outstanding common stock for Common Stock, (ii) completed an equity rights offering, (iii) distributed certain warrants to its then current equity holders and (iv) implemented certain amendments to the Company's Certificate of Incorporation. In connection with and as a precondition to the '95 Reorganization, in August and September of 1994, the Company entered into new three-year labor agreements (the "'94 Labor Agreements"), amending existing F-15 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) collective bargaining agreements with the three labor unions representing approximately 84% of the Company's employees, the IAM, ALPA and IFFA. The '94 Labor Agreements provided for waiver of certain contractually agreed wage concessions, modifications to work rules and the deletion of certain provisions of the then existing labor agreements, including eliminating so called snapbacks, i.e., the automatic restoration of the wage reductions granted in such agreements upon their expiration. During 1994 and 1995, the Company also implemented a number of similar saving initiatives with respect to domestic non-union and management employees, primarily through reducing head count, altering benefit packages, and eliminating certain planned restorations of wage reductions. On June 14, 1995, as one of the transactions contemplated by the extension of the Icahn Loans, TWA and an entity affiliated with Mr. Icahn, Karabu Corporation ("Karabu"), entered into an agreement for the sale of tickets (the "Ticket Agreement"). There are two categories of tickets under the Karabu Ticket Program: (1) "Domestic Consolidator Tickets" which are subject to a cap of $610 million, based on the full retail price of the tickets ($120 million in the first fifteen months and $70 million per year for seven consecutive years through the term of the Ticket Agreement) and (2) "System Tickets" and "Matching Tickets" which are not subject to any cap throughout the term of the Ticket Agreement. The Ticket Agreement provides for the sale of tickets to Karabu at prices significantly lower than the full retail price. Domestic Consolidator Tickets sold under the Ticket Agreement are limited to certain origin/destination city markets in which TWA has less than a 5% market share, except for the New York market, which has a 10% market share limit. These restricted markets will be reviewed from time to time to determine any change in TWA's market share, and other markets may be designated as necessary. Ticket sales under the Ticket Program, which commenced in September 1995, were $139.7 million in 1996 and $16.0 million in 1995 at full published fares. The aggregate net sales, after applicable discounts under the Ticket Agreement, were $76.9 million in 1996 and $8.8 million in 1995. Of these amounts, $71.5 million and $4.4 million is included as passenger revenues for 1996 and the four months ended December 31, 1995, respectively, as the related transportation had been provided. Substantially all ticket sales under the Ticket Program to date have been "System Tickets". The purchase price for the tickets purchased by Karabu are required to either, at Karabu's option and with certain restrictions, be retained by Karabu and the amount so retained shall be credited as prepayments against the outstanding balance of the Icahn Loans, or be paid over to the settlement trust established in connection with the '93 Reorganization for TWA's account as prepayments on the PBGC Notes. At December 31, 1996, approximately $64.9 million of such proceeds had been applied to the principal balance of the Icahn Loans, and $6.4 million had been applied to the PBGC Notes, which resulted in a $1.6 million extraordinary charge related to the early extinguishment of PBGC Notes (See Note 14). Tickets sold to Karabu pursuant to the Ticket Agreement are priced at levels intended to approximate current competitive discount fares available in the airline industry. The Ticket Agreement provides that no ticket may be included with an origin or destination of St. Louis, nor may any ticket include flights on other carriers. Tickets sold pursuant to the Ticket Agreement are required to be at fares specified in the Agreement, net to TWA, and be exclusive of tax. No commissions will be paid by TWA for tickets sold under the Ticket Agreement, and in general TWA believes that under the applicable provisions of the Ticket Agreement such tickets may not be marketed or sold through travel agents. Karabu, however, has been marketing tickets through travel agents. TWA has demanded that Karabu cease doing so and Karabu has stated that it disagrees with the Company's interpretation concerning sales through travel agents. In December 1995, the Company filed a lawsuit against Karabu, Mr. Icahn and affiliated companies seeking damages and to enjoin further violations. Mr. Icahn countered threatening to attempt to declare a default on the Icahn Loans on a variety of claims related to his F-16 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) various interpretations of the security documents related to such loans as well as with respect to alleged violations of the Ticket Agreement by the Company. The parties then negotiated a series of standstill agreements pursuant to which the lawsuit was temporarily withdrawn while the parties endeavor to negotiate a settlement of their differences and respective claims. If Karabu's interpretation as to sales of discount tickets to the general public through travel agents was determined by a court or otherwise to be correct and the Company did not otherwise take appropriate action to mitigate the effect of such sales, the Company could suffer significant loss of revenue so as to reduce overall passenger yields on a continuing basis during the eight year term of the Ticket Agreement. In addition, any default by the Company under the ticket agreement or directly on the Icahn loans which resulted in an acceleration of the Icahn Loans could result in a cross-default to the Company's other indebtedness and leases and otherwise have a material adverse effect on the Company. 4. INVESTMENTS: TWA, through a wholly-owned subsidiary, has a 25% partnership interest in Worldspan, a joint venture among TWA, Delta Airlines, Inc., Northwest Airlines, Inc. and ABACUS Distribution Systems PTE Ltd. Worldspan owns, markets and operates a global computer airline passenger reservation system on behalf of subscriber travel agents and contracting airlines who pay booking fees to Worldspan for such reservation service. TWA accounts for its investment in the partnership on the equity basis. TWA's share of the combined net earnings (loss) of the partnership was approximately $11,919,000 for the year ended December 31, 1996, $(11,535,000) for the four months ended December 31, 1995, $3,607,000 for the eight months ended August 31, 1995 and $(3,616,000) for the year ended December 31, 1994, which is included in Other Charges (Credits) in TWA's Statements of Consolidated Operations. The excess of TWA's carrying value for its investment in Worldspan over its share of the underlying net assets of Worldspan is being amortized over a period of 20 years. At December 31, 1996 and 1995, the unamortized balance of this excess amounted to approximately $32.0 million and $33.9 million, respectively. The partnership provides passenger reservations services, communication facilities and other computer services which are purchased by TWA on a recurring basis. The aggregate cost of the services purchased from the partnership, which is included in all other operating expenses in TWA's Statements of Consolidated Operations, is approximately as follows (in thousands): Year Ended December 31, 1996........................................ $54,611 Four Months Ended December 31, 1995................................. $16,566 Eight Months Ended August 31, 1995.................................. $29,604 Year Ended December 31, 1994........................................ $43,638
Summary financial data for Worldspan is as follows:
DECEMBER 31 ----------------- 1996 1995 -------- -------- Current assets............................................... $172,368 $ 84,854 Non-current assets........................................... 384,653 410,901 -------- -------- Total assets............................................... $557,021 $495,755 ======== ======== Current liabilities.......................................... $126,774 $101,219 Non-current liabilities...................................... 125,255 137,220 Partners' equity............................................. 304,992 257,316 -------- -------- Total liabilities and equity............................... $557,021 $495,755 ======== ========
F-17 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED DECEMBER 31, ----------------- 1996 1995 -------- -------- Revenues..................................................... $548,419 $498,138 Costs and expenses........................................... 500,743 529,852 -------- -------- Net income (loss).......................................... $ 47,676 $(31,714) ======== ========
5. INCOME TAXES: Income tax liabilities at December 31, 1996 and 1995, included in other noncurrent liabilities, consist of the following (in millions):
1996 1995 ----- ----- Current taxes................................................... $ -- $ -- Deferred taxes: Federal....................................................... 10.7 10.7 Other income and franchise taxes.............................. .3 .3 ----- ----- Total income tax liability...................................... $11.0 $11.0 ===== =====
Significant components of the Company's deferred tax liabilities and assets as of December 31, 1996 and 1995 are as follows (in millions):
1996 1995 ------- ------- Deferred tax assets: Postretirement benefits, other than pensions............ $ 198.5 $ 194.6 Pension obligations..................................... 82.3 83.4 Employee compensation and other benefits................ 36.5 60.2 Capital leases, net..................................... 54.3 56.6 Net operating loss carryforwards........................ 247.1 207.8 Other, net.............................................. 84.0 86.7 ------- ------- Total deferred tax assets............................. 702.7 689.3 ------- ------- Deferred tax liabilities: Property and spare parts, net........................... $ (34.6) $ (24.7) Routes, gates, and slots, net........................... (158.7) (178.1) Investment in affiliate................................. (42.7) (38.8) ------- ------- Total deferred tax liabilities........................ $(236.0) $(241.6) ======= ======= Net deferred tax asset before valuation allowance......... 466.7 447.7 Deferred tax asset valuation allowance.................. (477.7) (458.7) ------- ------- Net deferred tax asset (liability).................... $ (11.0) $ (11.0) ======= =======
The valuation allowance arises primarily from the amortization of intangibles, representing taxable temporary differences, the reversal of which extends beyond the period in which deductible temporary differences are expected to reverse. The net deferred tax liability, after giving effect to the valuation allowance, arises primarily in years after 2020. F-18 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) A summary of the provision (credit) for income taxes is as follows (amounts in thousands):
REORGANIZED COMPANY PREDECESSOR COMPANY ------------------------- ------------------------- YEAR FOUR MONTHS EIGHT MONTHS YEAR ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31, 1996 1995 1995 1994 ------------ ------------ ------------ ------------ Current, primarily foreign............................................... $450 $1,370 $(96) $960 Deferred................................................................. -- -- -- -- ---- ------ ---- ---- Total provision (benefit) for income taxes, net...................... $450 $1,370 $(96) $960
Income tax expense for the periods presented below differs from the amounts which would result from applying the federal statutory tax rate to pretax income, as follows:
REORGANIZED COMPANY PREDECESSOR COMPANY ------------------------- ------------------------- YEAR FOUR MONTHS EIGHT MONTHS YEAR ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31, 1996 1995 1995 1994 ------------ ------------ ------------ ------------ Income tax benefit at United States statutory rates...................... $(93,652) $(11,294) $(118,408) $(151,504) Amortization of reorganization value in excess of amounts allocable to identifiable assets..................................................... 14,683 4,894 1,976 2,870 Meals and entertainment disallowance .................................... 4,257 1,419 2,838 4,663 Foreign taxes............................................................ 450 1,370 (96) 960 Net operating loss not benefited and other items......................... 74,712 4,981 113,594 143,971 -------- -------- --------- --------- Income tax expense (benefit)......................................... $ 450 $ 1,370 $ (96) $ 960
A provision for income tax on the extraordinary gain from the extinguishment of debt in the eight months ended August 31, 1995 was not required as such income is excluded from taxation under the Internal Revenue Code of 1986, as amended. In May 1993, TWA and the Internal Revenue Service reached an agreement (the "IRS Settlement") to settle both: (i) the IRS' proof of claim in the '93 Reorganization in the amount of approximately $1.4 billion covering prepetition employment and income taxes of TWA, and (ii) the audit of TWA's federal income tax returns through 1992. Pursuant to the IRS Settlement, TWA paid $6 million to the IRS through the application of funds owed to TWA by certain governmental agencies and issued a note in the amount of $19 million payable in quarterly installments over a six year period (also see Note 8 - Debt). As a result of the IRS Settlement, TWA increased its tax basis in certain of its assets and will be allowed no benefit of any federal net operating loss or credit carryforward from 1992 or any prior year. Federal income tax losses incurred by TWA subsequent to 1992 may not be carried back to pre-1993 years. The Company estimates that it has tax net operating loss carryforwards amounting to approximately $625 million at December 31, 1996 expiring in 2008 through 2011 if not utilized before then to offset taxable income. Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), and regulations issued thereunder, imposed limitations on the ability of corporations to use NOLs if the corporation experiences a more than 50% change in ownership during certain periods. In connection with the change of ownership caused by the '95 F-19 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Reorganization, the Company elected to reduce its NOLs in accordance with Section 382 of the Code and regulations issued thereunder. If another ownership change were to occur prior to September 1997, the annual limitations on the Company's utilization of its then existing NOLs would be reduced to zero. Changes in ownership in periods thereafter could substantially restrict the Company's ability to utilize its tax net operating loss carryforwards. In addition, the tax net operating loss carryforwards are subject to examination by the IRS and thus are subject to adjustment or disallowance resulting from any such IRS examination. For financial reporting purposes, the tax benefits from substantially all of the tax net operating loss carryforwards will, to the extent realized in future periods, have no impact on the Company's operating results, but instead be applied to reduce reorganization value in excessive amounts allocable to identifiable assets. 6. EMPLOYEE BENEFIT PLANS: Substantially all of TWA's employees are covered by noncontributory defined benefit retirement plans that were frozen on January 1, 1993. While many of TWA's employees continue participation in these plans, they have not accrued any additional benefits since the date the plans were frozen. Employees hired after the freeze are not entitled to participate in these defined benefit retirement plans. TWA's policy has been to fund the defined benefit plans in amounts necessary for compliance with the funding standards established by the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The retirement plans for Pilots, Flight Attendants and Dispatchers provide benefits determined from career average earnings, with Pilots having minimum benefits after ten years of service. Employees (other than Passenger Service Employees) represented by the IAM earn retirement plan benefits of stated amounts for each year of service. The Retirement Plan for U.S. Noncontract Employees (including Passenger Service Employees) provides pension benefits that are based on the employee's compensation during the last five years prior to retirement, with compensation subsequent to 1988 frozen at the 1988 pay level. Foreign plans provide benefits that meet or exceed local requirements. Normal retirement is age 60 for Pilots and Flight Attendants, and age 65 for nonflight personnel. The age at which employees can receive supplemental benefits for early retirement varies by labor group, but ranges from age 45 to age 64. As noted above, in January 1993, TWA's defined benefit plans covering domestic employees (the "Pension Plans") were frozen and Pichin Corporation, a Delaware corporation formed by the Icahn Entities, assumed sponsorship of the Pension Plans and is now responsible for management and control of the Pension Plans. Pursuant to an agreement (the "Comprehensive Settlement Agreement") among the Company, the Icahn Entities, the Pension Benefit Guarantee Corporation (the "PBGC") and unions representing TWA employees, TWA retains only specified obligations and liabilities in respect of the Pension Plans, which include (i) payment obligations under the PBGC Notes, and (ii) the obligation to continue to act as the benefits administrator responsible for, among other things, determining and administering the payment of Pension Plan benefits (also see Note 8-Debt). Pichin Corporation is obligated to make the required minimum funding payments to each of the Pension Plans, subject to reduction for any payments made under the PBGC Notes. The PBGC may not terminate the Pension Plans, except under section 4042(a)(2) of ERISA or at the request of Pichin Corporation, so long as the Icahn Entities and Pichin Corporation have complied with all terms of the Comprehensive Settlement Agreement relating to the PBGC. Upon the occurrence of certain significant events (as defined) including, but not limited to, a sale of substantially all of TWA's assets, a merger involving TWA or a liquidation under Chapter 7 under the Bankruptcy Code, and at the request of Pichin Corporation, the Pension Plans will be terminated. After such a termination, the liability of Pichin Corporation and all members of its controlled group will be limited to an obligation to make annual payments of $30 million to the PBGC for a period of eight years. Mr. Icahn has F-20 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) advised TWA that Pichin Corporation is entitled to terminate the Pension Plans in a non-standard termination at any time after January 1, 1995. In connection with the Comprehensive Settlement Agreement, Mr. Icahn and each of the Icahn Entities surrendered all of the equity and debt securities of TWA and its affiliates owned beneficially or of record by them. Pursuant to the Comprehensive Settlement Agreement, each of the parties to the agreement mutually released the various claims of the other parties to the agreement. The net periodic pension expense recorded for TWA's foreign defined benefit retirement plans is presented below.
REORGANIZED COMPANY PREDECESSOR COMPANY ------------------------- ------------------------- YEAR FOUR MONTHS EIGHT MONTHS YEAR ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31, 1996 1995 1995 1994 ------------ ------------ ------------ ------------ Service cost............................................................. $ 577 $ 274 $ 493 $ 1,190 Interest cost............................................................ 992 583 1,040 3,053 Actual return on assets.................................................. (505) (100) (200) (864) Net amortization and deferral............................................ (355) -- -- -- ----- ----- ------- ------- Net pension expense..................................................... $ 709 $ 757 $ 1,333 $ 3,379
Actuarial assumptions used for determining pension costs were:
REORGANIZED COMPANY PREDECESSOR COMPANY ------------------------- ------------------------- YEAR FOUR MONTHS EIGHT MONTHS YEAR ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31, 1996 1995 1995 1994 ------------ ------------ ------------ ------------ Discount rate for interest cost...................... 7.50% 7.00% 8.50% 8.50% Rate of increase in future compensation levels....... 5.50% 5.50% 5.50% 7.50% Expected long-term rate of return on plan assets..... 9.00% 11.00% 11.00% 11.00%
F-21 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The funded status (with benefit obligations determined using the current estimated discount rate of 7.5% and 7.0% at December 31, 1996 and 1995 respectively) and amounts recognized in the Consolidated Balance Sheets at December 31, 1996 and 1995, for defined benefit plans covering foreign employees, are as follows (amounts in thousands):
DECEMBER 31, ----------------------------------------------------- 1996 1995 ------------------------------ ---------------------- PLANS IN WHICH PLANS IN WHICH ------------------------------ ---------------------- ASSETS ACCUMULATED ASSETS EXCEED BENEFITS EXCEED ACCUMULATED ACCUMULATED EXCEED ACCUMULATED EXCEED BENEFITS BENEFITS ASSETS BENEFITS ASSETS ----------- ------------------ --------- ----------- Actuarial present value of benefit obligations: Vested benefit obligation............ $ 44,200 $ 7,153 $ 23,986 $ 13,958 Nonvested benefit obligation............ -- 1,198 14 2,338 -------- -------- --------- -------- Accumulated benefit obligation............ 44,200 8,351 24,000 16,296 Projected benefit obligation more than accumulated benefit obligation............ 3,983 5,882 1,327 8,273 -------- -------- --------- -------- Projected benefit obligation............ 48,183 14,233 25,327 24,569 Plan assets at fair value (a)..................... 50,703 -- 47,814 -- -------- -------- --------- -------- Projected benefit obligation more (less) than plan assets at fair value............ (2,520) 14,233 (22,487) 24,569 Unrecognized net gain (loss).................. 7,307 11,696 -- 949 -------- -------- --------- -------- Pension liability (asset) before adjustment....... 4,787 25,929 (22,487) 25,518 Adjustment to reduce pension assets to estimated recoverable amount.................. -- -- 18,222 (b) -- -------- -------- --------- -------- Pension liability (asset) recognized in Consolidated Balance Sheets................ $ 4,787 $ 25,929 $ (4,265) $ 25,518 ======== ======== ========= ========
- -------- (a) Plan assets are invested in cash equivalents, international stocks, fixed income securities and real estate. (b) The adjustment at December 31, 1995 represented the amount by which the net pension asset exceeded the amount estimated to be recoverable pursuant to a planned termination of a pension plan covering certain foreign employees. United Kingdom law requires the reduction of retirement plan assets when such assets exceed 105% of plan liabilities. In 1996, assets in TWA's United Kingdom Pension Plan exceeded liabilities by approximately $20 million. This surplus was eliminated by terminating the existing UK Pension Plan and establishing a new pension plan for UK employees. The surplus assets were split between TWA and the participants of the UK Plan, with plan participants receiving their share in enhanced pension benefits, and TWA receiving, in December 1996, a reversion from the original plan of $9.7 million. TWA has several defined contribution plans covering most of its employees. Total pension expense for these plans was $58.0 million, $14.1 million, $26.8 million, $46.0 million, for the year ended December 31, 1996, the four months ended December 31, 1995, the eight months ended August 31, 1995 and the year ended December 31, 1994, respectively. Such defined contribution plans include: (a) trust plans established pursuant to collective bargaining agreements with certain employee groups providing for defined Company contributions generally F-22 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) determined as a percentage, ranging from 2% to 11%, of pay; and (b) retirement savings plan for Noncontract Employees to which the Company contributes amounts equal to 25% of voluntary employee after-tax contributions up to a maximum of 10% of the employee's pay. Pursuant to the '92 Labor Agreements, Company contributions were suspended for certain defined contribution plans for the period September 1, 1992 through August 31, 1995. Such suspension has been extended through August 31, 1997. In connection with the Comprehensive Settlement Agreement, TWA agreed to make contributions to defined contribution plans aggregating 2% of eligible wages for 1993 through 1995, and 3.3% thereafter. The Company made the 1994 contribution payment on June 20, 1995. Commencing on July 1, 1995, TWA is required to make such contributions on a monthly basis. In addition to providing retirement benefits, TWA provides certain health care and life insurance benefits for retired employees, their spouses and qualified dependents. Substantially all employees may become eligible for these benefits if they reach specific retirement age criteria while still actively employed by TWA. SFAS No. 106 requires that the expected cost of providing postretirement benefits other than pensions be accrued over the years that the employee renders service, in a manner similar to the accounting for pension benefits. The following table sets forth a reconciliation of the accrued postretirement benefit cost as of December 31, 1996 and 1995 (in millions):
DECEMBER 31, DECEMBER 31, 1996 1995 ------------ ------------ Accumulated postretirement benefit obligation: Actives fully eligible......................... $ 163 $ 165 Other actives.................................. 144 150 Retirees....................................... 225 208 ----- ----- Total APBO................................... 532 523 Unrecognized cumulative loss..................... (29) (30) ----- ----- Accrued postretirement benefit cost.............. $ 503 $ 493 ===== =====
The components of net periodic postretirement benefit cost are as follows (in millions):
REORGANIZED COMPANY PREDECESSOR COMPANY ------------------------- ------------------------- YEAR FOUR MONTHS EIGHT MONTHS YEAR ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31, 1996 1995 1995 1994 ------------ ------------ ------------ ------------ Service cost............ $10.0 $ 3.0 $ 5.4 $ 9.5 Interest cost........... 35.4 11.0 25.5 34.5 ----- ----- ----- ----- Total................. $45.4 $14.0 $30.9 $44.0 ===== ===== ===== =====
The discount rate used to determine the APBO was 7.5% at December 31, 1996 and 7.0% at December 31, 1995. The discount rate used to determine net periodic postretirement benefit costs was 7.0% for the year ended December 31, 1996, 7.0% for the four months ended December 31, 1995, 8.5% for the eight months ended August 31, 1995 and 7.0% for the year ended December 31, 1994. The assumed health care cost trend rate used in measuring the APBO was 8.0% in 1997 declining by 1% per year to an ultimate rate of 5%. If the assumed health care cost trend rate was increased by 1 percentage point, the APBO at December 31, 1996 would be increased by approximately 10% and 1996 periodic postretirement benefit cost would increase approximately 10%. F-23 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 7. CONTINGENCIES: On July 17, 1996, TWA Flight 800 crashed shortly after departure from JFK en route to Paris, France. There were no survivors among the 230 passengers and crew members aboard the Boeing 747 aircraft. The Company is cooperating fully with all federal, state and local regulatory and investigatory agencies to ascertain the cause of the crash, but to date a cause has not been determined. While TWA is currently the defendant in a number of lawsuits, TWA is unable to predict the amount of claims relating to the crash which may ultimately be made against the Company and how those claims might be resolved. TWA maintains substantial insurance coverage and, at this time, management has no reason to believe that such insurance coverage will not be sufficient to cover the claims arising from the crash. Therefore, TWA believes that the resolution of such claims will not have a material adverse effect on its financial condition or results of operations. The Company is unable to identify or predict the extent of any adverse effect on its revenues, yields, or results of operations which has resulted or may result from the public perception of the crash. During 1992, TWA and several other major airlines agreed to settle certain class action antitrust litigation. Pursuant to the settlement agreement, which was approved by the United States District Court for the Northern District of Georgia in 1994, TWA paid $1 million and, together with five other carriers, issued approximately $400 million in face amount of certificates for discounts of approximately 10% on future domestic air travel on any of the six carriers. TWA will reflect the certificates that are redeemed for travel on TWA as a reduction in revenue as the transportation is provided. While TWA presently does not have any reason to expect that the face amount of the discount coupons that will be redeemed for travel on TWA in the future will not reasonably approximate the face amount of discount coupons that TWA contributed to the settlement, it is reasonably possible that the actual face amount of discount coupons redeemed by TWA could be substantially different, considering the interchangeability of the discount coupons and that the face amount of the discount coupons contributed by all of the participating carriers and distributed to claimants aggregated approximately $400 million. Therefore, while the settlement agreement could have the effect of reducing TWA's future revenues and cash flows from levels that might otherwise be realized, because of the uncertainties as to the face amount of the discount coupons that will ultimately be redeemed by TWA and uncertainties as to the impact that the distribution of discount coupons will have on traffic levels, TWA is unable to reasonably estimate any such effects. On October 22, 1991, a judgment in the amount of $12,336,127 was entered against TWA in an action in the New York District Court by Travellers International A.G. and its parent company, Windsor, Inc. (collectively, "Travellers"). On November 4, 1991, TWA posted a cash undertaking of $13,693,101, which was charged to expense, for a stay of execution of the judgment pending the appeal. On March 10, 1992, the Company commenced an adversary proceeding against Travellers in the Bankruptcy Court seeking to avoid the cash undertaking on the grounds that it constitutes a preferential transfer or, in the alternative, to find that the cash undertaking constitutes property of the estate. In March 1993, Travellers filed a petition for a writ of certiorari in the United States Supreme Court seeking to require TWA to litigate its claims against Travellers in the New York District Court and not the Bankruptcy Court. The petition was denied by the United States Supreme Court in April 1993. A trial of the adversary proceeding took place in Bankruptcy Court in February 1994 and in December of 1994, the Bankruptcy Court reached a decision in this proceeding which is favorable to the Company. Upon appeal, the District Court affirmed in part and reversed in part the bankruptcy courts decision. Both parties have appealed the matter to the Third Circuit Court of Appeals. The Company believes that in the event the District Court's decision is affirmed, the ultimate result will not be materially different than the decision of the bankruptcy court. Pursuant to the Icahn Financing Facilities, amounts received pursuant to these proceedings must be used to repay, in part, TWA's obligations thereunder. TWA is subject to numerous environmental laws and regulations administered by various state and federal agencies. Although the Company believes adequate reserves have been provided for all known environmental F-24 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) contingencies, it is possible that additional reserves might be required in the future which could have a material effect on the results of operations or financial condition of the Company. However, the Company believes that the ultimate resolution of known environmental contingencies should not have a material adverse effect on the financial position or results of operations based on the Company's knowledge of similar environmental sites. Since May 1991, TWA's employees in Israel have claimed that the Company should be required to collateralize its contingent payment of termination indemnities. This matter deals only with collateralization of a contingent payment obligation. The employees have asserted that the amount necessary to collateralize the contingent payment of termination indemnities could be as much as $25 million. The Company denies any obligation to collateralize and asserts that any obligation to collateralize any termination indemnity is not a current obligation. In February 1995, a number of actions were commenced in various federal district courts against TWA and six other major airlines alleging that the companies conspired and agreed to fix, lower and maintain travel agent commissions on the sale of tickets for domestic air travel in violation of the United States antitrust laws. Generally the complaints in these actions seek treble damages and injunctive relief on behalf of a nationwide class of travel agents. Certain of these actions also claim violations of various state laws. On May 9, 1995 TWA announced settlement, subject to court approval, of the referenced actions and reinstated the traditional 10 percent commission on domestic air fares. A final court order has not yet been entered; however, there has been entered an interim order approving the settlement. On November 9, 1995, ValuJet Air Lines, Inc. ("ValuJet") instituted a lawsuit against TWA and Delta Air Lines ("Delta") in the United States District Court for the Northern District of Georgia, alleging breach of contract and violations of certain antitrust laws with respect to the Company's lease of certain takeoff and landing slots at LaGuardia International Airport in New York. On November 17, 1995, the court denied ValuJet's motion to temporarily enjoin the lease transaction and the Company and Delta consummated the lease of the slots. ValuJet subsequently amended its original complaint. On July 12, 1996, the Federal Court in Atlanta granted summary judgment in TWA' s favor in the ValuJet litigation on all claims and counts raised in the ValuJet amended complaint. The order granting summary judgment to TWA was not a final order and was not directly appealable due to an outstanding claim against Delta. While ValuJet's counsel has stated that an appeal will be filed at a later date, the Company intends to vigorously defend itself in any future action and believes all of the allegations that have been made to date are without merit. In addition, based on certain written grievances or complaints filed by ValuJet, the Company was informed that the United States Department of Justice ("DOJ"), Antitrust Division, was investigating the circumstances of the slot lease transaction to determine whether an antitrust violation has occurred. During the course of its investigation, the DOT was informed of the summary judgment described above. Since the date of the judgment, TWA is unaware of whether the DOJ has undertaken further investigative efforts, the status of the investigation or any future plans of the DOJ or other regulatory bodies with respect to the ValuJet lawsuit. While TWA is hopeful the summary judgment will be persuasive to the various regulatory bodies petitioned by ValueJet, it will cooperate with any further investigations and strongly believes that the slot lease transaction was not in violation of antitrust laws. On September 6, 1995 TWA announced that the operations of its wholly owned subsidiary, Trans World Express, Inc. ("TWE"), would be discontinued on November 6, 1995. TWA has entered into an agreement with an unaffiliated entity, Trans States Airlines, Inc., to provide feeder service into TWA's JFK hub, which commenced on November 7, 1995. TWA does not currently expect that the liquidation of TWE will have a material adverse impact on the financial position or results of operations of TWA. F-25 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Pursuant to the '92 Labor Agreements, the Company agreed to pay to employees represented by the IAM a cash "bonus' for the amount by which overtime incurred by the IAM from September of 1992 through August 1995 was reduced below specified thresholds. This amount was to be offset by the amount by which medical savings during the period for the same employees did not meet certain specified levels of savings. The obligation is payable in three equal annual installments beginning in 1998. The Company has estimated the net overtime bonus owed to the IAM to be approximately $26.3 million and has reflected this amount as a noncurrent liability in the accompanying balance sheets. Such amount reflects a reduction of approximately $10.0 million pursuant to the final calculation of the liability and an agreement to reduce proportionately the obligation based upon the size of the reduction of indebtedness achieved by the '95 Reorganization. The IAM, while not providing a calculation of its own, has disputed the method by which management has computed the net overtime bonus and has indicated that they believe the amount due to the IAM is much greater than the amount which has been estimated by management. In connection with certain wage increases afforded to non-contract employees, employees represented by the IFFA have asserted and won an arbitration ruling that, if sustained, would require that the Company provide additional compensation to IFFA represented employees. The Company estimates that at December 31, 1996 such additional compensation would aggregate approximately $6 million. The Company denies any such obligation and intends to pursue an appeal of the arbitration ruling. As such, no liability has been recorded by the Company at December 31, 1996. In connection with the '95 Reorganization, the Company entered into a letter agreement with employees represented by the ALPA whereby if the Company's flight schedule, as measured by block hours, does not exceed certain thresholds a defined cash payment would be made to the ALPA. The defined thresholds were exceeded during the measurement periods through December 31, 1996 and no amount was therefore owed to the ALPA as of that date. The Company, however, anticipates that a liability will be incurred during 1997 as a result of the Company's planned reductions in capacity. The amount of the liability, if any, will be dependent on the amount by which the targeted block hours flown during the year exceed the actual block hours flown. Based upon current plans, the Company estimates its obligation under this agreement will not exceed $12.0 million in 1997. The Company is also defending a number of other actions which have arisen in the ordinary course of business, and are insured or the likely outcome of which the management of the Company does not believe may be reasonably be expected to be materially adverse to the Company's financial condition or results of operations. F-26 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8. DEBT: Substantially all of TWA's assets are subject to liens and security interests relating to long-term debt and other agreements. Long-term debt (net of unamortized discounts) outstanding at each balance sheet date was:
DECEMBER 31, ----------------------- 1996 1995 ----------- ----------- (AMOUNTS IN THOUSANDS) 12% Senior Secured Reset Notes due 1998 (a)............. $ 111,799 $ 145,184 12% Contingent Payment Rights due 1996 (b).............. -- 11,265 8% IAM Backpay Notes (c)................................ 12,090 11,037 PBGC Notes (d).......................................... 198,672 201,164 Icahn Financing Facilities (e).......................... 125,102 187,977 Equipment Trust Certificates (f)........................ 8,963 17,929 Various Secured Notes, 4.0% to 12.4, due 1997-2001 (g).. 75,478 103,847 Installment Purchase Agreements, 10.0% to 10.53%, due 1997--2003 (h)......................................... 109,034 111,033 Predelivery Financing Agreement (i)..................... 19,862 -- IRS Deferral Note (j)................................... 8,708 10,937 WORLDSPAN Note (k)...................................... 31,224 31,224 ----------- ---------- Total long-term debt.................................. 700,932 831,597 Less current maturities............................... 92,447 67,566 ----------- ---------- Long-term debt, less current maturities............... $ 608,485 $ 764,031 =========== ==========
- -------- (a) The 12% Senior Secured Reset Notes due 1998 pay interest semi-annually, payable either in cash or, as to the first four interest payments, at the Company's option, in whole or in part, in Common Stock, beginning August 1, 1995, subject to certain conditions. The Company elected to pay interest due and payable for the first two periods and one-half of the interest due and payable February 1, 1997 (fourth period) in common stock. The outstanding notes have a stated principal amount of $124.8 million and $170.0 million at December 31, 1996 and 1995, respectively, and are reflected net of the unamortized discount of $13.0 million and $24.8 million at December 31, 1996 and 1995. The notes are secured by a first lien on certain slots, equipment and spare parts. During 1996, the Company consummated a series of privately negotiated exchanges with a significant holder of the 12% Senior Secured Reset Notes which resulted in the return to the Company of approximately $45.3 million principal amount of 12% Senior Secured Reset Notes and $1.5 million in accrued interest thereon in exchange for the issuance of approximately 4.5 million shares of Company Common Stock (See Note 14). (b) The Contingent Payment Rights, arising under the terms of the '95 Reorganization, were paid in 1996. (c) The 8% IAM Backpay Notes have a stated principal amount of $22.0 million and $22.9 million at December 31, 1996 and 1995, respectively. The notes are reflected net of the unamortized discount of $9.9 million and $11.9 million at December 31, 1996 and 1995, respectively, which reflects an effective interest rate of approximately 24.4% at December 31, 1996. The notes mature in 2001 and pay interest semi-annually. The notes are secured by a subordinate lien on TWA's interest in Worldspan and a lien on approximately $2.2 million in proceeds from the sale of Midcoast Aviation. During December 1996, ownership of the notes was transferred from the Indenture Trustee to current and former IAM union members who participated in the 1992 labor agreement. F-27 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (d) The PBGC Notes have a stated unpaid principal balance of $232.9 million and $244.3 million at December 31, 1996 and 1995, respectively. The notes are reflected net of unamortized discounts of $34.3 million and $43.2 million at December 31, 1996 and 1995, respectively, to reflect an effective interest rate of approximately 13.0%. Interest on the PBGC Notes is payable semi-annually at an average stated rate of 8.19% per annum. Principal payments are due in semi-annual installments beginning in 1999 through 2003, however, due to certain note provisions mandatory prepayments are required. Additional prepayments could arise from the election of Karabu to apply the purchase price for tickets purchased under the Ticket Agreement to a reduction of the PBGC Notes (see Note 3). The Notes are non-recourse notes secured by first liens on TWA's international routes and TWA's leasehold interest in the Kansas City maintenance facility and certain fixtures and equipment. (e) The Icahn Financing Facilities include a $75 million Asset Based Facility and a $125 million Receivables Facility, which had principal balances of $46.9 million and $78.2 million, respectively, at December 31, 1996. The loans are due in January 2001 and interest is payable monthly at a rate of prime plus 1.75% per annum. Collateral for the Icahn Loans include a number of aircraft, engines, and related equipment, along with substantially all of the Company's receivables. The notes evidencing the Icahn Loans are security for certain obligations of the Icahn Entities to the PBGC. Prepayments of the Icahn Loans could arise from the election of Karabu to apply the purchase price for tickets purchased under the Ticket Agreement to a reduction of the Icahn Loans (see Note 3). (f) The Equipment Trust Certificates pay interest semi-annually at a rate of 11% per annum and are subject to mandatory redemptions beginning in April 1994 and continuing until September 1997. The certificates are secured by certain aircraft, engines and other equipment. (g) Various Secured Notes represent borrowings to finance the purchase or lease of certain flight equipment and other property. (h) Installment Purchase Agreements represent borrowings to finance the purchase of four Boeing 767-231 and one Boeing 747-238 aircraft. The borrowings mature in monthly installments through 2003, and require interest at rates ranging from 10.0% to 10.53% per annum. (i) The Predelivery Financing Agreements represent borrowings from the engine manufacturer to finance prepayments on the purchase of five Boeing 757 aircraft. The borrowings mature upon delivery of the aircraft beginning in February 1997 and continuing through October 1997. Interest is payable quarterly at a rate of LIBOR plus 3.5%. (j) The IRS Deferral Note represents unpaid amounts due under the terms of a settlement reached in 1993 for taxes and interest owed to the IRS. The note requires payment of interest quarterly at a rate of 7% per annum and matures in 1999. (k) The Worldspan Note represents amounts owed to Worldspan, a 25% owned affiliate of TWA, for prior services and advances. The note pays interest at maturity at a rate of prime plus 1% per annum and matures in 1999. The note is secured by a pledge of TWA's partnership interest in Worldspan. (l) At December 31, 1996, aggregate principal payments due for long-term debt for the succeeding five years were as follows:
(AMOUNTS IN YEAR THOUSANDS) ---- ----------- 1997............................................ $92,447 1998............................................ 181,915 1999............................................ 95,990 2000............................................ 73,347 2001............................................ 201,558
F-28 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) TWA discontinued, effective June 30, 1995, the accrual of interest on prepetition debt that was unsecured or estimated to be undersecured through the '95 Effective Date. Contractual interest expense for the eight months ended August 31, 1995 was approximately $18.7 million in excess of reported interest expense. 9. LEASES AND RELATED GUARANTEES: Eighteen of the aircraft in the Company's fleet at December 31, 1996 were leased under capital leases. The remaining lease periods for these aircraft range from one to ten years. The Company has options and/or rights of first refusal to purchase or re-lease most of such aircraft at market terms upon termination of the lease. The Company has guaranteed repayment of certain of the debt issued by the owner/lessor to finance some of the aircraft under capital lease to the Company; however, the scheduled rental payments will exceed the principal and interest payments required of the owner/lessor. Aggregate annual rentals in 1997 will be approximately $42.3 million for the 18 aircraft held under capital leases. One hundred twenty nine of the aircraft in TWA's fleet at December 31, 1996 were leased under operating leases. Other than seven leases on a month-to- month basis, the remaining lease periods range from three months to 15 years. Upon expiration of the current leases, TWA has the option to re-lease most of such aircraft for specific terms and/or rentals with some of the renewal options being subject to fair market rental rates. Buildings and facilities leased under capital and operating leases are primarily for airport terminals and air transportation support facilities. Leases of equipment, other than flight equipment, include some of the equipment at airports and maintenance facilities, flight simulators, computers and other properties. Pursuant to an agreement between the City of St. Louis and TWA in November 1993 (the "Asset Purchase Agreement"), the City of St. Louis waived a $5.3 million pre-petition claim and provided TWA with two installments of $24.7 million and $40 million pursuant to sale/leaseback transactions involving certain of TWA's assets located at Lambert-St. Louis Airport and other property and assets located in St. Louis including gates, terminal support facilities at the airport, hangar/St. Louis Ground Operations Center complex, Flight Training Center and equipment and tenant improvements at these various St. Louis facilities. Under the Asset Purchase Agreement, TWA leased back the properties involved under a month-to-month agreement subject to automatic renewal so long as TWA is not in default thereunder, such agreement having a term otherwise expiring December 31, 2005. Such term is subject to early termination in the event of certain events of default, including non-payment of rents, cessation of service, or failure to relocate and maintain its corporate headquarters within the City or County of St. Louis, or relocate and maintain a reservations office within the City of St. Louis. Under the Asset Purchase Agreement, TWA has the right to use 57 gates and terminal support facilities at Lambert-St. Louis Airport. The City has certain rights of redesignation of TWA's gates in the event TWA's flight activity at St. Louis is reduced below a threshold level of 190 daily flight departures during any given monthly period. The related leases are classified as capital leases for financial reporting purposes. The Company's acquisition of 11 new aircraft during 1982 and 1983, one Lockheed L-1011 and ten Boeing 767s, created certain tax benefits that were not of immediate value in the Company's federal income tax returns and, therefore, such tax benefits were sold to outside parties under so-called "Safe Harbor Leases" as permitted by IRS regulations. Pursuant to the sales agreements, the Company is required to indemnify the several purchasers if the tax benefits cannot be used because of circumstances within the control of the Company. As of December 31, 1996, the Company's contingent indemnification obligations in connection with the tax benefit transfers were collateralized by bank letters of credit aggregating $11,510,000 for which the Company has posted $11,510,000 in cash collateral to secure its reimbursement obligations and the bank letters of credit. In addition, the Company has pledged $7,413,000 in cash collateral to secure its obligation with respect to four of the tax F-29 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) benefit transfers and has pledged flight equipment having a net book value of $23,359,000 to secure its obligation with respect to two of the tax benefit transfers. At December 31, 1996 future minimum lease payments for capital leases and future minimum lease payments, net of sublease rentals of immaterial amounts, for long-term leases, were as follows:
MINIMUM LEASE PAYMENTS ----------------------- CAPITAL OPERATING LEASES LEASES ---------- ------------ YEAR ---- (AMOUNTS IN THOUSANDS) 1997................................................ $ 64,601 $ 302,811 1998................................................ 56,416 304,226 1999................................................ 52,664 303,802 2000................................................ 49,249 284,538 2001................................................ 45,008 265,714 Subsequent.......................................... 87,173 1,704,364 ---------- ------------ Total............................................. 355,111 $ 3,165,455 ============ Less imputed interest............................... 91,820 ---------- Present value of capital leases..................... 263,291 Less current portion................................ 42,501 ---------- Obligations under capital leases, less current portion............................................ $ 220,790 ==========
Included in the Minimum Lease Payments for Operating Leases are increased rental rates related to lessor financing of engine hush-kits for 21 aircraft plus estimates of increased rentals for nine additional aircraft yet to be financed. The estimated amounts assume an eight year extension of the respective aircraft leases from date of hush-kit installation. Also included in the Minimum Lease Payments for Operating Leases are rentals related to an agreement entered into in 1996 providing for the lease of ten Boeing 757 aircraft, with delivery of the first aircraft in July 1996 and the final aircraft in July 1997, as well as estimated rentals related to an agreement entered into in 1996 for the lease of fifteen new and three used McDonnell Douglas MD-83 aircraft, with delivery of the aircraft between February 1997 and April 1999. 10. MANDATORILY REDEEMABLE 12% PREFERRED STOCK: Pursuant to the '95 Reorganization the Company issued 1,089,991 shares of the 1,510,000 authorized shares of Mandatorily Redeemable 12% Preferred Stock to the holders of the 8% Senior Secured Notes. The Mandatorily Redeemable 12% Preferred Stock had an aggregate redemption value of approximately $109.0 million, was cumulative, and had an initial liquidation preference of $100 per share. Commencing November 1995, dividends accrued at the rate of 12% of the liquidation preference per share per annum, payable quarterly in arrears on the first day of each February, May, August and November. Subject to certain limitations, the dividends could be paid in Common Stock at the option of the Company, and the Company elected to pay the February 1, 1996 dividend in Common Stock and subsequently issued 317,145 shares. For purposes of determining the number of shares of Common Stock to distribute, such Common Stock was valued at 90% of the fair market value, based upon trading prices for the twenty days prior to the record date for the dividend payment. On March 22, 1996, the Company announced a call for redemption on April 26, 1996 (the "Redemption Date") of all of its issued and outstanding 12% Preferred Stock at a redemption price per share equal to $75.00, plus accrued dividends to and including the Redemption Date of $2.8667 per share. On April 26, 1996, the F-30 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Company paid an aggregate of $84.9 million in redemption of the 12% Preferred Stock and payment of accrued dividends. 11. CAPITAL STOCK: The Company has the authority to issue 300 million shares of capital stock, consisting of 150 million shares of Common Stock, 12.5 million shares of cumulative preferred stock and 137.5 million additional shares of preferred stock. On the '95 Effective Date of the '95 Reorganization, TWA issued approximately 17.2 million shares of Common Stock, 6.4 million shares of Employee Preferred Stock (including approximately 1.7 million shares which are attributable to ALPA represented employees, see Note 12), Equity Rights for the purchase of approximately 13.2 million shares of Common Stock, warrants for the purchase of approximately 1.7 million shares of Common Stock exercisable over a seven year period at $14.40 per share (the "Seven Year Warrants"), warrants for the purchase of up to 1.15 million shares of Common Stock (for nominal consideration), and $109.0 million aggregate liquidation value of Mandatorily Redeemable 12% Preferred Stock (the "12% Preferred Stock"). In addition, each of the 12.5 million shares of the then existing preferred stock were converted into, and holders received, 0.1024 shares of Common Stock, 0.0512 Equity Rights and 0.1180 Seven Year Warrants. Holders of then existing common stock, other than shares held by trusts for employees, received 0.0213 shares of Common Stock, 0.0107 Equity Rights and 0.0246 Seven Year Warrants. In October 1995, TWA received approximately $55.3 million in gross proceeds from the exercise of 13,206,247 Equity Rights and issued 13,206,247 shares of Common Stock. The Company paid a fee of approximately $3.4 million in September to certain standby purchasers of shares covered by the Equity Rights. TWA subsequently issued 2.07 million additional shares of Common Stock to previous holders of TWA's 10% Senior Secured Notes based upon the trading prices of securities distributed pursuant to the '95 Reorganization. The Employee Preferred Stock is the functional equivalent of Common Stock except for an exclusive right to elect a certain number of directors to the Board of Directors and its liquidation preference of $0.01 per share. Employee Preferred Stock does not have redemption rights. Each share will automatically convert into one share of Common Stock upon the withdrawal of such share from the employee stock trust in which such share is held. There were 1,742,922 and 1,746,874 Seven Year Warrants outstanding at December 31, 1996 and 1995, respectively. All warrants to purchase shares of Common stock for nominal consideration had been exercised at December 31, 1996. In March 1996, the Company completed an offering, pursuant to Rule 144A of the Securities Act of 1933 (the "Act"), of 3,869,000 shares of its 8% Preferred Stock, with a liquidation preference of $50 per share. Each share of the 8% Preferred Stock may be converted at any time, at the option of the holder, unless previously redeemed or exchanged, into shares of Common Stock at a conversion price of $20.269 per share (equivalent to a conversion rate of approximately 2.467 shares of Common Stock for each share of 8% Preferred Stock), subject to adjustment. The 8% Preferred Stock may not be redeemed prior to March 15, 1999. On or after March 15, 1999, the 8% Preferred Stock may be redeemed, in whole or in part, at the option of the Company, at specified redemption prices. The 8% Preferred Stock may be exchanged, in whole but not in part, at the option of the Company, for the Company's 8% Convertible Subordinated Debentures Due 2006 (the "Debentures") on any dividend payment date beginning March 15, 1998 at the rate of $50 principal amount of Debentures for each share of 8% Preferred Stock outstanding at the time of exchange; provided that all accrued and unpaid dividends, whether or not earned or declared, on the 8% Preferred Stock to the date of exchange have been paid or set aside for payment F-31 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) and certain other conditions are met. Pursuant to the registration rights agreement between the Company and the initial purchases of the 8% Preferred Stock, the Company was obligated to register resales of the 8% Preferred Stock, the Debentures, and the underlying shares of Common Stock issuable upon conversion thereof. In addition, the Company must use its best efforts to keep the shelf registration effective until March 22, 1999. If the shelf registration does not remain effective until such date, the Company may be required to pay liquidated damages in amounts of up to $0.0125 per week per share of 8% Preferred Stock. In December 1995, the Company adopted a Shareholders Rights Plan. Each holder of Common Stock or Employee Preferred Stock received a dividend of one right for each share, entitling the holder to buy one one- hundredth of a share of a new series of preferred stock at a purchase price of $47.50. The rights may become exercisable only under certain conditions whereby certain persons (as defined) become the owner of or commence a tender offer for certain specified percentages of TWA's voting stock and may be redeemed by TWA at $0.01 per right prior to such time. In the event the rights become exercisable, holders would be entitled to receive, without payment of a purchase price, additional shares of Common Stock or be entitled to purchase Common Stock having a market value of twice the purchase price. 12. EARNED STOCK COMPENSATION: Pursuant to the '94 Labor Agreements and '95 Reorganization, on the '95 Effective Date, approximately 4.7 million shares of Employee Preferred Stock and 1.0 million shares of Common Stock were distributed and allocated to employees through employee stock ownership plans for the benefit of union (other than the ALPA represented employees) and noncontract employees, respectively. The distribution of these shares resulted in a charge to operations in the eight months ended August 31, 1995 of $43.2 million, based upon the market price of TWA's Common Stock at the time. Additionally, a "Rabbi Trust" was established to receive the distribution of approximately 1.7 million shares of Employee Preferred Stock attributable to ALPA represented employees. The Rabbi Trust will distribute to an employee benefit plan (the "ESOP") one-third of the shares annually beginning August 1995, subject to certain conditions. Accordingly, operating results for 1996, the four months ended December 31, 1995 and the eight months ended August 31, 1995 include charges of approximately $6.9 million, $2.0 million and $5.1 million, respectively, representing the value of shares allocated and shares earned, but unallocated, for such periods, based upon the market price of TWA's Common Stock. The charge to earnings for shares to be allocated to ALPA represented employees in the future will be based upon the value of the shares at that time. Accordingly, material changes in this non-cash charge may occur in periods prior to the allocation of the shares and such changes may be unrelated to the Company's operating performance during such periods. Operating results for the eight months ended August 31, 1995 include a non- cash charge of approximately $8.0 million, representing the excess of the fair market value of the shares distributed to employees over the purchase price paid for shares which were sold to employees pursuant to the Equity Rights offering. Also pursuant to the '94 Labor Agreements and the '95 Reorganization, the Company has adopted a seven year employee stock incentive program (the "ESIP") pursuant to which TWA will grant its union and non- union employees additional shares of Employee Preferred Stock and Common Stock (the "Incentive Shares"), respectively, and such employees will be entitled to purchase additional shares of such stock under certain circumstances through an employee stock purchase arrangement. The ESIP has been designed to enable TWA's employees to increase their level of ownership from 30% to 40% of the combined total number of outstanding Common Stock and Employee Preferred Stock over the seven year period. The first stock grant under the ESIP is to be made on July 15, 1997 in an amount that would increase the level of employee ownership by 2% of the combined total number of then outstanding shares of Common Stock F-32 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) and Employee Preferred if the closing price of the Common Stock exceeds a target price of $11.00 per share following January 1, 1997 or would be made on any date thereafter if the price of the Common Stock exceeds such target price. In subsequent years through the end of the seven year term of the ESIP, the increase in the number of shares of Employee Preferred Stock to be granted under this program would be equivalent to 1.5% in 1998, 1.5% in 1999, 1.0% in 2000, 1.0% in 2001 and 1.0% in 2002 of the combined total number of shares of Common Stock and Employee Preferred Stock, and the target prices would increase to $12.10 in 1998, $13.31 in 1999, $14.64 in 2000, $16.11 in 2001 and $17.72 in 2002. If TWA issues additional shares of Common Stock with an aggregate value of more then $20 million to third parties for cash or a reduction in debt at a price equal to or greater then $11.00 per share, the last two scheduled installments of the ESIP would be aggregated and these shares allocated equally to the remaining installments in the program. In addition, pursuant to the ESIP, employees would have the right after July 15, 1997, to purchase over the seven year term of the ESIP additional shares of Employee Preferred Stock in amounts up to an aggregate of 2% of the combined total number of outstanding Common Stock and Employee Preferred Stock at a discount of 20% from the market price. The employees' right to purchase additional shares of Employee Preferred Stock would be accelerated and become immediately exercisable if there is a merger, sale or consolidation of TWA (where TWA is not the surviving entity) at a merger, sale or consolidation price equivalent to or in excess of $17.72 per share of Common Stock at a 20% discount from the merger, sale or consolidation price relating to such a transaction. The percentage of employee ownership could decline below 30% in the event the Company issues additional Common Stock to third parties for cash or property or in lieu of cash payments on the 12% Senior Secured Reset Notes. To the extent that as a result of the sale for cash of additional capital stock, the percentage of employee ownership of the combined total number of shares of Common Stock and Employee Preferred Stock declines below a level equal to the Adjusted Maximum Percentage (as defined below) minus eight percentage points plus the percentage equivalent to any Incentive Shares already issued, one- quarter of the difference between the new percentage of employee ownership and the level just determined (but in no event greater than 1% in each year) times the combined total number of shares of Common Stock and Employee Preferred Stock outstanding would be added to the amount of Employee Preferred Stock to union employees and Common Stock to non-union employees to be issued under the ESIP in each of the years 1999 through 2002 assuming the target prices are met in each of such years. In the event of a merger, sale or consolidation of TWA where TWA is not the surviving entity, TWA would issue to employees at or prior to the consummation of such a transaction: (i) a number of shares of Employee Preferred Stock and Common Stock to which the employees would have otherwise been entitled under the ESIP during its seven year term assuming the trading price of the Common Stock during such term was the merger, sale or consolidation price, provided, that if the merger, sale or consolidation price falls between two target prices, the number of shares to be issued will be based on an interpolation between the target prices, (ii) if the employee ownership percentage is less than 35% of the combined total number of outstanding shares of Common Stock and Employee Preferred Stock, a number of shares of Employee Preferred Stock and Common Stock equal to the difference between the number of shares already distributed under the ESIP and a number of shares equivalent to 2.0%, 3.5% or 5.0%, respectively, of the then combined total number of outstanding Common Stock and Employee Preferred Stock depending on the merger, sale or consolidation price, but in no event shall shares issued pursuant to this paragraph increase the employee ownership percentage above 35%, or (iii) if, following the issuance by the Company of additional shares of Common Stock to third parties for cash or property equal to 1% of the number of shares of Common Stock outstanding immediately following the Restructuring and the employee ownership percentage is below the lesser of 35% and the Adjusted Maximum Percentage, TWA shall at the option of each employee effect an immediate cash contribution to the employee's respective pension plan or make an immediate cash payment to each employee equal to an amount determined as the number of shares necessary to increase the employee ownership percentage to the lesser of 35% and the Adjusted Maximum Percentage of the merger, sale or consolidation price. The Adjusted Maximum Percentage is F-33 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) defined to mean a level of the percentage of employee ownership following a reduction below 38% but to no lower than 30% in a manner proportionate to the aggregate proceeds, if any, received from the issuance of additional Common Stock to third parties for cash or property up to $200 million. The ESIP also provides that if additional shares are distributed following the '95 Effective Date in respect of the '95 Reorganization, employees will be entitled to receive an additional number of shares of Common Stock and Employee Preferred Stock such that the employees will retain the same level of ownership. Pursuant to the '95 Reorganization, TWA issued 2,069,898 shares of common stock as conditional consideration to the 12% Senior Secured Notes. Union representatives and the Company have tentatively agreed that the number of "Fill-Up Shares" to be issued pursuant to the ESIP is approximately 932,000. Under the agreement, approximately 526,000 shares will be distributed immediately (the "Initial Fill-Up Shares") and the remaining shares (the "Credit Shares") will be issued in July of 1997 if the 1997 target price is not met. If the 1997 ESIP target price is not met, the Credit Shares distributed may be used as a credit against future grants under the ESIP. TWA will record a charge in 1997 for the fair value of the Initial Fill-Up Shares as of the date those shares are distributed. The issuance of the Fill-Up Shares is subject to approval by the Company's Board of Directors. The number of shares of Employee Preferred Stock outstanding at December 31, 1996 does not reflect any such additional shares. Shares granted or purchased at a discount under the ESIP will generally result in a charge equal to the fair value of shares granted and the discount for shares purchased a the time when such shares are earned. If the ESIP's target prices for the Common Stock are realized, the minimum aggregate charge for the years 1997 to 2002, based on the number of Common Stock and Employee Preferred Stock outstanding at December 31, 1996 (including Initial Fill-Up Shares) and excluding the impact of any merger, sale or consolidation of TWA, would be approximately $58 million. The charge for any year, however, could be substantially higher if the market prices of the Common Stock exceed the respective yearly target prices. 13. STOCK OPTION PLANS: The Company's 1994 Key Employee Incentive Stock Plan (the "KESIP"), as amended, provides for the award of incentive and nonqualified stock options for up to 7% of the Common Stock and Employee Preferred Stock outstanding as of the start of each fiscal year (approximately 3.4 million shares at January 1, 1997). Options granted under the KESIP have a five year life after the final vesting period and vest at the rate of 34% upon the first anniversary of the award date, 33% upon the second and 33% upon the third anniversary of the award date. Unvested shares are subject to forfeiture under certain circumstances. A summary of the Company's outstanding stock options as of December 31, 1996 and 1995, and changes during the years ended on those dates is presented below:
1996 1995 ------------------------- ------------------------ WEIGHTED WEIGHTED AVERAGE AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE --------- -------------- --------- -------------- Outstanding at beginning of year....................... 2,228,000 $4.68 1,398,576 $4.64 Granted..................... 453,000 11.65 829,424 4.74 Exercised................... (191,316) 4.64 -- -- Forfeited................... (463,300) 7.43 -- -- --------- --------- Outstanding at end of year 2,026,384 $5.61 2,228,000 $4.68 ========= ========= Options exercisable at year- end........................ 1,307,530 475,516 Weighted average fair value of options granted during the year................... $ 6.79 $ 3.03
F-34 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The per share weighted average fair value of options granted during 1996 and 1995 were estimated using the Black Scholes option pricing model assuming risk-free interest rates of 6.6% and 6.0% in 1996 and 1995, respectively, an expected volatility factor of 85% and an expected life of three years. The following table summarizes information about fixed stock options at December 31, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------------- ---------------------------- RANGE NUMBER WEIGHTED-AVERAGE NUMBER OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE --------------- ----------- ---------------- ---------------- ----------- ---------------- $ 4.64 to 6.78......... 1,757,184 3.0 years $4.64 1,255,850 $4.64 7.06 to 8.12......... 20,000 3.8 years 7.95 6,800 7.95 10.62 to 15.81......... 238,100 7.4 years 11.97 39,780 10.64 16.25 to 18.37......... 11,100 4.3 years 17.85 5,100 18.37 --------- --------- $ 4.64 to 18.37......... 2,026,384 1,307,530 ========= =========
As permitted under Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company applies APB Opinion No. 25 and related Interpretations in accounting for its plans. However, pro forma disclosures as if the Company adopted the fair value based method of measurement for stock-based compensation plans under SFAS 123 in 1996 and 1995 are presented below. Had compensation cost for the Company's grants for stock-based compensation plans been determined using the fair value method under SFAS No. 123, the Company's net loss pro forma, and net loss per common share for 1996 and 1995 would approximate the amounts below (in millions except per share data):
YEAR ENDED FOUR MONTHS ENDED DECEMBER 31, 1996 DECEMBER 31, 1995 --------------------- --------------------- AS REPORTED PRO FORMA AS REPORTED PRO FORMA ----------- --------- ----------- --------- Net loss........................... (284,815) (285,716) (30,138) (30,350) Net loss per common share.......... (7.27) (7.30) (1.05) (1.06)
The pro forma amounts do not give any effect to options granted prior to January 1, 1995. Operating results include charges of $2.2 million, $0.02 million and $0.02 million for the year ended December 31, 1996, the eight months ended August 31, 1995 and the four months ended December 31, 1995, respectively, to reflect the excess of the market price of TWA's common stock on the date of grant over the exercise price, over the vesting period. The 1996 charge includes $1.8 million in respect to the accelerated vesting of certain awards in connection with the severance of certain officers. 14. EXTRAORDINARY ITEMS: In 1996, the Company consummated a series of privately negotiated exchanges with a significant holder of the 12% Senior Secured Reset Notes which resulted in the return to the Company of approximately $45.3 million in 12% Senior Secured Reset Notes and approximately $1.5 million in accrued interest thereon in exchange for the issuance of approximately 4.5 million shares of Company Common Stock. As a result of the exchange of the 12% Senior Secured Notes, the Company recorded an extraordinary non-cash charge of $8.2 million representing the difference between the fair value of the common stock issued (based upon the trading price of the Company's common stock on the dates of exchanges) and the carrying value of the Senior Secured Reset Notes retired. F-35 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) During 1996, the Company recorded an extraordinary charge of approximately $1.6 million due to the early extinguishment of a portion of the PBGC Notes as a result of Karabu applying approximately $6.4 million in ticket proceeds as prepayments on the PBGC Notes. The extraordinary gain recorded in the four months ended December 31, 1995 was due to the cancellation of debt as a result of a settlement between Trans World Express, Inc. ("TWE"), a subsidiary, and an aircraft lessor. The extraordinary gain recorded in the eight months ended August 31, 1995 was for the discharge of indebtedness pursuant to the Company's '95 Reorganization. The extraordinary charge recorded in 1994 was for a prepayment premium of approximately $2.0 million related to the sale and lease back of four McDonnell Douglas MD-80 aircraft. 15. DISPOSITION OF ASSETS: Disposition of assets resulted in net losses of approximately $1,135,000 and $206,000 during 1996 and for the eight months ended August 31, 1995, respectively, and net gains of $3,330,000 and $1,072,000 for the four months ended December 31, 1995 and during 1994, respectively. In 1996, TWA recorded a gain of approximately $8.0 million in connection with the hull insurance settlement for the aircraft destroyed in the Flight 800 incident. The gain was offset by a loss of $8.3 million on the sale of expendable aircraft parts and losses on other miscellaneous dispositions. In November 1995, TWA entered into an agreement to sublease certain of TWA's leased commissary facilities in Los Angeles. As part of this agreement, TWA sold its commissary furnishings and equipment, resulting in a gain of $2.0 million. The 1994 net gain included a gain of approximately $1.3 million on the divestiture of three subsidiaries, Midcoast Aviation, Inc., Travel Marketing Services, Inc. and World Marketing Services, Inc. 16. SPECIAL CHARGES AND OTHER NONRECURRING ITEMS: The 1996 operating loss includes an aggregate of approximately $85.9 million in special charges and nonrecurring items, primarily as follows: (i) approximately $26.7 million to reflect the write-off of the carrying value of TWA's New York-Athens route authority over which TWA has elected to discontinue service, (ii) approximately $53.7 million to reflect the reduction in carrying value of TWA's owned L-1011 and B-747 aircraft and related spare parts which are expected to be retired from service over the next year and (iii) approximately $5.5 million for employee severance liabilities related to the termination of service to Athens and Frankfurt. The write-down of owned aircraft and related spare parts was based upon managements estimates of the net proceeds to be received upon the disposition of these assets. Additionally, the Company has obligations under operating leases for B-747 aircraft aggregating approximately $50 million over the next seven years. Management currently estimates that it will be able to recover substantially all of these costs pursuant to subleases of these aircraft and, accordingly, no provision has been made for any such costs at this time. Management's estimates relative to the costs of the retirement of the L-1011 and B-747 fleets and related spare parts are based upon current market conditions, preliminary discussions with interested parties and other factors. The actual costs could differ materially from the current estimates. The operating income for the eight months ended August 31, 1995, includes a special charge of $1.7 million for shut-down related expenses of TWE. The 1994 operating loss includes an aggregate of $175.1 million in costs associated with special charges and nonrecurring items as further described below. F-36 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In the fourth quarter of 1994, TWA recorded a charge of $36.3 million to salaries, wages and benefits to reflect the estimated portion of the obligation earned to date for payments due to employees represented by the IAM for overtime savings in excess of certain targeted levels established in the '92 Labor Agreement (see Note 7). During 1994, TWA undertook several strategic operational initiatives to improve its competitiveness and reduce its cost structure. Special charges recorded in 1994 include the following principal components: (i) approximately $61 million to reflect the write-off of the carrying value of certain international route authorities which were no longer expected to be utilized in connection with the restructuring of such operations, (ii) approximately $34 million to reflect the write-off of pre-delivery payments and related capitalized interest for certain aircraft on order (also see Note 18--Aircraft Commitments), (iii) approximately $24 million to reflect the reduction in the carrying value of certain owned aircraft and spare parts which, under the Company's fleet plan, were expected to be retired and sold and (iv) approximately $15 million for furlough pay and severance costs related to reduction in the number of employees. 17. OTHER CHARGES AND CREDITS:
REORGANIZED COMPANY PREDECESSOR COMPANY ------------------------- ------------------------- YEAR FOUR MONTHS EIGHT MONTHS YEAR ENDED ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31, 1996 1995 1995 1994 ------------ ------------ ------------ ------------ (AMOUNTS IN THOUSANDS) Expenses associated with the restructuring of debt and flight equipment leases.................................................................. -- 3,000 11,000 11,100 Provisions for losses resulting from claims and litigation judgments against TWA............................................................. 235 26 351 200 Foreign currency transaction (gains) losses-net.......................... (642) 1,156 384 (1,941) Finance charge income earned on receivables carried by TWA............... (8,030) (2,662) (6,198) (9,557) Credits related to settlement of various contract disputes, litigation and other matters....................................................... (2,500) -- -- -- Equity in (earnings)/losses of TWA's investment in Worldspan............. (11,919) 11,535 (3,607) 3,616 Miscellaneous other nonoperating charges (credits)-net (a)............... (7,742) (5,444) (4,309) (32,265) -------- ------ ------- -------- Total Other Charges and Credits.......................................... $(30,598) $7,611 $(2,379) $(28,847) - -------------------------------------------------- ======== ====== ======= ========
- -------- (a) The amount for 1994 includes certain nonrecurring income amounts aggregating approximately $21.1 million relating to the reduction of certain liabilities established on the '93 Effective Date (also see Note 20-Supplemental Financial Information (Unaudited)). 18. AIRCRAFT COMMITMENTS: TWA has entered into agreements with AVSA, S.A.R.L. and Rolls-Royce plc relating to the purchase of ten A330-300 twin-engine wide body aircraft and related engines, spare parts and equipment for an aggregate purchase price of approximately $1.1 billion. The agreements, as amended, require the delivery of the aircraft in 1999 and 2000 and provide for the purchase of up to ten additional aircraft. TWA has not yet made arrangements F-37 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) for the permanent financing of the purchases subject to the agreements. In the event of cancellation, predelivery payments of approximately $18 million would be subject to forfeiture. During 1996 TWA entered into a purchase agreement with the Boeing Company relating to the purchase of ten Boeing Model 757-231 aircraft and related engines, spare parts and equipment for an aggregate purchase price of approximately $500 million. The agreement requires the delivery of the aircraft in 1997, 1998 and 1999, and provides for the purchase of up to ten additional aircraft. Furthermore, to the extent TWA exercises its options for additional aircraft, the Company will have the right to an equal number of additional option aircraft. TWA has obtained commitments for debt financing for approximately 80% of the total costs associated with the acquisition of eight of the original ten aircraft and obtained commitments for 100% of the total costs of the remaining two original aircraft. Such commitments are subject to the lender's and lessor's ongoing evaluation of the financial condition of TWA. Required future expenditures under the purchase agreements described above, including an estimate of price escalation as defined in the subject agreements and exclusive of secured financing, are as follows (amounts in millions):
AVSA BOEING ----- ------ 1997.......................................................... 49.1 248.5 1998.......................................................... 49.8 97.0 1999.......................................................... 515.4 143.0 2000.......................................................... 532.5 --
19. FRESH START REPORTING: Pursuant to SOP 90-7, TWA adopted fresh start reporting which has resulted in the creation of a new reporting entity and the Company's assets and liabilities being adjusted to reflect fair values on the '95 Effective Date. For accounting purposes, the '95 Effective Date was deemed to be September 1, 1995. In the fresh start reporting, an aggregate value of $270 million was assigned to TWA's Common Stock and Employee Preferred Stock. These values were established by management with the assistance of its financial advisors. These valuations considered TWA's expected future performance, relevant industry and economic conditions, and analyses and comparisons with comparable companies. The reorganization value of TWA has been allocated to the Reorganized Company's assets and liabilities in a manner similar to the purchase method of accounting for a business combination. Management obtained valuations from independent third parties which, along with other market and related information and analyses, were utilized in assigning fair values to assets and liabilities. A summary of the impact of the '95 Reorganization and the related fresh start adjustments is presented below. The fresh start adjustments resulted in, among other things, the allocation of substantial amounts to reorganization value in excess of amounts allocable to identifiable assets, the amortization of which, while not requiring the use of cash, will significantly affect future operating results. F-38 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) A summary of the impact of the '95 Reorganization Plan and the related fresh start adjustments is presented below (amounts in thousands).
SEPTEMBER 1, 1995 ------------------------------------------------------------------- PREDECESSOR DEBT FRESH START OTHER REORGANIZED COMPANY DISCHARGE(A) ADJUSTMENTS(B) ADJUSTMENTS(C) COMPANY ----------- ------------ -------------- -------------- ----------- Current Assets: Cash and cash equivalents........... $ 239,796 $ -- $ -- $ -- $ 239,796 Receivables............ 297,022 (1,449) -- -- 295,573 Spare parts, materials and supplies.......... 146,191 -- -- -- 146,191 Prepaid expenses and other................. 60,947 -- -- -- 60,947 ---------- --------- ---------- --------- ---------- Total Current Assets.. 743,956 (1,449) -- -- 742,507 ---------- --------- ---------- --------- ---------- Property and Equipment.. 631,087 -- (24,239) -- 606,848 ---------- --------- ---------- --------- ---------- Other Assets: Investment in affiliated companies.. 110,325 -- -- -- 110,325 Other investments and receivables........... 163,715 -- -- -- 163,715 Routes, gates and slots................. 737,171 -- (278,722) -- 458,449 Reorganization value in excess of amounts allocable to identifiable assets... 153,840 -- -- 685,224 839,064 Other assets........... 28,531 -- ( 9,392) -- 19,139 ---------- --------- ---------- --------- ---------- Total Other............ 1,193,582 -- (288,114) 685,224 1,590,692 ---------- --------- ---------- --------- ---------- Total................... $2,568,625 $ (1,449) $ (312,353) $ 685,224 $2,940,047 ========== ========= ========== ========= ========== Current Liabilities: Current maturities of long-term debt........ $ 472,510 $(404,665) $ -- $ -- $ 67,845 Current obligations under capital leases.. 42,643 -- (647) -- 41,996 Advance ticket sales... 253,642 -- -- -- 253,642 Accounts payable and other accrued expenses.............. 518,030 24,466 3,739 -- 546,235 ---------- --------- ---------- --------- ---------- Total.................. 1,286,825 (380,199) 3,092 -- 909,718 ---------- --------- ---------- --------- ---------- Liabilities Subject To Chapter 11 Reorganization Proceedings............ 748,855 (748,855) -- -- -- ---------- --------- ---------- --------- ---------- Noncurrent Liabilities and Deferred Credits: Long-term debt, less current maturities.... -- 765,435 -- -- 765,435 Obligations under capital leases, less current obligations... 317,196 -- (42,440) -- 274,756 Other noncurrent liabilities and deferred credits...... 673,428 18,612 (30,762) -- 661,278 ---------- --------- ---------- --------- ---------- Total.................. 990,624 784,047 (73,202) -- 1,701,469 ---------- --------- ---------- --------- ---------- Redeemable Preferred Stock.................. -- 58,860 -- -- 58,860 ---------- --------- ---------- --------- ---------- Shareholders' Equity (Deficiency): Old Preferred Stock.... 125 -- -- (125) -- Old Common Stock....... 200 -- -- (200) -- Employee Preferred Stock................. -- -- -- 53 53 New Common Stock....... -- -- -- 172 172 Additional paid-in capital............... 161,692 143,800 -- (35,717) 269,775 Accumulated Deficit.... (619,696) 140,898 (242,243) 721,041 -- ---------- --------- ---------- --------- ---------- Total.................. (457,679) 284,698 (242,243) 685,224 270,000 ---------- --------- ---------- --------- ---------- Total................... $2,568,625 $ (1,449) $ (312,353) $ 685,224 $2,940,047 ========== ========= ========== ========= ==========
- -------- (a) To record the discharge of indebtedness pursuant to the '95 Reorganization and reclassification of debt between current and non-current based upon its revised terms. Debt securities, Mandatorily Redeemable 12% Preferred Stock, Ticket Vouchers and Contingent Payment Rights issued pursuant to the '95 Reorganization have been recorded at their estimated fair values. The excess of indebtedness eliminated F-39 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) over the fair value of securities issued in settlement of those claims, approximately $140.9 million, is reflected as an extraordinary item in the eight months ended August 31, 1995. (b) To record adjustments to reflect assets and liabilities at fair values. The adjustments to record the fair values of assets and liabilities resulted in a nonrecurring charge to reorganization items of approximately $228.8 million in the eight months ended August 31, 1995. Charges to reorganization items were recorded for various fees and expenses related to the consummation of the '95 Plan aggregating approximately $13.4 million. Significant elements of the adjustments to record the fair value of assets and liabilities are summarized below: --Adjustments to reflect the fair value of owned property and equipment under capital leases. --Adjustments to reflect the fair value of TWA's international route authorities, take-off and landing time slots and airport gate leaseholds. --Adjustments to record the present value of the liabilities for postretirement medical and life insurance benefits and certain foreign pension plans to reflect the current postretirement benefit obligation and projected benefit obligation, respectively, utilizing current discount rates. --An adjustment to reduce deferred income taxes to reflect the impact of the preceding adjustments. (c) To record adjustments to reflect the elimination of the remaining deficit in shareholders' equity after the adjustments arising from (a) and (b) above and to reflect the associated reorganization value in excess of amounts allocable to identifiable assets. F-40 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 20. SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED): Selected consolidated financial data (unaudited) for each quarter within 1996 and 1995 are as follows:
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER --------- -------- ---------- --------- (AMOUNTS IN THOUSANDS) REORGANIZED COMPANY YEAR ENDED DECEMBER 31, 1996 Operating revenues.............. $ 782,433 $965,808 $1,002,867 $ 803,299 ========= ======== ========== ========= Special charges (note 16)....... $ -- $ -- $ -- $ 85,915 ========= ======== ========== ========= Operating income (loss)......... $ (54,191) $ 62,028 $ 26,019 $(232,383) ========= ======== ========== ========= Disposition of assets, gains (losses)--net.................. $ (214) $ 239 $ (87) $ (1,073) ========= ======== ========== ========= Income (loss) before extraordinary item............. $ (37,107) $ 25,262 $ (6,905) $(256,277) ========= ======== ========== ========= Extraordinary items............. $ -- $ -- $ (7,420) $ (2,368) ========= ======== ========== ========= Net income (loss)............... $ (37,107) $ 25,262 $ (14,325) $(258,645) ========= ======== ========== ========= Per share amounts: Earnings (loss) before extraordinary items and special dividend requirements. $ (.98) $ .46 $ (.24) $ (5.51) ========= ======== ========== ========= Extraordinary items and special dividend requirements......... $ (.48) $ -- $ (.16) $ (.05) ========= ======== ========== ========= Net income (loss).............. $ (1.46) $ .46 $ (.40) $ (5.56) ========= ======== ========== ========= REORGANIZED COMPANY FOUR MONTHS ENDED DECEMBER 31, 1995 Operating revenues.............. $ -- $ -- $ 293,890 (a) $ 804,584 ========= ======== ========== ========= Operating income................ $ -- $ -- $ 9,308 (a) $ 1,138 ========= ======== ========== ========= Disposition of assets, gains (losses)--net.................. $ -- $ -- $ (50)(a) $ 3,380 ========= ======== ========== ========= Loss before extraordinary item.. $ -- $ -- $ (2,347)(a) $ (31,291) ========= ======== ========== ========= Extraordinary items............. $ -- $ -- $ -- (a) $ 3,500 ========= ======== ========== ========= Net loss........................ $ -- $ -- $ (2,347)(a) $ (27,791) ========= ======== ========== ========= Per share amounts: Loss before extraordinary items......................... $ -- $ -- $ (.16)(a) $ (.93) ========= ======== ========== ========= Extraordinary item............. $ -- $ -- $ -- (a) $ .09 ========= ======== ========== ========= Net loss....................... $ -- $ -- $ (.16)(a) $ (.84) ========= ======== ========== ========= PREDECESSOR COMPANY EIGHT MONTHS ENDED AUGUST 31, 1995 Operating revenues.............. $ 692,320 $860,506 $ 665,529 (b) $ -- ========= ======== ========== ========= Special charges (note 16)....... $ -- $ -- $ 1,730 (b) $ -- ========= ======== ========== ========= Operating income (loss)......... $ (76,261) $ 54,382 $ 36,521 (b) $ -- ========= ======== ========== ========= Reorganization items............ $ -- $ -- $ 242,243 (b) $ -- ========= ======== ========== ========= Disposition of assets, gains (losses)--net.................. $ (271) $ (67) $ 132 (b) $ -- ========= ======== ========== ========= Income (loss) before extraordinary item............. $(122,795) $ 5,168 $ (220,586)(b) $ -- ========= ======== ========== ========= Extraordinary items............. $ -- $ -- $ 140,898 (b) $ -- ========= ======== ========== ========= Net income (loss)............... $(122,795) $ 5,168 $ (79,688)(b) $ -- ========= ======== ========== =========
- -------- (a) One month ended September 30, 1995 (b) Two months ended August 31, 1995 F-41 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The results for each period include all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods. The consolidated financial results on an interim basis are not necessarily indicative of future financial results on either an interim or annual basis. TWA's air transportation business is highly seasonal with the second and third quarters of the calendar year historically producing substantially better operating results than the first and fourth quarters. The results for the fourth quarter of 1996 includes an adjustment to reduce aircraft fuel and oil costs by approximately $8.8 million, as a result of federal fuel excise taxes paid which are expected to be refunded to the Company. The results for the fourth quarter of 1995 include several adjustments to operating expenses to reflect changes in estimates, including a reduction in passenger sales commissions of approximately $6.7 million and a reduction in employee benefits and workers compensation costs of $6.2 million. 21. FOREIGN OPERATIONS: TWA conducts operations in various foreign countries, principally in Europe and the Middle East. Operating revenues from foreign operations were approximately $719.2 million in the year ended December 31, 1996, $228.7 million in the four months ended December 31, 1995, $474.4 million in the eight months ended August 31, 1995 and $794.1 million in the year ended December 31, 1994. 22. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS: SFAS No. 107, "Disclosures About Fair Value of Financial Instruments" requires disclosures with regards to fair values of all financial instruments, whether recognized or not recognized in the balance sheet, subject to certain exceptions. Solely for purposes of complying with this accounting standard, the Company has estimated the fair value of certain of its financial instruments, as further described below. Because no market exists for a significant portion of TWA's financial instruments, fair value estimates provided below are based on judgments regarding current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The discussion of financial instruments below conforms with the presentation in the Consolidated Balance Sheet and relates to the amounts at December 31, 1996 and 1995. (a) Cash, cash equivalents and receivables: The carrying amounts of these assets is estimated to approximate fair value due to the generally short maturities of these instruments. (b) Other investments and receivables: The carrying amount of these assets are estimated to approximate fair value due to the generally short maturities of the underlying instruments which are, however, classified as long-term assets because TWA's ability to access these amounts is generally restricted by contractual provisions. (c) Accounts payable and other accrued liabilities: The carrying amount of these liabilities are estimated to approximate fair value due to the generally short maturities of these instruments. (d) Debt: At December 31, 1996 and December 31, 1995, approximately $111.8 million and $145.2 million, respectively, of the carrying value of TWA's debt was traded publicly. The aggregate market value of such debt was approximately $126.0 million and $160.4 million on those dates, respectively. The Company F-42 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) believes the fair value of the remaining debt which had an aggregate carrying value of approximately $589.1 million and $686.4 million at December 31, 1996 and 1995, respectively, was approximately $466.4 million and $644.5 million on those dates. (e) Mandatorily Redeemable 12% Preferred Stock: At December 31, 1995 the carrying value of TWA's Mandatorily Redeemable 12% Preferred Stock was $61.4 million. The aggregate market value of such stock was approximately $74.1 million on that date. F-43 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------ 1997 1996 -------- -------- Operating revenues: Passenger................................................. $671,845 $677,932 Freight and mail.......................................... 31,489 35,904 All other................................................. 58,972 68,597 -------- -------- Total.................................................... 762,306 782,433 -------- -------- Operating expenses: Salaries, wages and benefits.............................. 315,308 296,323 Earned stock compensation................................. 1,280 4,984 Aircraft fuel and oil..................................... 129,946 129,396 Passenger sales commissions............................... 57,571 63,940 Aircraft maintenance materials and repairs................ 43,743 47,758 Depreciation and amortization............................. 38,770 39,613 Operating lease rentals................................... 85,823 70,305 Passenger food and beverages.............................. 20,452 25,541 All other................................................. 168,899 158,764 -------- -------- Total.................................................... 861,792 836,624 -------- -------- Operating loss............................................. (99,486) (54,191) -------- -------- Other charges (credits): Interest expense.......................................... 28,397 33,547 Interest and investment income............................ (2,951) (6,086) Disposition of assets, gains and losses--net.............. (9,350) 214 Other charges and credits--net............................ (10,389) (7,588) -------- -------- Total.................................................... 5,707 20,087 -------- -------- Loss before income taxes and extraordinary items........... (105,193) (74,278) Provision (credit) for income taxes........................ (35,161) (37,171) -------- -------- Loss before extraordinary items............................ (70,032) (37,107) Extraordinary items, net of income taxes................... (1,532) -- -------- -------- Net loss................................................... (71,564) (37,107) Preferred stock dividend requirements...................... 3,869 23,998 -------- -------- Loss applicable to common shares........................... $(75,433) $(61,105) ======== ======== Per share amounts: Loss before extraordinary item and special dividend requirement.............................................. $ (1.51) $ (.98) Extraordinary item and special dividend requirement....... (.03) (.48) -------- -------- Net loss................................................... $ (1.54) $ (1.46) ======== ========
See notes to consolidated financial statements F-44 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS IN THOUSANDS)
MARCH 31, DECEMBER 31, 1997 1996 ----------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents............................ $ 136,522 $ 181,586 Receivables, less allowance for doubtful accounts, $12,357 in 1997 and $12,939 in 1996................. 257,744 239,496 Spare parts, materials and supplies, less allowance for obsolescence, $12,556 in 1997 and $11,563 in 1996................................................ 104,134 111,239 Prepaid expenses and other........................... 98,294 54,121 ---------- ---------- Total.............................................. 596,694 586,442 ---------- ---------- Property: Property owned: Flight equipment.................................... 387,351 339,150 Prepayments on flight equipment..................... 33,767 39,072 Land, buildings and improvements.................... 59,457 59,879 Other property and equipment........................ 62,222 60,750 ---------- ---------- Total owned property............................... 542,797 498,851 Less accumulated depreciation....................... 82,949 71,810 ---------- ---------- Property owned--net................................ 459,848 427,041 ---------- ---------- Property held under capital leases: Flight equipment.................................... 172,812 172,812 Land, buildings and improvements.................... 49,443 54,761 Other property and equipment........................ 6,943 6,570 ---------- ---------- Total property held under capital leases........... 229,198 234,143 Less accumulated amortization....................... 56,026 46,977 ---------- ---------- Property held under capital leases--net............ 173,172 187,166 ---------- ---------- Total property--net............................... 633,020 614,207 ---------- ---------- Investments and other assets: Investments in affiliated companies.................. 112,674 108,173 Investments, receivables and other................... 232,348 188,331 Routes, gates and slots--net......................... 393,717 401,659 Reorganization value in excess of amounts allocable to identifiable assets--net......................... 772,638 783,127 ---------- ---------- Total.............................................. 1,511,377 1,481,290 ---------- ---------- $2,741,091 $2,681,939 ========== ==========
See notes to consolidated financial statements F-45 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 1997 AND DECEMBER 31, 1996 (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
MARCH 31, DECEMBER 31, 1997 1996 ----------- ------------ (UNAUDITED) LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Current maturities of long-term debt................. $ 81,213 $ 92,447 Current obligations under capital leases............. 40,995 42,501 Advance ticket sales................................. 328,605 241,516 Accounts payable, principally trade.................. 231,830 216,675 Accounts payable to affiliated companies............. 3,345 4,894 Accrued expenses: Employee compensation and vacations earned.......... 112,740 116,846 Contributions to retirement and pension trusts...... 14,766 14,091 Interest on debt and capital leases................. 28,530 39,420 Taxes............................................... 24,233 19,018 Other accrued expenses.............................. 218,182 203,184 ---------- ---------- Total accrued expenses............................. 398,451 392,559 ---------- ---------- Total.............................................. 1,084,439 990,592 ---------- ---------- Long-term liabilities and deferred credits: Long-term debt, less current maturities.............. 650,223 608,485 Obligations under capital leases, less current obligations......................................... 211,080 220,790 Postretirement benefits other than pensions.......... 472,841 471,171 Noncurrent pension liabilities....................... 30,781 30,716 Other noncurrent liabilities and deferred credits.... 105,908 122,080 ---------- ---------- Total.............................................. 1,470,833 1,453,242 ---------- ---------- Shareholders' equity: 8% cumulative convertible exchangeable preferred stock, $50 liquidation preference; 3,869 shares issued and outstanding.............................. 39 39 Employee preferred stock, $0.01 liquidation preference; special voting rights; shares issued and outstanding; 1997--5,659; 1996--5,681............... 57 57 Common stock, $0.01 par value, shares issued and outstanding; 1997--44,083; 1996--41,763............. 441 418 Additional paid-in capital........................... 571,799 552,544 Accumulated deficit.................................. (386,517) (314,953) ---------- ---------- Total.............................................. 185,819 238,105 ---------- ---------- $2,741,091 $2,681,939 ========== ==========
See notes to consolidated financial statements F-46 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31,1997 AND 1996 (AMOUNTS IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, -------------------- 1997 1996 --------- --------- Cash flows from operating activities: Net loss................................................ $ (71,564) $ (37,107) Adjustments to reconcile net loss to net cash used by operating activities: Employee earned stock compensation.................... 1,280 4,984 Depreciation and amortization......................... 38,770 39,613 Amortization of discount and expense on debt.......... 3,556 2,405 Extraordinary loss on extinguishment of debt.......... 1,532 -- Interest paid in common stock......................... 4,125 11.332 Equity in undistributed earnings of affiliates not consolidated......................................... (4,704) (1,521) Revenue from Icahn ticket program..................... (24,202) (16,112) Net (gains)-losses on disposition of assets........... (9,350) 214 Change in operating assets and liabilities: Decrease (increase) in: Receivables........................................... (14,684) (68,540) Inventories........................................... 5,917 8,528 Prepaid expenses and other current assets............. (44,173) (33,432) Other assets.......................................... (8,658) (7,197) Increase (decrease) in: Accounts payable and accrued expenses................. 19,614 (2,687) Advance ticket sales.................................. 80,305 92,431 Other noncurrent liabilities and deferred credits..... (14,112) (17,918) --------- --------- Net cash used........................................ (36,348) (25,007) Cash flows from investing activities: Proceeds from sales of property......................... 14,300 324 Capital expenditures, including aircraft pre-delivery deposits............................................... (13,602) (46,687) Net increase in investments, receivables and other...... (26,509) (18,535) --------- --------- Net cash used........................................ (25,811) (64,898) --------- --------- Cash flows from financing activities: Net proceeds from long-term debt and warrants issued.... 47,175 -- Repayments on long-term debt and capital lease obligations............................................ (31,546) (25,894) Refund due to retirement of 1967 bonds.................. 5,318 -- Net proceeds from sale of preferred stock............... -- 186,163 Cash dividends paid on preferred stock.................. (3,869) (15) Net proceeds from exercise of warrants.................. 17 26 --------- --------- Net cash provided.................................... 17,095 160,280 --------- --------- Net increase (decrease) in cash and cash equivalents..... (45,064) 70,375 Cash and cash equivalents at beginning of period......... 181,586 304,340 --------- --------- Cash and cash eqivalents at end of period................ $ 136,522 $ 374,715 ========= =========
See notes to consolidated financial statements F-47 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (AMOUNTS IN THOUSANDS) (UNAUDITED) SUPPLEMENTAL CASH FLOW INFORMATION
THREE MONTHS ENDED MARCH 31, --------------- 1997 1996 ------- ------- Cash paid during the period for: Interest...................................................... $34,624 $33,116 ======= ======= Income taxes.................................................. $ 6 $ 35 ======= ======= Information about noncash operating, investing and financing activities: Promissory notes issued to finance aircraft acquisition....... $37,340 $ -- ======= ======= Promissory note issued to finance aircraft predelivery payments..................................................... $ 1,532 $ 1,523 ======= ======= Common Stock issued in lieu of cash dividends................. $ -- $ 3,255 ======= ======= Property acquired and obligations recorded under new capital transactions................................................. $ 373 $ -- ======= ======= Exchange of long-term debt for common stock: Debt cancelled including accrued interest, net of unamortized discount.................................................... $ 9,330 $ -- ======= ======= Common Stock issued, at fair value........................... $10,862 $ -- ======= ======= Extraordinary loss........................................... $ 1,532 $ -- ======= =======
ACCOUNTING POLICY For purposes of the Statements of Consolidated Cash Flows, TWA considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. See notes to condensed consolidated financial statements. F-48 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 (UNAUDITED) 1. BASIS OF PRESENTATION The consolidated financial statements include the accounts of Trans World Airlines. Inc. ("TWA" or the "Company") and its subsidiaries. The results of Worldspan, L.P. ("Worldspan"), a 25% owned affiliate, are recorded under the equity method and are included in the Statements of Consolidated Operations in Other Charges (Credits). The unaudited consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulation of the Securities and Exchange Commission but do not include all information and footnotes required by generally accepted accounting principles pursuant to such rules and regulations. The consolidated financial statements include all adjustments, which are of a normal recurring nature and are necessary, in the opinion of management, for a fair presentation of the results for these interim periods. These consolidated financial statements and related notes should be read in conjunction with the 1996 Consolidated Financial Statements. The consolidated balance sheet at December 31, 1996 has been derived from the audited consolidated financial statements at that date. Certain amounts previously reported have been reclassified to conform with the current presentation. The airline industry generally, and TWA specifically, has historically experienced seasonal changes between quarterly periods, with the second and third quarters usually out-performing the first and fourth. Accordingly, the results for the three months ended March 31, 1997 should not be read as an indicator of future results for the full year. 2. INCOME TAXES The income tax benefit recorded for the three months ended March 31, 1997 reflects a quarterly effective tax rate and management's current expectation of full year 1997 pre-tax profits. Considering the high level of non- deductible expenses in relation to expected 1997 annual income (which results in both a high effective tax rate and the potential for significant changes in the effective rate from relatively small changes in pretax income levels), the income tax benefit recorded for the first quarter of 1997 was based upon the quarterly allocable portion of certain non-deductible expenses, primarily amortization of reorganization value in excess of amounts allocable in identifiable assets, and statutory tax rates. The 1996 first quarter tax benefit was determined using an estimated annual effective rate. Had an estimated quarterly effective rate been used, the tax benefit for the first three months of 1996 would have been $23.6 million. 3. EXTRAORDINARY ITEM In the three months ended March 31, 1997 the Company continued a series of privately negotiated exchanges with a significant holder of its 12% Senior Secured Reset Notes which resulted in the return to the Company of $10.3 million in 12% Senior Secured Reset Notes and approximately $69,000 in accrued interest thereon in exchange for the issuance of approximately 1.7 million shares of Company Common Stock. All 12% Senior Secured Reset Notes returned will be canceled leaving an outstanding principal balance of such notes of approximately $114 million. As a result of the exchange of the 12% Senior Secured Reset Notes, the Company incurred an extraordinary non-cash charge of $1.5 million in the first quarter of 1997 representing the difference between the fair value of the Common Stock issued (based upon the trading price of the Company's Common Stock on the dates of the exchanges) and the carrying value of the 12% Senior Secured Reset Notes retired. F-49 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 4. LOSS PER SHARE In computing the loss applicable to common shares for the three months ended March 31, 1997, the net loss has been increased by dividend requirements on the 8% Cumulative Convertible Exchangeable Preferred Stock (the "8% Preferred Stock"). In computing the related net loss per share, the loss applicable to common shares has been divided by the average aggregate number of outstanding shares of Common Stock (43.1 million for the three months ended March 31, 1997) and Employee Preferred Stock (5.9 million for the three months ended March 31, 1997) which, with the exception of certain special voting rights, is the functional equivalent of Common Stock. No effect has been given to stock options, warrants or potential issuances of additional Common Stock or Employee Preferred Stock in the three months period ended March 31, 1997 as their impact would have been anti-dilutive. The loss applicable to common shares for the three months ended March 31, 1996 was similarly computed with the net loss being increased by dividend requirements on the Mandatorily Redeemable 12% Preferred Stock (the "12% Preferred Stock") (including amortization of the difference between the fair value of the 12% Preferred Stock on the date of issuance and the redemption value plus, with respect to the March 22, 1996 call for the redemption, a special dividend requirement of approximately $20.0 million to reflect the excess of the early redemption price over the carrying value of the 12% Preferred Stock) and on the 8% Preferred Stock issued in March 1996. In computing the related net loss per share, the loss applicable to common shares was divided by the average aggregate number of outstanding shares of Common Stock (36.3 million) and Employee Preferred Stock (5.5 million). No effect was given to stock options, warrants or potential issuances of additional Common Stock or Employee Preferred Stock as the impact would have been anti-dilutive. 5. SENIOR SECURED NOTES AND REDEEMABLE WARRANTS In March 1997, the Company offered 50,000 Units ("Units"), with each Unit consisting of (i) one 12% Senior Secured Note due 2002 (a "Note"), in the principal amount of $1,000, and (ii) one Redeemable Warrant (a "Warrant") to purchase 126.26 shares of Common Stock at an exercise price of approximately $7.92 per share (the "Offering"). The Notes are secured by a lien on certain assets of the Company, including 1) the Company's beneficial interest in its FAA designated take-off and landing slots at three high-density, capacity- controlled airports, 2) currently owned and hereafter acquired defined ground equipment of the Company used at certain domestic airports and 3) all of the issued and outstanding stock of (a) a wholly-owned subsidiary of TWA holding the leasehold interest in a hangar at Los Angeles International Airport and (b) three wholly-owned subsidiaries of TWA holding leasehold interests in gates and related support space at certain domestic airports served by the Company. The Company realized approximately $47.2 million (net of discounts and commissions and estimated expenses) in proceeds from the Offering. The Company used approximately $0.5 million of the proceeds from the Offering to release certain of the collateral to be used to secure the Notes from a prior existing lien and the remainder of the proceeds for general corporate purposes. The Offering was made pursuant to Rule 144A of the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Units, Notes and Warrants and underlying shares of Common Stock issuable upon exercise of the Warrants are not registered under the Federal and state securities laws. The Company has agreed to use its best efforts to file registration statements with respect to (i) an offer to exchange registered Notes for any and all outstanding Notes, and (ii) the Warrants and underlying shares of Common Stock, and to thereby register the Notes and the Warrants under the Securities Act. 6. PREFERRED STOCK In March 1996, the Company completed an offering, pursuant to Rule 144A of the Securities Act, of 3,869,000 shares of its 8% Preferred Stock, with a liquidation preference of $50 per share. Each share of the 8% F-50 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Preferred Stock may be converted at any time, at the option of the holder, unless previously redeemed or exchanged, into shares of Common Stock at a conversion price of $20.269 per share (equivalent to a conversion rate of approximately 2,467 shares of Common Stock for each share of 8% Preferred Stock), subject to adjustment. Pursuant to the registration rights agreement between the Company and the initial purchasers of the 8% Preferred Stock, the Company filed a shelf registration statement effective August 16, 1996 to register resales of the 8% Preferred Stock, the Debentures (as defined below) and the underlying shares of Common Stock issuable upon conversion thereof. The 8% Preferred Stock may not be redeemed prior to March 15, 1999. On or after March 15, 1999, the 8% Preferred Stock may be redeemed, in whole or in part, at the option of the Company, at specified redemption prices. The 8% Preferred Stock may be exchanged at the option of the Company, in whole but not in part, for the Company's 8% Convertible Subordinated Debentures Due 2006 (the "Debentures") on any dividend payment date beginning March 15, 1998 at the rate of $50 principal amount of Debentures for each share of 8% Preferred Stock outstanding at the time of exchange; provided that all accrued and unpaid dividends on the 8% Preferred Stock to the date of exchange, whether or not earned or declared, have been paid or set aside for payment and certain other conditions are met. On March 22, 1996, the Company announced a call for redemption on April 26, 1996 (the "Redemption Date") of all of its issued and outstanding 12% Preferred Stock. Such shares were redeemed at a redemption price per share equal to $75.00, plus accrued dividends to and including the Redemption Date, of $2.8667 per share. On April 26, 1996, the Company paid an aggregate of $84.9 million in redemption of the 12% Preferred Stock. 7. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128 AND STATEMENT OF POSITION 96-1 In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share" which revises the calculation and presentation provisions of Accounting Principles Board Opinion 15 and related interpretations. While Statement No. 128 is effective for the Company's fiscal year ending December 31, 1997, retroactive application will be required. The Company believes that the adoption of Statement No. 128 will not have a significant effect on its reported earnings per share. In October 1996, the American Institute of Certified Public Accountants issued Statement of Position 96-1, Environmental Remediation Liabilities, which is effective for fiscal years beginning after December 15, 1996. The Company believes that the adoption of this Statement of Position will have no material effect on its financial position or results of operations. 8. CONTINGENCIES For a description of various contingencies and other legal actions against TWA, see "Managements' Discussion and Analysis of Financial Condition and Results of Operations" and "Legal Proceedings." F-51 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN- FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COM- PANY. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL CON- STITUTES AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL NOR ANY SALE MADE HEREUN- DER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. UNTIL , 199 , ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION THE OBLIGATIONS OF DEALERS TO DELIVER A PRO- SPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT- MENTS OF SUBSCRIPTIONS. --------------- TABLE OF CONTENTS
PAGE ---- Available Information..................................................... 2 Incorporation of Certain Documents by Reference........................... 3 Forward-Looking Statements................................................ 3 Prospectus Summary........................................................ 4 Risk Factors.............................................................. 14 Use of Proceeds........................................................... 24 The Exchange Offer........................................................ 24 The Company............................................................... 33 Market for Common Stock and Dividend Policy............................... 40 Capitalization............................................................ 41 Selected Consolidated Financial Data...................................... 42 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 44 Business.................................................................. 61 Management................................................................ 73 Principal Holders of Capital Stock........................................ 77 Description of Notes...................................................... 79 Book-Entry, Delivery and Form............................................. 90 Certain Federal Income Tax Considerations................................. 93 Plan of Distribution...................................................... 97 Legal Matters............................................................. 97 Experts................................................................... 97 Index to Financial Statements............................................. F-1
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TRANS WORLD AIRLINES, INC. OFFER TO EXCHANGE ITS 12% SENIOR SECURED NOTES DUE 2002 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL OF ITS OUTSTANDING 12% SENIOR SECURED NOTES DUE 2002 --------------- PROSPECTUS --------------- --------------- , 1997 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II. INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION* SEC registration fee.............................................. $5,051 Accounting fees................................................... * Legal fees........................................................ * Qualification under state securities laws......................... 825 Miscellaneous..................................................... * ------ TOTAL........................................................... $ * ======
- -------- * To be filed by amendment ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Under the DGCL, directors, offices, employees and other individuals may be indemnified against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with specified actions, suits or proceedings, whether civil, criminal, administrative or investigative (other than a derivative action) if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of TWA and, with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. A similar standard of care is applicable in the case of a derivative action, except that indemnification only extends to expenses (including attorneys' fees) incurred in connection with the defense or settlement of such an action, and the DGCL requires court approval before there can be any indemnification of expenses where the person seeking indemnification has been found liable to TWA. The eleventh article of TWA's Third Amended and Restated Certificate of Incorporation ("Article Eleventh") provides that the Company shall indemnify any person who was or is a party or is threatened to be made a party to, or testifies in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative in nature, by reason of the fact that such person is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding to the full extent permitted by law, and the Company may adopt By-Laws or enter into agreements with any such person for the purpose of providing for such indemnification. To the extent that a director or officer of the Company has been successful on the merits or otherwise (including without limitation settlement by nolo contendere) in defense of any action, suit or proceeding referred to in the immediately preceding paragraph, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonable incurred by such person in connection therewith. Expenses incurred by an officer, director, employee or agent in defending or testifying in a civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such director or officer is not entitled to be indemnified by the Company against such expenses as authorized by Article Eleventh and the Company may adopt By-Laws or enter into agreements with such persons for the purpose of providing for such advances. The indemnification permitted by Article Eleventh shall not be deemed exclusive of any other rights to which any person may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding an office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. II-1 The Company shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, employee benefit plan trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Company would have the power to indemnify such person against such liability under the provisions of Article Eleventh or otherwise. If the DGCL is amended to further expand the indemnification permitted to directors, officers, employees or agents of the Company, then the Company shall indemnify such persons to the fullest extent permitted by the DGCL, as so amended. The obligations of the Company to indemnify any person serving as one of its directors, officers or employees as of or following the Company's '93 Reorganization, by reason of such person's past or future service in such a capacity, or as a director, officer or employee of another corporation, partnership or other legal entity, to the extent provided in Article Eleventh or in similar constituent documents or by statutory law or written agreement of or with the Company, shall be deemed and treated as executory contracts assumed by the Company pursuant to the Company's '93 Reorganization. Accordingly, such indemnification obligations survive and were unaffected by the entry of the order confirming the Company's '93 Reorganization. The obligations of the Company to indemnify any person who, as of the '93 Reorganization, was no longer serving as one of its directors, officers or employees, which indemnity obligation arose by reason of such person's prior service in any such capacity, or as a director, officer or employee of another corporation, partnership or other legal entity, to the extent provided in the certificate of incorporation, by-laws or other constituent documents or by statutory law or written agreement of or with TWA were terminated and discharged pursuant to Section 502(e) of the United States Bankruptcy Code or otherwise, as of the date the '93 Reorganization was confirmed. Nothing contained in the Second Amended and Restated Certificate of Incorporation of the Company shall be deemed to reinstate any obligation of the Corporation to indemnify any person or entity, which was otherwise released under or in connection with the Comprehensive Settlement Agreement entered into pursuant to the '93 Reorganization. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following is a complete list of Exhibits filed as part of this Registration Statement, which Exhibits are incorporated herein:
EXHIBITS DESCRIPTION -------- ----------- Purchase Agreement dated as of March 31, 1997 between the Company and 1.1 the Initial Purchaser *2.1 Joint Plan of Reorganization dated May 12, 1995 (Appendix B to the Company's Registration Statement on Form S-4, Registration Number 33- 84944, as amended) *2.2 Modifications to Joint Plan of Reorganization dated July 14, 1995 and Supplemental Modifications to Joint Plan of Reorganization dated August 2, 1995 (Exhibit 2.5 to 6/95 10-Q) *2.3 Findings of Fact, Conclusions of Law and Order Confirming Modified Joint Plan of Reorganization dated August 4, 1995, with Exhibits A-B attached (Exhibit 2.6 to 6/95 10-Q) *2.4 Final Decree dated December 28, 1995 related to the '95 Reorganization (Exhibit 2.7 to 1995 10-K) 3(i) Third Amended and Restated Certificate of Incorporation of Trans World Airlines, Inc., as amended *3(ii) Amended and Restated By-Laws of Trans World Airlines, Inc. effective May 24, 1996 (Exhibit 3(ii) to 6/96 10-Q) *4.1 Voting Trust Agreement dated November 3, 1993 between TWA and LaSalle National Trust, N.A., as trustee (Exhibit 4.3 to 9/93 10-Q)
II-2
EXHIBITS DESCRIPTION -------- ----------- *4.2 IAM TWA Employees' Stock Ownership Plan and related Trust Agreement dated August 31, 1993 between TWA, the IAM Plan Trustee Committee and the IAM Trustee (Exhibit to 9/93 10-Q) *4.3 IFFA TWA Employees' Stock Ownership Plan and related Trust Agreement dated August 31, 1993 between TWA, the IFFA Plan Trustee Committee and the IFFA Trustee (Exhibit 4.5 to 9/93 10-Q) *4.4 TWA Employee Stock Ownership Plan dated August 31, 1993, First Amendment thereto dated October 31, 1993 and related Trust Agreement dated August 31, 1993, between TWA and the ESOP Trustee (Exhibit 4.6 to 9/93 10-Q) *4.5 ALPA Stock Trust dated August 31, 1993 between TWA and the ALPA Trustee (Exhibit 4.7 to 9/93 10-Q) *4.6 Stockholders Agreement dated November 3, 1993 among TWA, LaSalle National Trust, N.A., as Voting Trustee and the ALPA Trustee, IAM Trustee, IFFA Trustee and Other Employee Trustee (each as defined therein), as amended by the Addendum to Stockholders dated November 3, 1993 (Exhibit 4.8 to 9/93 10-Q) *4.7 Indenture dated November 3, 1993 between TWA and Shawmut Bank, National Association, relating to TWA's 10% Senior Secured Notes Due 1998 (Exhibit 4.10 to 9/93 10-Q) *4.8 Indenture dated November 3, 1993 between TWA and American National Bank and Trust Company of Chicago, N.A. relating to TWA's 8% Secured Notes Due 2001 (Exhibit 4.12 to 9/93 10-Q) *4.9 Indenture dated November 3, 1993 between TWA and Shawmut Bank Connecticut, National Association relating to TWA's 11% Senior Secured Notes Due 1997 (Exhibit 4.13 to 9/93 10-Q) *4.10 The TWA Air Line Pilots 1995 Employee Stock Ownership Plan effective as of January 1, 1995 (Exhibit 4.12 to 9/95 10-Q) *4.11 TWA Air Line Pilots Supplemental Stock Plan effective September 1, 1994 (Exhibit 4.13 to 9/95 10-Q) *4.12 TWA Air Line Pilots Supplemental Stock Plan Trust effective August 23, 1995 (Exhibit 4.14 to 9/95 10-Q) *4.13 TWA Air Line Pilots Supplemental Stock Plan Custodial Agreement effective August 23, 1995 (Exhibit 4.15 to 9/95 10-Q) *4.14 Form of Indenture relating to TWA's 8% Convertible Subordinated Debentures Due 2006 (Exhibit 4.16 to Registrant's Registration Statement on Form S-3, Registration No. 333-04977) 4.15 Indenture dated as of March 31, 1997 between TWA and First Security Bank, National Association relating to TWA's 12% Senior Secured Notes due 2002 **4.16 Form of 12% Senior Secured Note due 2002 (contained in Indenture filed as Exhibit 4.15) 4.17 Registration Rights Agreement dated as of March 31, 1997 between the Company and the Initial Purchaser 4.18 Warrant Agreement dated as of March 31, 1997 between the Company and American Stock Transfer & Trust Company, as Warrant Agent **5.1 Opinion of Smith, Gambrell & Russell, LLP as to the legality of the securities being registered hereunder *10.1.1 Icahn Asset-Based Facility Loan documents dated January 5, 1993 (Exhibit 10(iv)(4) to '92 10-K) *10.1.2 Icahn Asset-Based Facility Loan documents dated January 5, 1993 (Exhibit 10(iv)(5) to '92 10-K) *10.2.1 Asset Purchase Agreement dated as of November 4, 1993 between TWA and St. Louis (Exhibit 10.2 to 9/93 10-Q) *10.2.2 Equipment Operating Lease Agreement dated November 4, 1993 between TWA and St. Louis (Exhibit 10.2 to 9/93 10-Q)
II-3
EXHIBITS DESCRIPTION -------- ----------- *10.2.3 Cargo Use Amendment dated November 4, 1993 between TWA and St. Louis (Exhibit F to the Asset Purchase Agreement) (Exhibit 10.2 to 9/93 10- Q) *10.2.4 Use Amendment 1993 dated November 4, 1993 between TWA and St. Louis (Exhibit E to the Asset Purchase Agreement) (Exhibit 10.2 to 9/93 10- Q) *10.3.1 Amendment Number One to the Note Purchase and Security Agreement dated October 26, 1993 between TWA and Rolls-Royce (Exhibit 10.3 to 9/93 10-Q) *10.3.2 Amendment Number One to the Equipment Purchase Contract dated October 26, 1993 between TWA and Rolls-Royce (Exhibit 10.3 to 9/93 10-Q) *10.4 Amendment Number Two to the AVSA Agreement dated June 1, 1989 between TWA and AVSA, dated August 25, 1993 (Exhibit 10.4 to 9/93 10-Q) *10.5.1 First Amendment to Aircraft Installment Sale Agreement dated November 1, 1993 among TWA, the Vendors, and ITOCHU with respect to aircraft N605TW (Exhibit 10.5 to 9/93 10-Q) *10.5.2 First Amendment to Aircraft Installment Sale Agreement dated November 1, 1993 among TWA, the Vendors, and ITOCHU with respect to aircraft N603TW (Exhibit 10.5 to 9/93 10-Q) *10.5.3 First Amendment to Security Agreement and Chattel Mortgage dated November 1, 1993 among TWA, the Vendors, and ITOCHU, as to ITOCHU Amendment No. 1 (Exhibit 10.5 to 9/93 10-Q) *10.5.4 First Amendment to Security Agreement and Chattel Mortgage dated November 1, 1993 among TWA, the Vendors, and ITOCHU, as to ITOCHU Amendment No. 2 (Exhibit 10.5 to 9/93 10-Q) *10.6.1 Deferral Agreement and First Amendment to Aircraft Installment Sale Agreement No. 1 dated November 1, 1993 among TWA, the Vendors, and ORIX with respect to aircraft N601TW (Exhibit 10.6 to 9/93 10-Q) *10.6.2 Deferral Agreement and First Amendment to Aircraft Installment Sale Agreement dated November 1, 1993 among TWA, the Vendors, and ORIX with respect to aircraft N603TW (Exhibit 10.6 to 9/93 10-Q) *10.6.3 First Amendment to Security Agreement and Chattel Mortgage dated November 1, 1993 among TWA, the Vendors, and ORIX, as to ORIX Amendment No. 1 (Exhibit 10.6 to 9/93 10-Q) *10.6.4 First Amendment to Security Agreement and Chattel Mortgage dated November 1, 1993 among TWA, the Vendors, and ORIX, as to ORIX Amendment No. 2 (Exhibit 10.6 to 9/93 10-Q) *10.7.1 Purchase Agreement dated October 5, 1993 between TWA and Pacific AirCorp 747, Inc. with respect to aircraft N93107 and N93108 (Exhibit 10.7 to 9/93 10-Q) *10.7.2 Lease Agreement 107 dated October 5, 1993 between Pacific AirCorp 747, Inc. and TWA with respect to aircraft N93107 (Exhibit 10.7 to 9/93 10-Q) *10.7.3 Lease Agreement 108 dated October 5, 1993 between Pacific AirCorp 747, Inc. and TWA with respect to aircraft N93107 (Exhibit 10.7 to 9/93 10-Q) *10.8 Comprehensive Settlement Agreement dated January 5, 1993 (Exhibit 10(iv)(1) to '92 10-K) 10.8.1 Omnibus Amendment and Supplement to Agreements dated as of March 28, 1994 between TWA and Karabu Corp.(2) *10.9 Letter Agreement dated April 15, 1994 between TWA and Richard P. Magurno relating to employment by TWA (Exhibit 10.14 to 3/94 10-Q) *10.10 Form of Indemnification Agreement between TWA and individual members of the TWA Board of Directors relating to indemnification of director (Exhibit 10.16 to 6/94 10-Q)
II-4
EXHIBITS DESCRIPTION -------- ----------- 10.11.1 Purchase Agreement dated as of December 15, 1993 between TWA and Pacific AirCorp DC9, Inc. with respect to aircraft N927L and N928L(2) 10.11.2 Lease Agreement 927 dated as of December 15, 1993 between Pacific AirCorp DC9, Inc. and TWA with respect to aircraft N927L(2) 10.11.3 Lease Agreement 928 dated as of December 1, 1993 between Pacific AirCorp DC9, Inc. and TWA with respect to aircraft N928L(2) 10.12.1 Aircraft Purchase Agreement dated March 31, 1994 between TWA and Mitsui & Co. (U.S.A.), Inc. with respect to aircraft N950U(2) 10.12.2 Aircraft Purchase Agreement dated March 31, 1994 between TWA and Mitsui & Co. (U.S.A.), Inc. with respect to aircraft N953U(2) 10.12.3 Lease Agreement dated as of March 31, 1994 between Mitsui & Co. (U.S.A.), Inc. and TWA with respect to aircraft N950U and N953U(2) 10.12.4 Aircraft Purchase Agreement dated March 31, 1994 between TWA and McDonnell Douglas Finance Corporation with respect to aircraft N951U(2) 10.12.5 Aircraft Purchase Agreement dated March 31, 1994 between TWA and McDonnell Douglas Finance Corporation with respect to aircraft N952U(2) 10.12.6 Lease Agreement dated as of March 31, 1994 between McDonnell Douglas Finance Corporation and TWA with respect to aircraft N951U and N952U(2) 10.13.1 Aircraft Purchase Agreement dated March 31, 1994 between McDonnell Douglas Finance Corporation and TWA with respect to aircraft N306TW (formerly N534AW)(2) 10.13.2 Purchase Money Chattel Mortgage dated as of March 31, 1994 between TWA as Mortgagor in favor of McDonnell Douglas Finance Corporation as Mortgagee, with respect to N306TW (formerly N534AW)(2) 10.13.3 Chattel Mortgage dated as of March 31, 1994 by TWA as Mortgagor, in favor of McDonnell Douglas Finance Corporation as Mortgagee, with respect to aircraft N306TW (formerly N534AW)(2) 10.14 Commuter Air Service Agreement dated October 27, 1993 between TWA and Alpha Air(2) 10.15 Air Service Agreement dated October 1, 1994 between TWA and Trans States Airlines, Inc.(2) 10.16 Consulting Agreement dated July 11, 1994 between TWA and Fieldstone, Private Capital Group, L.P.(2) 10.17 Consulting Agreement dated July 15, 1994 between TWA and Simat, Helliesen & Eichner, Inc.(2) 10.17.1 Agreement for Purchase and Sale dated as of August 29, 1994 between TWA and Browsh & Associates, Inc.(2) 10.17.2 Agreement for Purchase and Sale dated as of August 29, 1994 between TWA and Travel Marketing Holding Corporation(2) *10.18.1 Addendum to Stock Purchase Agreement (identified in 10.29.2) dated October 31, 1994 (Exhibit 10.29.3 to 9/94 10-Q)
II-5
EXHIBITS DESCRIPTION -------- ----------- *10.18.2 Addendum to Stock Purchase Agreement (identified in 10.29.2) dated November 2, 1994 (Exhibit 10.29.4 to 9/94 10-Q) 10.19.1 Form of Agreement dated as of August 31, 1994 between TWA and Air Line Pilots Association, International(2) 10.19.2 Form of Agreement dated as of September 1, 1994 between TWA and the International Association of Machinists and Aerospace Workers (2) 10.19.3 Form of Agreement dated as of September 1, 1994 between TWA and the Independent Federation of Flight Attendants(2) *10.19.4 Form of Agreement dated as of September 1, 1994 between TWA and the Transport Workers Union of America (Exhibit 10.31.4 to 9/94 10-Q) 10.20.1 Trust Agreement dated as of August 29, 1994 between and among TWA, the International Association of Machinists and Aerospace Workers, the Independent Federation of Flight Attendants, the Air Line Pilots Association, International, United States Trust Company of New York(2) 10.20.2 Stock Pledge and Intermediator Agreement dated as of August 24, 1994 among TWA, TWA Stock Holding Company, Inc. and United States Trust Company of New York(2) 10.21.1 Key Employee Stock Incentive Plan(2) 10.21.2 Form of Opinion Agreements for options issued pursuant to the 1994 Key Employee Stock Incentive Plan(2) *10.22 Extension, Refinancing and Consent Agreement dated as of June 14, 1995 between TWA, Karabu Corp, Pichin Corp and Carl C. Icahn and the "Icahn Entities" (Exhibit 10.37 to 9/95 10-Q) *10.22.1 Karabu Ticket Program Agreement dated as of June 14, 1995 between TWA and Karabu Corp. *10.23 Trans World Airlines, Inc. Stock Purchase Warrant to Purchase Shares of Common Stock dated August 23, 1995 (Exhibit 10.38 to 9/95 10-Q) *10.24 Stand-By Purchase Agreement dated as of August 8, 1995 between Trans World Airlines, Inc., M.D. Sass Re/Enterprise Partners L.P., a Delaware limited partnership and M.D. Sass Re/Enterprise International Ltd. a British Virgin Islands Company (Exhibit 10.39 to 9/95 10-Q) *10.25 Voucher Purchase Agreement dated as of October 18, 1995 between TWA and M.D. Sass Re/Enterprise Partners L.P., a Delaware limited partnership and M.D. Sass Re/Enterprise International Ltd. a British Virgin Islands Company (Exhibit 10.40 to 9/95 10-Q) *10.26 Purchase Agreement, dated February 9, 1996 between The Boeing Company and TWA relating to Boeing Model 757-231 Aircraft (Purchase Agreement Number 1910) (Exhibit 10.48 to 1995 10-K) *10.27 Employee Stock Incentive Program dated as of August 23, 1995 (Exhibit 10.49 to 1995 10-K) *10.28 Letter Agreement dated July 26, 1996 between Trans World Airlines, Inc. and Robert A. Peiser (Exhibit 10.52 to Pre-effective Amendment No. 2 to Registrant's Registration Statement on Form S-3, Reg. No. 333-04977) *10.29 Letter Agreement dated July 26, 1996 between Trans World Airlines, Inc. and Mark J. Coleman (Exhibit 10.53 to Pre-effective Amendment No. 2 to Registrant's Registration Statement on Form S-3, Reg. No. 333-04977)
II-6
EXHIBITS DESCRIPTION -------- ----------- *10.30 Exchange Agreement dated as of June 10, 1996 between Trans World Airlines, Inc. and Elliott Associates, L.P., as amended (Exhibit 10.1 to 9/20/96 8-K) *10.31 Exchange Agreement dated as of June 10, 1996 between Trans World Airlines, Inc. and Westgate International, L.P., as amended (Exhibit 10.2 to 9/20/96 8-K) *10.32 Agreement dated as of September 3, 1996 between Trans World Airlines, Inc. and Roden A. Brandt relating to employment by TWA (Exhibit 10.6 to 9/96 10-Q) *10.33 Letter Agreement dated January 6, 1997 between the Company and Edward Soule (Exhibit 10.33 to 12/31/96 10-K) *10.34 Agreement dated as of October 1, 1996 between the Company and Michael J. Palumbo (Exhibit 10.34 to 12/31/96 10-K) *10.35 Agreement dated as of November 11, 1996 between the Company and Jeffrey H. Erickson (Exhibit 10.35 to 12/31/96 10-K) *11 Statement re Computation of Per Share Earnings (included in 12/31/96 10-K) 12 Statement of Computation of Ratio of Earnings to Fixed Charges 13 1997 Annual Report to Stockholders (12/31/96 10-K) 21 Subsidiaries of TWA (Exhibit 21 to 12/31/96 10-K) 23.1 Consent of KPMG Peat Marwick LLP **23.2 Consent of Smith, Gambrell & Russell LLP (included in Exhibit 5 hereto) **24 Powers of Attorney **25 T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of First Security Bank, National Association with respect to the Exchange Offer *27 Financial Data Schedule (included in the Company's 12/31/96 10-K) 99.1 Form of Letter of Transmittal **99.2 Form of Notice of Guaranteed Delivery
- -------- *Incorporated by reference **Previously filed (1) Incorporated herein by reference to the exhibit of the same number in TWA's Registration Statement on Form S-4 (Reg. No. 333-26639). (2) Incorporated herein by reference to the exhibit of the same number in TWA's Registration Statement on Form S-4, (Reg. No. 33-849444). ITEM 22. UNDERTAKINGS (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total II-7 dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. Provided, however, that paragraphs (a)(1)(i) and (a)(2)(ii) above do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the Company pursuant to section 13 or section 15(d) of the Exchange Act that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (d) The undersigned registrant hereby undertakes to file an application for the purpose of determining the eligibility of the Trustee to act under subsection (a) of Section 310 of the Trust Indenture Act ("Act") in accordance with the rules and regulations prescribed by the Commission under Section 305(b)(2) of the Act. (e) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (f) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-8 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this Amendment No. 1 to the Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Louis, State of Missouri, on June 26, 1997. TRANS WORLD AIRLINES, INC. June 26, 1997 By: /s/ Gerald L. Gitner --------------------- Gerald L. Gitner Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement on Form S-4 has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Gerald L. Gitner Director, Chairman of the June 26, 1997 - ------------------------------------ Board and Chief Executive Officer (Principal Executive Officer) Gerald L. Gitner /s/ Michael J. Palumbo Senior Vice President and June 26, 1997 - ------------------------------------ Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Michael J. Palumbo * Director June 26, 1997 - ------------------------------------ John W. Bachmann * Director June 26, 1997 - ------------------------------------ William F. Compton * Director June 26, 1997 - ------------------------------------ Eugene P. Conese * Director June 26, 1997 - ------------------------------------ William M. Hoffman * Director June 26, 1997 - ------------------------------------ Thomas H. Jacobsen
S-1
SIGNATURE TITLE DATE --------- ----- ---- * Director June 26, 1997 - ------------------------------------ Myron Kaplan * Director June 26, 1997 - ------------------------------------ David M. Kennedy Director - ------------------------------------ Merrill A. McPeak * Director June 26, 1997 - ------------------------------------ Thomas F. Meagher * Director June 26, 1997 - ------------------------------------ William O'Driscoll * Director June 26, 1997 - ------------------------------------ G. Joseph Reddington Director - ------------------------------------ Blanche M. Touhill * Director June 26, 1997 - ------------------------------------ Stephen M. Tumblin * Director June 26, 1997 - ------------------------------------ William W. Winpisinger *By: /s/ Richard P. Magurno June 26, 1997 - ------------------------------------ Richard P. Magurno,
as Attorney-in-fact S-2 EX-1.1 2 PURCHASE AGREEMENT EXHIBIT 1.1 CONFORMED COPY -------------- TRANS WORLD AIRLINES, INC. $50,000,000 Representing 50,000 Units Consisting of 12% Senior Secured Notes Due 2002 and Redeemable Warrants to Purchase 126.26 Shares of Common Stock PURCHASE AGREEMENT ------------------ March 27, 1997 PAINEWEBBER INCORPORATED 1285 Avenue of the Americas New York, New York 10019 Ladies and Gentlemen: Trans World Airlines, Inc., a Delaware corporation (the "Company"), proposes to issue and sell to you (the "Initial Purchaser") an aggregate of 50,000 Units (the "Units"), each consisting of one 12% Senior Secured Note Due 2002 with a principal amount at maturity of $1,000 (collectively, the "Notes") and one redeemable warrant (collectively, the "Warrants") to purchase 126.26 shares of the common stock, par value $.01 per share, of the Company ("Common Stock"). The Notes will be issued pursuant to an indenture dated as of the Closing Date (as defined below) (the "Indenture"), between the Company and First Security Bank, National Association or such other trustee selected by the Company which shall be reasonably satisfactory to PaineWebber Incorporated (in such capacity, the "Trustee"). The Warrants will be issued pursuant to a warrant agreement (the "Warrant Agreement") dated as of the Closing Date, between the Company and American Stock Transfer & Trust Company, as warrant agent (in such capacity, the "Warrant Agent"). The foregoing Units, Notes and Warrants are referred to herein collectively as the "Firm Securities". The Company also proposes to grant to the Initial Purchaser an option to purchase up to 7,500 additional Units, to cover over-allotments, if any (the "Option Securities" and together with the Firm Securities, the "Securities"). The Notes will be secured by a security interest in (a) the entire beneficial interest (the "Beneficial Interest") in a trust (the "Slot Trust") organized for the purpose of acquiring and holding certain take-off and landing slots as more fully described in the Offering Memorandum referred to below (the "Acquired Slots"), (b) the certificate issued by the Slot Trust representing the Beneficial Interest (the "Beneficial Interest Certificate"), (c) currently owned and hereafter acquired ground equipment of the Company used at certain domestic airports as more fully described in the Offering Memorandum (the "Ground Equipment") and (d) all of the issued and outstanding capital stock (the "Pledged Stock") of the wholly-owned subsidiaries of the Company (the "Pledged Subsidiaries") which hold (i) the leasehold and sub-leasehold interests in 1 a hangar at Los Angeles International Airport used by the Company and (ii) the leasehold interests in the airport terminal gate and related support space used by the Company at the airport terminals listed on Schedule 1 hereto (the leasehold and sub-leasehold interests referred to in clauses (i) and (ii), collectively, the "Subsidiary Facilities Leases") as more fully described in the Offering Memorandum, each pursuant to the Pledge and Security Agreement to be dated as of the Closing Date between the Company and the collateral agent under such agreement (the "Collateral Agent") (the "Pledge Agreement"). The Beneficial Interest, the Beneficial Interest Certificate, the Ground Equipment and the Pledged Stock are referred to herein collectively as the "Direct Collateral" and the Acquired Slots and the Subsidiary Facilities Leases are referred to herein collectively as the "Indirect Collateral" and together with the Direct Collateral as the "Collateral." Each Pledged Subsidiary and the Company will execute and deliver to the Collateral Agent a letter agreement (collectively, the "Inducement Agreements") pursuant to which, inter alia, (i) such Pledged Subsidiary will agree to abide by the terms set forth in the Indenture and the Pledge Agreement which by their terms are applicable to it as if it were a party to the Indenture and the Pledge Agreement and (ii) such Pledged Subsidiary and the Company will agree that (x) the relevant Facilities Sublease described in the Offering Memorandum (collectively, the "Facilities Subleases") may be terminated by such Pledged Subsidiary at any time while an Event of Default under the Indenture shall be continuing, and (y) in addition to their obligations under such Facilities Sublease, they will abide by the terms thereof as if references therein to the "Seven Year Notes" (or the "Notes"), the "Seven Year Indenture" (or the "Note Indenture"), the Pledge Agreement or any "Trustee" were references to the Securities, the Indenture, the "Pledge Agreement" and the Trustee under the Indenture, respectively. The Securities will be offered and sold to the Initial Purchaser pursuant to an exemption from the registration requirements under the Securities Act of 1933, as amended (the "Securities Act"), and the Initial Purchaser proposes to resell the Securities to qualified institutional buyers (within the meaning of Rule 144A ("Rule 144A") under the Securities Act) ("Qualified Institutional Buyers") in reliance upon Rule 144A and to institutional "accredited investors" (within the meaning of Rule 501 under the Securities Act) ("Institutional Accredited Investors"), and to certain persons outside the United States in reliance on Regulation S under the Securities Act ("Regulation S"). The Initial Purchaser will offer the Securities to the persons, and in the manner, contemplated by Section 8, initially at a price equal to $1,000 per Unit plus accrued interest, if any, from the date of original issuance. Such price may be changed at any time without notice. Upon original issuance of the Securities and until such time as the Company deems that it is no longer required under the Securities Act, the certificates representing the Securities and the shares of Common Stock issuable upon exercise of the Warrants (the "Underlying Common Shares") (and all securities issued in exchange of any therefor or in substitution of any thereof) shall bear the legend set forth on Exhibit A. Holders (including subsequent transferees) of the Notes will have the registration rights set forth in the Registration Rights Agreement to be dated as of the Closing Date (the "Registration Rights Agreement"), between the Company and the Initial Purchaser. Pursuant to the Registration Rights Agreement, the Company has agreed to file with the Securities and 2 Exchange Commission (the "Commission") (i) a registration statement under the Securities Act registering an issue of a series of senior secured notes (the "Exchange Notes") identical in all material respects to the Notes (except that the Exchange Notes will not contain terms with respect to transfer restrictions) to be offered in exchange for the Notes (the "Exchange Offer") and (ii) a shelf registration statement pursuant to Rule 415 under the Securities Act (the "Shelf Registration Statement"). Holders (including subsequent transferees) of the Warrants and the Underlying Common Shares will have the registration rights set forth in the Warrant Agreement. This Agreement, the Indenture, the Warrant Agreement, the Pledge Agreement, the Inducement Agreements, the Registration Rights Agreements, the Master Sub-License Agreement between the Company and the trustee under the Acquired Slot Trust Agreement (as defined below) (the "Slot Trustee"), to be dated as of the Closing Date (the "Master Sub-License Agreement"), the Deed of Conveyance to be dated as of the Closing Date, from the Company to the Slot Trustee (the "Deed of Conveyance") and the Acquired Slot Trust Agreement between the Company and the Slot Trustee, to be dated as of the Closing Date (the "Slot Trust Agreement") are referred to herein collectively as the "Operative Documents". The Company confirms as follows its agreements with the Initial Purchaser. 1. Agreement to Sell and Purchase. ------------------------------- Upon the basis of the representations, warranties and agreements herein contained and subject to all the terms and conditions hereof: (a) The Company agrees to sell to the Initial Purchaser, and the Initial Purchaser agrees to purchase from the Company, the Firm Securities at a purchase price of $960 per Unit. (b) The Company hereby grants an option (the "Option") to the Initial Purchaser to purchase the Option Securities at the same purchase price per Unit as the Initial Purchaser shall pay for the Firm Securities, plus accrued interest, if any, from the date of original issuance. The Option may be exercised only to cover over-allotments in the sale of Firm Securities and may be exercised in whole or in part at any time (but not more than once) on or before the 30th day after the date of the Offering Memorandum (as hereinafter defined) upon written or telegraphic notice by the Initial Purchaser to the Company setting forth the number of Option Securities as to which the Initial Purchaser is exercising the Option and the settlement date and time therefor (such date and time if occurring after the Closing Date (as hereinafter defined) is herein referred to as the "Option Closing Date"). Delivery of the Option Securities, and payment therefor, shall be made as provided in Section 2 hereof. 2. Delivery and Payment. --------------------- Delivery of the Firm Securities and the Option Securities (if the Option shall have been exercised on or before the third business day prior to the Closing Date) shall be made to the Initial Purchaser, against payment of the purchase price in same day funds in a manner satisfactory to the parties, at the office of Hughes Hubbard & Reed, One Battery Park Plaza, 3 New York, New York 10004 (the "Closing Location"), at 10:00 a.m., New York City time, on March 31, 1997, or at such time on such other date not later than seven full business days thereafter as may be agreed upon in writing by the Company and the Initial Purchaser (such date and time is herein referred to as the "Closing Date"). At least twenty-four hours prior to the Closing Date, the Company shall deliver to The Depository Trust Company ("DTC") a global certificate or certificates registered in the name of Cede & Co., the nominee of DTC, and representing all Securities the beneficial interests in which are to be sold to Qualified Institutional Buyers. The interests of such beneficial owners will be represented by book entries on the records of DTC and participating members thereof. Any Securities sold to Institutional Accredited Investors that are not Qualified Institutional Buyers or outside the United States to a non-U.S. person within the meaning of Regulation S under the Securities Act in a transaction meeting the requirements of Rule 904 under the Securities Act shall be issued in definitive fully registered form, and in such denominations and registered in such names as the Initial Purchaser may request upon at least forty-eight hours' prior written notice to the Company, and shall bear the legend relating thereto set forth on Exhibit A. For the purpose of expediting the checking and packaging of certificates for the Securities, the Company agrees to make such certificates available for inspection at least twenty-four hours prior to the Closing Date at the offices of NSCC, 55 Water Street, New York, New York 10041. The documents to be delivered at the Closing Date by or on behalf of the parties hereto pursuant to Section 5 hereof, including the cross-receipt for the Securities, will be delivered at such time and date at the Closing Location. A meeting will be held at the Closing Location at 2:00 p.m. New York City time on the business day next preceding the Closing Date, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. If the Option is exercised after the third business day prior to the Closing Date, delivery of the Option Securities shall be made to the Initial Purchaser, against payment of the purchase price therefor, at the Closing Location and on the Option Closing Date. The manner of payment of the purchase price for, and the terms and conditions governing the delivery, denominations and registrations of and legends on certificates (as well as the checking and packaging thereof) evidencing, the Option Securities and the prior review of documents shall be the same as provided in this Section 2 with respect to Securities purchased on the Closing Date, except that with respect to the Option Securities references to the Closing Date shall be deemed to have reference to the Option Closing Date. The obligation of the Initial Purchaser to purchase the Option Securities on the Option Closing Date shall be conditioned upon receipt of supplemental documents as provided in Section 5(p) hereof. The cost of original issue tax stamps, if any, in connection with the issuance and delivery of the Securities by the Company to the Initial Purchaser shall be borne by the Company. The Company will pay and save the Initial Purchaser and any subsequent holder of the Securities harmless from any and all liabilities with respect to or resulting from any failure or delay in paying Federal and state stamp and other transfer taxes, if any, which may be payable or 4 determined to be payable in connection with the original issuance or sale to the Initial Purchaser of the Securities. 3. Representations and Warranties of the Company. ---------------------------------------------- The Company represents, warrants and covenants to the Initial Purchaser that: (a) A preliminary offering memorandum dated March 20, 1997, a revised preliminary offering memorandum dated March 25, 1997, and an offering memorandum dated March 27, 1997 have been prepared by the Company in connection with the offering of the Securities (the preliminary offering memorandum and such revised preliminary offering memorandum being hereinafter referred to as the "Preliminary Offering Memoranda" and the offering memorandum being hereinafter referred to as the "Offering Memorandum"). The Preliminary Offering Memoranda and the Offering Memorandum and any amendments or supplements thereto did not, as of their respective dates, and the Offering Memorandum and any amendments or supplements thereto, including the financial statements included therein (prepared in conformity with the generally accepted accounting principles in the United States applied on a consistent basis except as otherwise specified therein), will not, as of the Closing Date, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the foregoing representations and warranties in this Section 3(a) do not apply to any statements or omissions made in reliance on and in conformity with information relating to the Initial Purchaser furnished in writing to the Company by the Initial Purchaser specifically for inclusion in the Preliminary Offering Memoranda or the Offering Memorandum or any amendment or supplement thereto. The Company acknowledges for all purposes of this Agreement that the third, fourth, and tenth paragraphs and the second sentence of the eighth paragraph, in each case under the heading "Plan of Distribution" in the Offering Memorandum, constitute the only information relating to the Initial Purchaser furnished in writing to the Company by the Initial Purchaser specifically for inclusion in such documents. The Company has not distributed or caused the distribution of any offering material in connection with the offering or sale of the Securities other than the Preliminary Offering Memoranda or the Offering Memorandum. (b) When the Securities are issued and delivered pursuant to this Agreement, the Securities will not be of the same class (within the meaning of Rule 144A) as any securities of the Company which are listed on a national securities exchange registered under Section 6 of the Exchange Act or quoted in a United States automated inter-dealer quotation system. (c) None of the Company or any of its affiliates, or any person acting on its or their behalf, has engaged or will engage in any directed selling efforts within the meaning of Regulation S with respect to the Securities, and the Company and its affiliates and all persons acting on its or their behalf have complied with and will comply with the offering restrictions requirements of Regulation S in connection with the offering of the Securities outside 5 the United States; there is no "substantial U.S. market interest" as defined in Regulation S for the Securities or any security of the same class as the Securities. (d) Neither the Company nor any of its affiliates or any person acting on its behalf has engaged, in connection with the offering of the Securities, in any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act; and neither the Company nor any affiliate (as defined in Rule 501(b) under the Securities Act) of the Company has, directly or through any agent, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the sale of the Securities in a manner that would require the registration of the Securities under the Securities Act. (e) Assuming that the Initial Purchaser's representations and warranties in Section 8 are true and assuming compliance by the Initial Purchaser with its covenants in Section 8, it is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchaser in the manner contemplated by this Agreement to register the Securities under the Securities Act or to qualify the Indenture under the Trust Indenture Act of 1939, as amended (the "Indenture Act"). (f) Each of the Company and its Pledged Subsidiaries is, and at the Closing Date will be, a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation; has, and at the Closing Date will have, full power and authority to conduct all the activities conducted by it, to own or lease and operate all the assets owned or leased by it (including, without limitation and as appropriate in the case of each, the Collateral) and to conduct its business as described in the Preliminary Offering Memoranda and the Offering Memorandum; is, and at the Closing Date will be, duly licensed or qualified to do business and in good standing as a foreign corporation in all jurisdictions in which the nature of the activities conducted by it or the character of the assets owned or leased by it (including, without limitation and as appropriate in the case of each, the Collateral) makes such licensing or qualification necessary, except where the failure to be so licensed or qualified or in good standing would not have either (i) a material adverse effect on the business, properties or financial condition of the Company and its subsidiaries (which term as used in this Agreement includes, without limitation, the Pledged Subsidiaries) taken as a whole or on the enforceability by the holders of the Notes of the aforesaid security interest in the Direct Collateral or on the transfer to the Slot Trusts and license-back to the Company of the Acquired Slots (a " Company Material Adverse Effect") or (ii) a material adverse effect on the business, properties or financial condition of the Pledged Subsidiaries taken as a whole (a "Subsidiary Material Adverse Effect" and together with a Company Adverse Effect, a "Material Adverse Effect"); and to the best knowledge of the Company, no proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority, license or qualification. The Pledged Subsidiaries, the number and type of outstanding shares of capital stock of each Pledged Subsidiary, and the cities covered by the Subsidiary Facilities Leases are listed on Schedule 1 hereto. The Company has no subsidiaries which are "significant subsidiaries" within the meaning of Regulation S-X under the Securities Act. 6 (g) The Company has an authorized capitalization as set forth in the Offering Memorandum and the authorized capital stock of the Company conforms to the statements relating thereto contained in the Offering Memorandum. All of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable, have been issued in compliance with all federal and state securities laws and were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities. Except for the capital stock of the Company's subsidiaries and as disclosed in the Preliminary Offering Memoranda and the Offering Memorandum, the Company does not own, and at the Closing Date will not own, directly or indirectly, any shares of stock or any other equity or long- term debt securities of any corporation or have any equity interest in any firm, partnership, joint venture, association or other entity which would constitute a "significant subsidiary" within the meaning of Regulation S-X or would otherwise be material to the purchase of the Securities by the Initial Purchaser. Complete and correct copies of the certificate of incorporation and of the by- laws of the Company and all amendments thereto have been delivered to the Initial Purchaser, and no changes therein will be made subsequent to the date hereof and prior to the Closing Date. (h) All of the outstanding shares of capital stock of each Pledged Subsidiary have been duly and validly authorized and issued and are fully paid and non-assessable and are owned by the Company, except as listed on Schedule 1 hereto and as contemplated by the Pledge Agreement, free and clear of any pledge, lien, security interest, charge, claim, equity interest or encumbrance of any kind. (i) Except as disclosed in the Offering Memorandum, neither the Company nor any of the Pledged Subsidiaries has outstanding any options to purchase, warrants, or any preemptive rights or other rights to subscribe for or to purchase any securities or obligations convertible into, or any contracts, arrangements or commitments to issue or sell, shares of its capital stock or any such options, warrants, rights, convertible securities or obligations. Neither the execution and delivery of the Purchase Agreement nor the purchase of the Securities by the Initial Purchaser will render the Initial Purchaser an "Acquiring Person" or otherwise entitle the holders of rights (the "Rights") of the Company entitling the holder to purchase one one-hundredth of a share of the Company's Series A Participating Preferred Stock, par value $.01 per share (the "Series A Preferred Stock") to exercise such Rights. The description of the Company's stock option and other stock plans or arrangements, including the Company's Employee Stock Incentive Program (the "ESIP") and the Key Employee Stock Incentive Program (the "KESIP"), and the options or other rights granted and exercised thereunder, and of the Rights, set forth in the Offering Memorandum accurately and fairly presents in all material respects the information required to be shown with respect to such plans, arrangements, options and rights. The shares of Common Stock reserved for issuance pursuant to the ESIP and the KESIP and upon conversion of convertible securities, or exercise of warrants or options to purchase Common Stock are sufficient in number to meet all issuance, conversion and exercise requirements and have been validly authorized and reserved for issuance upon conversion or exercise of such securities and, upon issuance in accordance with the terms of such securities or plans, will be duly and validly issued and fully paid and non-assessable and free of preemptive rights. 7 (j) The financial statements and schedules included in the Preliminary Offering Memoranda and the Offering Memorandum present fairly the consolidated financial condition of the Company as of the respective dates thereof and the consolidated results of operations and cash flows of the Company for the respective periods covered thereby, all in conformity with U.S. generally accepted accounting principles applied on a consistent basis throughout the entire period involved, except as otherwise set forth in the financial statements (or notes thereto) contained in the Preliminary Offering Memoranda and the Offering Memorandum. The selected and summary financial and statistical and operating data included in the Preliminary Offering Memoranda and the Offering Memorandum present fairly the information shown therein and, to the extent applicable, have been compiled on a basis consistent with the audited financial statements presented therein. KPMG Peat Marwick LLP (the "Accountants"), who have reported on the financial statements and schedules included in the Preliminary Offering Memoranda and the Offering Memorandum, are independent accountants with respect to the Company as required by the Exchange Act and the rules and regulations promulgated thereunder (the "Exchange Act Rules and Regulations"). (k) Subsequent to the respective dates as of which information is given in the Preliminary Offering Memoranda and the Offering Memorandum and prior to the Closing Date, except as set forth in or contemplated by the Preliminary Offering Memoranda and the Offering Memorandum, (i) there has not been and will not have been any change in the capital stock (other than changes attributable to (w) shares of Common Stock issuable upon conversion of the 8% Cumulative Convertible Exchangeable Preferred Stock (the "8% Preferred Stock"), (x) shares of Common Stock issuable upon the exercise of presently outstanding stock options and other options to be granted under the KESIP, ESIP and 1995 Outside Directors' Stock Option and Stock Compensation Plan in accordance with the terms thereof, (y) shares of Common Stock issuable pursuant to the exercise of warrants outstanding as of the date hereof, the conversion of shares of IFFA Preferred Stock, par value $.01 per share (the "IFFA Preferred Stock"), ALPA Preferred Stock, par value $.01 per share (the "ALPA Preferred Stock") and IAM Preferred Stock, par value $.01 per share (collectively with the IFFA Preferred Stock and the ALPA Preferred Stock, the "Employee Preferred Stock"), the exchange of Common Stock for 12% Senior Secured Reset Notes due 1998 (the "12% Senior Secured Reset Notes") and (z) shares of Common Stock or Employee Preferred Stock issuable under the Company's "prepackaged" Chapter 11 bankruptcy case (the "`95 Reorganization")) or long term debt of the Company, or any change or development in the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company and the subsidiaries which has caused, or is reasonably expected to cause, a Material Adverse Effect, arising for any reason whatsoever, (ii) neither the Company nor any of the subsidiaries has incurred nor will it have incurred any material liabilities or obligations, direct or contingent, nor has it entered into nor will it have entered into any material transactions other than pursuant to this Agreement and the transactions referred to herein and (iii) the Company has not and will not have paid or declared any dividends or other distributions of any kind on any class of its capital stock or made any redemption or repurchases of any shares thereof except for the payment of dividends on the 8% Preferred Stock. 8 (l) No consent, approval, authorization or order of, or any filing or declaration with or notice to, any court or governmental agency or body, including, without limitation, the United States Department of Transportation or the Federal Aviation Administration, is required in connection with (i) the valid authorization, issuance, transfer, sale or delivery of the Securities by the Company, (ii) the execution, delivery and performance by the Company or any of the Pledged Subsidiaries of the Operative Documents to which it is a party, (iii) the taking by the Company or any of the Pledged Subsidiaries of any action contemplated by the Operative Documents to which it is a party or by the Company under the Securities (including without limitation the Exchange Offer and the exercise of the Warrants into the Underlying Common Shares) or (iv) the creation of the aforesaid security interest in the Direct Collateral, except (x) as may be required with respect to the registration rights under the Warrant Agreement and the Registration Rights Agreement under the Securities Act, the rules and regulations promulgated under the Securities Act (the "Securities Act Rules and Regulations"), the Indenture Act, the rules and regulations under the Indenture Act (the "Indenture Act Rules and Regulations"), the securities or blue sky laws of the various states and (y) as described in subsections (r) and (s) of this Section 3 with respect to certain Direct Collateral and the Acquired Slots. (m) Except as disclosed in the Offering Memorandum, each of the Company and its subsidiaries has, and at the Closing Date will have, (i) complied with all laws, regulations and orders, federal, state or foreign, applicable to it or its business and (ii) performed all of its obligations required to be performed by it, and is not, and at the Closing Date will not be, in default, and no event has or will have occurred that with the giving of notice or the passage of time or both, would constitute a default, under any indenture, mortgage, deed of trust, voting trust agreement, loan agreement, bond, debenture, note agreement or other evidence of indebtedness, lease, contract, joint venture agreement, or other agreement or instrument (collectively, a "contract or other agreement") to which it is a party (including without limitation the Subsidiary Facilities Leases marked with an asterisk on Schedule 1 hereto (collectively, the "Material Subsidiary Facilities Leases")) or by which it or its property (including without limitation the Collateral) is bound or affected, other than in the case of either clause (i) or (ii), such failures to comply or perform or defaults that, singly and in the aggregate, do not have a Material Adverse Effect. There is no material contract or other agreement of a character required to be described in the Offering Memorandum which is not described. All material contracts or other agreements (including without limitation the Material Subsidiary Facilities Leases) to which the Company or any subsidiary is a party have been duly authorized, executed and delivered by the Company or such subsidiary, constitute valid and binding agreements of the Company or such subsidiary and are enforceable against the Company or such subsidiary in accordance with the terms thereof, subject to the effect of bankruptcy, insolvency and reorganization and other laws of general applicability relating to and affecting creditors' rights and to general principles of equity (whether considered in a proceeding in equity or in law). Except as disclosed in the Offering Memorandum, to the best knowledge of the Company and each of the subsidiaries, no other party under any contract or other agreement (including without limitation any of the Material Subsidiary Facilities Leases) to which it is a party is in default in any respect thereunder other than defaults that, singly and in the aggregate, do not have a Material Adverse Effect. Each of the Company and the Pledged Subsidiaries is not, and at the 9 Closing Date will not be, in violation of any provision of its certificate of incorporation or by-laws. (n) Except as does not or could not reasonably be expected to have a Material Adverse Effect, each of the Company and the subsidiaries now holds, and at the Closing Date will hold, all certificates, licenses, consents, orders, permits and other authorizations issued by the appropriate local, state, federal or foreign regulatory agencies or bodies that are necessary to the conduct of its business as now conducted and as contemplated in the Offering Memorandum to be conducted and to operate its properties (including without limitation the Collateral) and (except as are described in Section 3(l)) are necessary to the execution, delivery and performance of this Agreement and the other Operative Documents, all of which are valid and in full force and effect, and there is no proceeding pending (or, to the best knowledge of the Company, threatened or contemplated) which could reasonably be expected to cause any such certificate, license, consent, order, permit or other authorization to be withdrawn, canceled, modified, suspended or not renewed. (o) The Securities and the Common Stock conform in all material respects to the description of each in the Offering Memorandum. (p) The Operative Documents have been duly authorized by the Company; each Pledged Subsidiary has duly authorized the Inducement Agreement to which it is contemplated hereunder to be a party; this Agreement has been duly executed and delivered by the Company and, on the Closing Date, each of the other Operative Documents will have been duly executed and delivered by the Company and each Inducement Agreement will have been duly executed and delivered by the Pledged Subsidiary contemplated hereunder to be a party thereto. On the Closing Date, (i) each of the Operative Documents will constitute a valid and binding obligation of the Company, enforceable against the Company in accordance with the terms thereof, (ii) each Inducement Agreement will constitute a valid and binding obligation of the Pledged Subsidiary that is a party thereto, enforceable against such Pledged Subsidiary in accordance with the terms thereof, and (iii) each Facilities Sublease will constitute a valid and binding obligation of each of the parties thereto, enforceable against each such party in accordance with the terms thereof, subject in each case to the effect of bankruptcy, insolvency and reorganization and other laws of general applicability relating to and affecting creditors' rights and to general principles of equity (whether considered in a proceeding in equity or at law), and each will conform to the description thereof contained in the Offering Memorandum. (q) The Notes and the Exchange Notes have been duly and validly authorized by the Company and, when authenticated by the Trustee and issued, delivered and sold in accordance with this Agreement or the Exchange Offer, as applicable, and the Indenture, will have been duly and validly executed, authenticated, issued and delivered, will constitute valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, subject to the effect of bankruptcy, insolvency and reorganization and other laws of general applicability relating to and affecting creditors' rights and to general principles of equity (whether considered in a proceeding in equity or in law), and will be entitled to the benefits provided by the Indenture and the Pledge Agreement. Upon consummation of the 10 Exchange Offer, the Indenture will comply with all applicable provisions of the Indenture Act, and the Indenture Act Rules and Regulations. On the Closing Date, the Beneficial Interest Certificate will be validly issued and outstanding, and will be entitled to the benefits of the Acquired Slot Trust Agreement. (r) On the Closing Date, the Pledge Agreement will create a valid lien on and perfected security interest in the Direct Collateral securing the payment of the Notes in accordance with the terms thereof and, except as permitted by the Pledge Agreement, at the Closing Date, the Collateral will be free and clear of all liens, encumbrances, charges, claims and security interests. On the Closing Date, no filings, recordings or other action will be required in order to perfect the liens created by the Pledge Agreement except for the filings or recordings which on or before the Closing Date will have been made (or, to the extent acceptable to the Initial Purchaser in its sole discretion, which will be made promptly after the Closing Date) with respect to the Beneficial Interest, the Beneficial Interest Certificate and the Ground Equipment with appropriate state and local Uniform Commercial Code filing offices. (s) Following the consummation of the transactions contemplated by the Slot Trust Agreement, the Deed of Conveyance and the Master Sub-License Agreement, (A) the Slot Trustee shall be the sole owner of, and the sole holder of record at the Federal Aviation Administration of, the Acquired Slots subject to transfers permitted under the Slot Trust Agreement, the Deed of Conveyance and the Master Sub-License Agreement and the same shall be free and clear of all liens or rights of others, subject to third-party licenses permitted under the Master Sub-License Agreement and the rights of the Federal Aviation Administration under the Federal Aviation Act of 1958, as amended (the "Aviation Act"), and each Acquired Slot shall have been duly recorded in the name of the Slot Trust (as holder of primary operating authority therefor) under Section 93.221 of the Aviation Act, and (B) the Company shall have the exclusive right to use such Acquired Slots (subject to transfers permitted under the Slot Trust Agreement, the Deed of Conveyance and the Master Sub-License Agreement) and such right shall have been duly recorded in the name of the Company under Section 93.221 of the Aviation Act. (t) The Warrants have been duly and validly authorized by the Company and, when issued, delivered and sold in accordance with this Agreement and the Warrant Agreement, will have been duly and validly executed, issued and delivered, and will constitute valid and legally binding instruments, enforceable against the Company in accordance with the terms thereof, subject to the effect of bankruptcy, insolvency and reorganization and other laws of general applicability relating to and affecting creditors' rights and to general principles of equity (whether considered in a proceeding in equity or at law). When the Securities are delivered and paid for pursuant to this Agreement, the Warrants will be exercisable into shares of Common Stock (the "Underlying Common Shares") of the Company in accordance with their terms; the Underlying Common Shares initially issuable upon exercise of the Warrants have been duly authorized and reserved for issuance upon such exercise and, when issued upon such exercise and due payment of the exercise price thereof, will be validly issued, fully paid and nonassessable. The stockholders of the Company have no preemptive rights with respect to the Securities or the Underlying Common Shares. 11 (u) The Company and each Pledged Subsidiary has full right, power and authority to enter into each of the Operative Documents to which it is party and to consummate the transactions contemplated thereby, including, without limitation, the creation of the valid, perfected security interest in the Direct Collateral. The execution and delivery by the Company and each Pledged Subsidiary of the Operative Documents to which it is party, the consummation of the transactions contemplated thereby and the compliance by the Company and each Pledged Subsidiary with the terms, conditions or provisions thereof and by the Company of the Securities do not and will not result in the creation or imposition of any lien, claim, charge, security interest or encumbrance upon any of the assets of the Company or any of the subsidiaries (except as disclosed in the Offering Memorandum) pursuant to the terms or provisions of, or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or give any other party a right to terminate any of their respective obligations under, or result in the acceleration of any obligation under, the certificate of incorporation or by-laws of the Company or any of the subsidiaries, any contract or other agreement to which the Company or any of the subsidiaries is a party or by which the Company or any of the subsidiaries or any of their respective properties (including, without limitation, the Collateral) is bound or affected, or violate or conflict with any judgment, ruling, decree, order, statute, rule or regulation of any court or other governmental agency or body applicable to the business or properties (including, without limitation, the Collateral) of the Company or any of the subsidiaries. No holder of securities of the Company has rights to the registration of any securities of the Company because of the execution, delivery or performance by the Company of this Agreement or the Registration Rights Agreement. (v) The Company is not an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"), nor is the Company an "open-end investment trust," "unit investment trust" or "face-amount certificate company" that is or is required to be registered under Section 8 of the Investment Company Act. (w) Except as set forth in the Preliminary Offering Memoranda and the Offering Memorandum, there are no actions, suits or proceedings pending or, to the best knowledge of the Company, threatened or contemplated against or affecting the Company or any of its subsidiaries or any of their respective officers or directors in their capacity as such or any of their respective property or assets (including the Collateral), before or by any local, state, federal or foreign court, commission, regulatory body, administrative agency or other governmental body, (i) wherein an unfavorable ruling, decision or finding, either singly or in the aggregate, is reasonably likely to have a Material Adverse Effect, (ii) which, if adversely determined, would prevent consummation of the transactions contemplated hereby or by the other Operative Documents or (iii) which is required to be disclosed in the Preliminary Offering Memoranda and the Offering Memorandum. All pending legal or governmental proceedings in the aggregate to which the Company or any subsidiary is a party or of which any of their respective property or assets is the subject which are not described in the Preliminary Offering Memoranda and the Offering Memorandum, including ordinary routine litigation incidental to 12 the business, are (considered in the aggregate) not material to the Company and its subsidiaries taken as a whole. (x) The Company and the Pledged Subsidiaries each has good and marketable title to the properties and assets described in the Preliminary Offering Memoranda and the Offering Memorandum as owned by it (including without limitation the Direct Collateral); substantially all of such properties and assets (other than the Direct Collateral) have been pledged to secure various issues of outstanding indebtedness of the Company. The Company and its subsidiaries each has valid, subsisting and enforceable leases for the properties described in the Preliminary Offering Memoranda and the Offering Memorandum as leased or subleased by it (including without limitation the Material Subsidiary Facilities Leases), with such exceptions as are not material and do not materially interfere with the uses made and proposed to be made of such properties by the Company and the subsidiaries, and neither the Company nor any subsidiary has received any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of such corporation to the continued possession of the leased or subleased premises. Except as set forth in the Offering Memorandum, each of the Company and the Pledged Subsidiaries owns or leases all such properties as are necessary to its business as currently conducted or as proposed to be conducted. As of the date hereof, the trustee under that certain Acquired Slot Trust Agreement dated as of July 1, 1989, as amended and restated as of November 3, 1993, and further amended and restated as of August 23, 1995, is the holder of record at the FAA of each Acquired Slot. (y) No statement, representation, warranty or covenant made by the Company in this Agreement or any Operative Document or made in any certificate or document required by this Agreement or any Operative Document to be delivered to the Initial Purchaser or any other person by the Company or any officer thereof is or at the Closing Date, and, if later, the Option Closing Date, will be inaccurate, untrue or incorrect in any material respect. (z) Neither the Company nor any of its directors, officers or controlling persons has taken, directly or indirectly, any action designed, or which could reasonably be expected, to cause or result, under the Securities Act or otherwise, in, or which has constituted, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities. (aa) The Company has complied, and until the completion of the distribution of the Securities will comply, with all of the provisions of (including, without limitation, filing all forms required by) Section 517.075 of the Florida Securities and Investor Protection Act and Regulation 3E-900.001 issued thereunder with respect to the offering and sale of the Securities. (bb) Except as set forth in the Offering Memorandum, the Company and each of its subsidiaries (i) are in compliance in all material respects with all Environmental Laws (as defined below) which are applicable to their business, (ii) have received no notice from any governmental authority or third party of an asserted claim under Environmental Laws, and 13 (iii) to the best knowledge of the Company and its subsidiaries, there are no past or present actions, conditions, events, circumstances or practices, including, without limitation, the release of any Hazardous Substance (as defined below), that could reasonably be expected to form the basis of any claim under any Environmental Law against the Company or any of its subsidiaries which, singly or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. The term "Environmental Law" means the common law and any federal, state, local or foreign law, rule or regulation, code, order, decree, judgment or injunction, issued, promulgated, approved or entered thereunder relating to pollution or protection of public or employee health or the environment and any other laws relating to (i) releases of any Hazardous Substance into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), (ii) the manufacture, processing, distribution, use, treatment, storage, disposal, transport, presence or handling of any Hazardous Substance, or (iii) underground storage tanks and related piping, and releases therefrom. The term "Hazardous Substance" means any pollutant, contaminant, chemical, hazardous material, or industrial, toxic or hazardous substance or waste (including, without limitation, petroleum or any petroleum product) regulated by or the subject of any Environmental Law. (cc) The Company and all corporations, trades or businesses within the same controlled group of corporations as, or under common control with, the Company (within the meaning of Sections 414 (b), (c), (m) and (o) of the Internal Revenue Code of 1986, as amended (the "Code")) are in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA") and all Plans (as defined below) are in compliance in all material respects with all applicable provisions of ERISA and the Code; and the Company does not maintain and is not required to make contributions to any Plan that is subject to the minimum funding standard of Section 302 of ERISA or Section 412 of the Code or that is subject to Title IV of ERISA, except for the Plans that are the subject of the Settlement Agreement dated as of January 5, 1993 among the Company, the Icahn Entities (as defined in the Offering Memorandum), the Pension Benefit Guarantee Corporation and others. As used herein, "Plan" means any qualified plan maintained by the Company or by a member of the Company's "controlled group" as defined in Section 414(b), (c), (m) or (o) of the Code. (dd) The Company is a "reporting issuer" as defined in Rule 902(l) of Regulation S promulgated under the Securities Act. (ee) The Company and its subsidiaries maintain insurance with respect to their properties and businesses of the types and in amounts generally deemed adequate by the Company for their businesses and generally comparable to insurance coverage maintained by U.S. airlines similarly situated, all of which insurance is in full force and effect. (ff) None of the execution, delivery and performance of this Agreement, the issuance and sale of the Notes, the application of the proceeds from the issuance and sale of the Notes and the consummation of the transactions contemplated by the Operative Documents, will violate Section 7 of the Securities Exchange Act of 1934, as amended (the 14 "Exchange Act"), or any regulation promulgated thereunder, including, without limitation, Regulation G, T, U, or X promulgated by the Board of Governors of the Federal Reserve System. (gg) A true and complete list of all of the Acquired Slots has been provided to the Initial Purchaser prior to the date of this Agreement. A true and complete (in all material respects) list of the Ground Equipment, has been provided to the Initial Purchaser prior to the date of this Agreement. There has been and will be no material changes in the information set forth in either such list subsequent to the date thereof and prior to the Closing Date. (hh) True and correct copies of the certificate of incorporation and by-laws of each of the Pledged Subsidiaries, the Material Subsidiary Facilities Leases and the Facilities Subleases, in each case as in effect on the date of this Agreement, have been provided or made available to counsel for the Initial Purchaser, and, except as expressly contemplated hereby, no changes therein will be made subsequent to the date hereof and prior to the Closing Date. (ii) On the Closing Date, each Inducement Agreement and each Sublease Amendment Agreement will constitute a valid and binding obligation of the Pledged Subsidiary contemplated hereunder to be a party thereto, enforceable against such Pledged Subsidiary in accordance with the terms thereof, subject to the effect of bankruptcy, insolvency and reorganization and other laws of general applicability relating to and affecting creditors' rights and to general principles of equity (whether considered in a proceeding in equity or at law). On the Closing Date, each Facilities Sublease, as amended by the corresponding Sublease Amendment Agreement, will constitute a valid binding obligation of each party thereto, enforceable against each such party in accordance with the terms thereof, subject to the effect of such laws and principles of equity as are referenced in the preceding sentence. (jj) Except as set forth in the Preliminary Offering Memoranda and the Offering Memorandum, no labor dispute with the employees of the Company or any subsidiary exists or, to the knowledge of the Company, is imminent or threatened which the Company believes would have a Material Adverse Effect. 4. Agreements of the Company. -------------------------- The Company agrees with the Initial Purchaser as follows: (a) The Company will prepare the Preliminary Offering Memoranda and Offering Memorandum, as amended and supplemented, in a form approved by the Initial Purchaser. The Company will not make any amendment or supplement to the Preliminary Offering Memoranda or the Offering Memorandum unless a copy thereof shall first have been submitted to the Initial Purchaser within a reasonable period of time prior to its use and the Initial Purchaser shall not have objected thereto in good faith. (b) The Company will deliver to the Initial Purchaser, without charge, as many copies of the Preliminary Offering Memoranda, the Offering Memorandum (with the independent accountants' report signed by such accountants), and any amendment or supplement 15 thereto as the Initial Purchaser may reasonably request. The Company consents to the use of the Preliminary Offering Memoranda and the Offering Memorandum and any amendment or supplement thereto by the Initial Purchaser in connection with the offering and sale of the Securities. If at any time prior to the completion of the sale by the Initial Purchaser of the Securities any event shall occur which in the judgment of the Company or counsel to the Initial Purchaser should be set forth in the Offering Memorandum as then amended or supplemented in order to make any statement therein, in the light of the circumstances under which it was made, not misleading, or if it is necessary to supplement or amend the Offering Memorandum to comply with law, the Company will forthwith notify the Initial Purchaser and prepare and furnish without charge to the Initial Purchaser as many copies as the Initial Purchaser may from time to time reasonably request of an amended Offering Memorandum or a supplement to the Offering Memorandum which will correct such statement or omission or effect such compliance. (c) Prior to and in connection with any offering or sale of the Securities by the Initial Purchaser, the Company will cooperate with the Initial Purchaser and counsel to the Initial Purchaser in connection with the registration or qualification of the Securities and the Underlying Common Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Initial Purchaser may request and as may, in the opinion of counsel to the Initial Purchaser, be required; provided, however, that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to general service of process in any jurisdiction where it is not now so subject. (d) The Company will use its reasonable best efforts to file on a timely basis all such reports required to be filed under the Exchange Act, and endeavor in good faith to take such other actions, as are reasonably necessary to enable any beneficial owner of any of the Securities or Underlying Common Shares to sell Transfer Restricted Securities (as hereinafter defined) without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144, as such rule may be amended from time to time, (ii) Rule 144A, as such rule may be amended from time to time, or (iii) any similar rules or regulations hereafter adopted by the Commission. For purposes of the foregoing, "Transfer Restricted Securities" means each Security or each Underlying Common Share, as applicable, until the date on which such Security or Underlying Common Share, as applicable, has been effectively registered under the Securities Act and disposed of in accordance with the registration statement, the date on which such Security or Underlying Common Share, as applicable, is distributed to the public pursuant to Rule 144 or the date on which such Security or Underlying Common Share, as applicable, may be sold or transferred without any restrictions pursuant to Rule 144(k) (or any similar provisions then in force). (e) Neither the Company nor any person acting on its behalf will solicit any offer to buy or offer to sell the Securities by means of any form of general solicitation or general advertising (i) for a period of six months following the Closing Date, and (ii) thereafter in a manner that would require the registration under the Securities Act of the sale of the Securities to the Initial Purchaser or to the persons purchasing the Securities from the Initial Purchaser. 16 (f) Neither the Company nor any affiliate (as defined in Rule 501(b) of the Securities Act) of the Company will offer, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act) that would be integrated with the sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the Initial Purchaser or to the persons purchasing the Securities from the Initial Purchaser. (g) The Company will not be or become, at any time prior to the expiration of two years after the Closing Date, an "open-end investment trust," "unit investment trust" or "face-amount certificate company" that is or is required to be registered under Section 8 of the Investment Company Act. (h) The Company will use its best efforts to cause the Securities to be eligible for inclusion in the National Association of Securities Dealers, Inc. Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") trading system and/or for clearance and settlement through the DTC. (i) During the period of five years commencing on the Closing Date, the Company will furnish to the Initial Purchaser such financial statements and other periodic and special reports as the Company may from time to time distribute generally to the holders of any class of its capital stock, and will furnish to the Initial Purchaser a copy of each annual or other report it shall be required to file with the Commission. (j) Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company will pay, or reimburse if paid by the Initial Purchaser, all costs and expenses (reasonable out-of- pocket costs and expenses in the case of any reimbursement of the Initial Purchaser) incident to the performance of the obligations of the Company under this Agreement and the other Operative Documents, including but not limited to all costs and expenses of or relating to (1) the preparation, word processing, printing, reproduction and distribution of the Preliminary Offering Memoranda, the Offering Memorandum and other Offering Documents, the Operative Documents, the Exchange Offer Registration Statement, the Shelf Registration Statement and any amendments, exhibits and supplements thereto, (2) the preparation and delivery of certificates representing the Securities and the Underlying Common Shares, (3) making the Securities and the Underlying Common Shares eligible for trading through the PORTAL System, (4) any registration or qualification of the Securities and the Underlying Common Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions designated pursuant to Section 4(c), including the fees, disbursements and other charges of counsel to the Initial Purchaser in connection therewith, and the preparation and printing of preliminary, supplemental and final Blue Sky memoranda, (5) counsel to the Company, (6) the transfer agent and registrar for the Securities and the Underlying Common Shares, (7) the rating of the Securities by one or more rating agencies, (8) approval of the Securities by DTC for "book entry" transfer, (9) all the costs and expenses of creating and perfecting security interests in the Direct Collateral in favor of the Collateral Agent pursuant to the Pledge Agreement, and of transferring the Acquired Slots to the Slot Trustee and the license-back of the Acquired Slots to the Company including, without limitation, filing and 17 recording fees and expenses, fees and expenses of counsel for the Company for providing such opinions as the Initial Purchaser may reasonably request, (10) the fees and expenses of the Trustee, the Collateral Agent and the Slot Trustee, including the fees and disbursements of counsel for the Trustee, the Collateral Agent and the Slot Trustee, in connection with the Operative Documents and the Notes, and (11) all other costs and expenses incident to the performance of the Company's obligations hereunder and under the Operative Documents which are not otherwise specifically provided for in this Section 4. (k) If this Agreement shall be terminated by the Company pursuant to any of the provisions hereof or if for any reason the Company shall be unable to perform its obligations hereunder, the Company will reimburse the Initial Purchaser for all out-of-pocket expenses (including the fees, disbursements and other charges of counsel to the Initial Purchaser) reasonably incurred by them in connection herewith. (l) During the period beginning from the date hereof and continuing until the ninetieth day after the Closing Date, without the prior written consent of the Initial Purchaser, the Company will not, directly or indirectly, offer, issue, sell, grant any option for the sale of, contract to sell or otherwise dispose of any (i) securities of the Company that are substantially similar to any of the Securities, (ii) shares of Common Stock or (iii) securities convertible into, exercisable for or exchangeable for, or that otherwise represent the right to receive, any of the Securities or any such substantially similar securities or Common Stock other than (A) shares of Common Stock issuable upon the exercise of presently outstanding stock options and other options to be granted under the KESIP, ESIP and 1995 Outside Directors' Stock Option and Stock Compensation Plan in accordance with the terms thereof and (B) shares of Common Stock issuable pursuant to the exercise of warrants outstanding as of the date of the initial Preliminary Offering Memoranda, the conversion of shares of Employee Preferred Stock or 8% Preferred Stock outstanding at the date of the initial Preliminary Offering Memoranda, the exchange of Common Stock for 12% Senior Secured Reset Notes, (C) shares of Common Stock or Employee Preferred Stock issuable under the `95 Reorganization (as defined in the Offering Memorandum) (D) shares of Series A Preferred Stock issuable upon conversion of the Rights and (E) Exchange Notes pursuant to the Exchange Offer. (m) During the period of three years after the Closing Date, the Company will not resell any of the Securities which constitute "restricted securities" under Rule 144 that have been acquired by it. (n) Upon the earlier of the effective date of the registration statement covering the Warrants or one year from the date hereof, the Company shall cause the Underlying Common Shares to be listed on the American Stock Exchange or such other stock exchange or market as the Common Stock is then principally traded. (o) On or before the Closing Date, the Company and its subsidiaries, as applicable, shall enter into the Operative Documents other than this Agreement and the Registration Rights Agreement. 18 (p) To comply with all agreements set forth in the representation letter of the Company to DTC relating to the approval of the Units by DTC for "book-entry" transfer. (q) The Company shall use the proceeds received by it from the sale of the Securities in the manner described in the Offering Memorandum under the caption "Use of Proceeds." (r) On or before the Closing Date, the Company shall have caused the certificates of incorporation of each of the Pledged Subsidiaries to be amended [to change any reference therein to any debt securities or indenture of the Company to references to the Securities and the Indenture respectively] and shall have caused the by-laws of each of the Pledged Subsidiaries to be amended to remove any restriction on the amendment thereof by the board of directors or stockholders of such Pledged Subsidiary. 5. Conditions of the Obligations of the Initial Purchaser. ------------------------------------------------------- The obligations of the Initial Purchaser hereunder are subject to the following conditions: (a) (i) No order suspending the offer and sale of the Securities under the securities or Blue Sky laws of any jurisdiction shall be in effect and no proceeding for such purpose shall be pending before or threatened or contemplated by the authorities of any such jurisdiction, (ii) any request for additional information on the part of any such authorities shall have been complied with to the satisfaction of the staff of such authorities and (iii) after the date hereof, no amendment or supplement to the Offering Memorandum shall have been used unless a copy thereof was first submitted to the Initial Purchaser and the Initial Purchaser did not object thereto in good faith. (b) Since the date as of which information is given in the Offering Memorandum, (i) there shall not have been any change in the capital stock (other than changes attributable to (w) the shares of Common Stock issuable upon exercise of the Warrants, (x) shares of Common Stock issuable upon the exercise of presently outstanding stock options and other options to be granted under the KESIP, ESIP and 1995 Outside Directors' Stock Option and Stock Compensation Plan in accordance with the terms thereof, (y) shares of Common Stock issuable pursuant to the exercise of warrants outstanding as of the date hereof, the conversion of shares of Employee Preferred Stock or 8% Preferred Stock, the exchange of Common Stock for 12% Senior Secured Reset Notes and (z) shares of Common Stock or Employee Preferred Stock issuable under the `95 Reorganization) or any increase in the long-term debt of the Company or any of its subsidiaries or any change in the business or financial condition of the Company and the subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, in each case other than as set forth in or contemplated by the Offering Memorandum and (ii) neither the Company nor any of the subsidiaries of the Company shall have sustained any loss or interference with its business or properties from fire, explosion, flood or other casualty, whether or not covered by insurance, or from any labor dispute or any court or legislative or other governmental action, order or decree, which is not set forth in the Offering Memorandum, which reasonably would be expected to 19 result in a Material Adverse Effect and if in the judgment of the Initial Purchaser any such development makes it impracticable or inadvisable to consummate the resale and delivery of the Securities by the Initial Purchaser in accordance with the terms hereof. (c) Since the date as of which information is given in the Offering Memorandum, there shall have been no litigation or other proceeding instituted against the Company or any of the subsidiaries or any of their respective officers or directors in their capacities as such or any of their property or assets (including the Collateral), before or by any local, state, federal, or foreign court, commission, regulatory body, administrative agency or other governmental body, which litigation or proceeding, either singly or in the aggregate, may reasonably be expected to result in an unfavorable ruling, decision or finding that is reasonably likely to have a Material Adverse Effect. (d) Each of the representations and warranties of the Company contained herein or in any Operative Document shall be true and correct in all material respects at the Closing Date as if made at the Closing Date; provided, however, that if any such representation or warranty is already qualified by materiality, for purposes of determining whether this condition has been satisfied, such representation or warranty as so qualified must be true and correct in all respects; and all covenants and agreements contained herein or in any Operative Document to be performed on the part of the Company and all conditions herein or therein contained to be fulfilled or complied with by the Company at or prior to the Closing Date shall have been duly performed, fulfilled or complied with in all material respects. (e) The Initial Purchaser shall have received an opinion, dated the Closing Date, from (i) Smith, Gambrell & Russell, counsel to the Company, and (ii) from Richard P. Magurno, Esq., Senior Vice President and General Counsel to the Company, in each case in form and substance reasonably satisfactory to the Initial Purchaser. (f) The Initial Purchaser shall have received an opinion, dated the Closing Date, from Richard Fahy, Esq., special aviation counsel to the Company, in form and substance reasonably satisfactory to the Initial Purchaser. (g) The Initial Purchaser shall have received an opinion, dated the Closing Date, from counsel (which shall be reasonably satisfactory to the Initial Purchaser) for the Slot Trust, in form and substance reasonably satisfactory to the Initial Purchaser. (h) The Initial Purchaser shall have received an opinion, dated the Closing Date, from Hughes Hubbard & Reed, counsel to the Initial Purchaser, with respect to the Offering Memorandum, this Agreement and the Securities, which opinion shall be satisfactory in all respects to the Initial Purchaser. (i) Concurrently with the execution and delivery of this Agreement, the Accountants shall have furnished to the Initial Purchaser a letter, dated the date of its delivery, addressed to the Initial Purchaser and in form and substance satisfactory to the Initial Purchaser, confirming that they are independent accountants with respect to the Company as required by the Securities Act and the Exchange Act and the rules and regulations promulgated 20 thereunder and with respect to the financial and other statistical and numerical information contained in the Offering Memorandum. At the Closing Date, the Accountants shall have furnished to the Initial Purchaser a letter, dated the date of its delivery, which shall confirm, on the basis of a review in accordance with the procedures set forth in the letter from the Accountants, that nothing has come to their attention during the period from the date of the letter referred to in the prior sentence to a date (specified in the letter) not more than three days prior to the Closing Date which would require any change in their letter dated the date hereof if it were required to be dated and delivered at the Closing Date. (j) At the Closing Date, there shall be furnished to the Initial Purchaser a certificate, dated the date of its delivery, signed by each of the Chief Executive Officer and the Chief Financial Officer of the Company, in form and substance satisfactory to the Initial Purchaser, to the effect that: (i) Each signer of such certificate has carefully examined the Offering Memorandum and (A) as of the date of such certificate, such documents are true and correct in all material respects and do not omit to state a material fact required to be stated therein or necessary in order to make the statements therein not untrue or misleading, (B) no event has occurred as a result of which it is necessary to amend or supplement the Offering Memorandum as in effect on the date hereof in order to make the statements therein not untrue or misleading in any material respect, and (C) no event or circumstance of the nature described in clauses (i) and (ii) of Section 5(b) has occurred or exists. (ii) Each of the representations and warranties of the Company contained in this Agreement or in any Operative Document were, when originally made, and are, at the time such certificate is delivered, true and correct in all material respects, provided, however, that if any such representation or warranty is already qualified by materiality, such representation or warranty as so qualified was, when originally made, and is, at the time such certificate is dated, true and correct in all respects. (iii) Each of the covenants required herein or in any Operative Document to be performed by the Company on or prior to the delivery of such certificate has been duly, timely and fully performed, and each condition herein or in any Operative Document required to be complied with by the Company on or prior to the date of such certificate has been duly, timely and fully complied with. (k) The Securities shall be qualified for sale in such states designated pursuant to Section 4(c), each such qualification shall be in effect and not subject to any stop order or other proceeding on the Closing Date. (l) Prior to the Closing Date, the Securities shall be eligible for trading through PORTAL. (m) The Company shall have furnished to the Initial Purchaser such certificates, in addition to those specifically mentioned herein, as the Initial Purchaser may have 21 reasonably requested as to the accuracy and completeness at the Closing Date of any statement in the Preliminary Offering Memoranda and the Offering Memorandum, as to the accuracy at the Closing Date of the representations and warranties of the Company herein, as to the performance by the Company of its obligations hereunder, or as to the fulfillment of the conditions concurrent and precedent to the obligations hereunder of the Initial Purchaser; and all proceedings taken by the Company at or prior to the Closing Date in connection with the authorization, issuance and sale of the Securities and the creation and perfection of the lien in the Direct Collateral contemplated by the Pledge Agreement shall be in form and substance reasonably satisfactory to the Initial Purchaser and to counsel. (n) On or after the date hereof (i) no downgrading shall have occurred in the rating accorded the debt securities of the Company or any of its subsidiaries by any "nationally recognized statistical rating organization," as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the debt securities of the Company or any of its subsidiaries. (o) In the event that the Initial Purchaser exercises the Option and the Option Closing Date is not also the Closing Date, the representations and warranties of the Company contained herein or in any Operative Document shall be true and correct in all material respects at the Option Closing Date, as if made at the Option Closing Date, provided, however, that if any such representation or warranty is already qualified by materiality, for purposes of determining whether this condition has been satisfied, such representation or warranty as so qualified must be true and correct in all respects; the conditions set forth in this Section 5 shall be satisfied as of the Option Closing Date, and, at the Option Closing Date, the Initial Purchaser shall have received: (i) A certificate, dated the Option Closing Date and signed by the Chief Executive Officer and the Chief Financial Officer of the Company confirming that the certificates delivered at the Closing Date pursuant to subsections (j) and (m) (if any) of this Section 5 remain true and correct as of the Option Closing Date. (ii) An opinion relating to the Option Securities dated the Option Closing Date (i) of Smith, Gambrell & Russell, counsel to the Company substantially in the form set forth in Exhibit B hereto, (ii) of Richard P. Magurno, Esq., Senior Vice President and General Counsel to the Company, substantially in the form set forth in Exhibit C. (iii) An opinion of Hughes Hubbard & Reed, counsel for the Initial Purchaser, dated the Option Closing Date, relating to the Option Securities and otherwise substantially in the same form and substance as the opinion delivered pursuant to Section 5(h). (iv) A letter from the Accountants, dated the Option Closing Date and satisfactory in form and substance to the Initial Purchaser, substantially the same in form and substance as the letter furnished to the Initial Purchaser pursuant to 22 Section 5(i) hereof, except that the "specified date" in the letter furnished pursuant to this subsection (p) (v) shall be a date not more than three days prior to the Option Closing Date. (p) The Operative Documents shall have been duly executed and delivered by the parties, shall be in full force and effect and each shall be in form and substance satisfactory to the Initial Purchaser. (q) At or before the Closing Date (i) evidence (including without limitation, the results of lien searches and security interest termination documents) reasonably satisfactory to the Initial Purchaser of the absence of any liens other than Permitted Liens (as defined in the Pledge Agreement) on any of the Collateral shall have been furnished to the Initial Purchaser, and (ii) such evidence of the completion of all recordings and filings of the Pledge Agreement, and of the execution, delivery, recording and/or filing of such other documents, as may be necessary or, in the reasonable opinion of the Initial Purchaser, desirable to create or perfect the liens created, or purported or intended to be created, by the Pledge Agreement shall have been furnished to the Initial Purchaser. (r) At or before the Closing Date, the Company shall have received confirmation from the FAA of the transfer of the Acquired Slots to the Slot Trustee and of the license-back to the Company pursuant to the Slot Trust Agreement, the Deed of Conveyance and the Master Sub-License Agreement. (s) Certificates evidencing the Pledged Stock, accompanied in each case by undated stock powers duly executed in blank, unconditionally and without qualification, shall have been delivered, or caused to be delivered, by the Company to the Collateral Agent to be held in accordance with the terms of the Pledge Agreement. (t) On or before the Closing Date, the Original Appraisals described in the Offering Memorandum (the "Original Appraisals") shall have been fully completed, executed and delivered, by Simet, Helliesen & Eichner, Inc. The Original Appraisals shall specify an indicated fair market value (defined in the manner set forth in the Offering Memorandum) for the Acquired Slots, the Ground Equipment, the LAX Hangar Lease and the Material Subsidiary Facilities Leases of not less than the respective expected amounts set forth in the Offering Memorandum, otherwise shall conform in all material respects to the description thereof set forth in the Offering Memorandum, and otherwise shall be in form and substance reasonably satisfactory to the Initial Purchaser. (u) On the Closing Date, the Company shall have delivered or cause to have been delivered to the Initial Purchaser original executed copies of all certificates, opinions and other documents required to be delivered or caused to be delivered by it under the Operative Documents in connection with the initial issuance of the Securities. If any of the conditions specified in this Section 5 shall not have been fulfilled on or before the Closing Date, this Agreement and all of the Initial Purchaser's obligations hereunder may be canceled at, or at any time prior to, the Closing Date by the Initial Purchaser at 23 its sole discretion. Any such cancellation will be without liability to the Initial Purchaser, and the Initial Purchaser's obligations and the obligations of the Company pursuant to Section 4 and 6 hereof shall nevertheless survive and continue thereafter. Notice of such cancellation shall be given to the Company in writing or by telephone, telex or facsimile transmission confirmed in writing. 6. Indemnification. ---------------- (a) The Company will indemnify and hold harmless the Initial Purchaser, the directors, officers, employees and agents of the Initial Purchaser and each person, if any, who controls the Initial Purchaser within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, liabilities, expenses and damages joint or several (including, but not limited to, any and all investigative, legal and other expenses reasonably incurred in connection with, and any and all amounts paid in settlement of, any action, suit or proceeding or any claim asserted), as and when incurred, to which the Initial Purchaser, or any such person, may become subject under the Securities Act, the Exchange Act or other Federal, state or foreign statutory law or regulation, at common law or otherwise, insofar as such losses, claims, liabilities, expenses or damages arise out of or are based on (i) any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Offering Memoranda, the Offering Memorandum or any amendment or supplement thereto or (ii) the omission or alleged omission to state in any of such documents a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any act or failure to act or any alleged act or failure to act by the Initial Purchaser in connection with, or relating in any manner to, the Securities or the transactions contemplated hereby, and which is included as part of or referred to in any loss, claim, liability, expense or damage arising out of or based upon matters covered by clause (i) or (ii) above (provided that the Company shall not be liable under this clause (iii) to the extent that such loss, claim, liability , expense or damage resulted directly from any such acts or failures to act undertaken or omitted to be taken by the Initial Purchaser through its gross negligence or willful misconduct); and provided that the Company will not be liable to the extent that such loss, claim, liability, expense or damage arises from the sale of the Securities to any person by the Initial Purchaser and is based on any untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information relating to the Initial Purchaser furnished in writing to the Company by the Initial Purchaser expressly for inclusion in the Preliminary Offering Memoranda or the Offering Memorandum. This indemnity agreement will be in addition to any liability that the Company might otherwise have. (b) The Initial Purchaser will indemnify and hold harmless the Company, each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, each director of the Company and each officer of the Company to the same extent as the foregoing indemnity from the Company to the Initial Purchaser, but only insofar as losses, claims, liabilities, expenses or damages arise out of or are based on any untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information relating to the Initial Purchaser furnished in writing to the Company by the Initial Purchaser expressly for use in the Preliminary Offering 24 Memoranda or the Offering Memorandum. This indemnity will be in addition to any liability that the Initial Purchaser might otherwise have. (c) Any party that proposes to assert the right to be indemnified under this Section 6 will, promptly after receipt of notice of commencement of any action against such party in respect of which a claim is to be made against an indemnifying party or parties under this Section 6, notify each such indemnifying party of the commencement of such action, enclosing a copy of all papers served, but the omission so to notify such indemnifying party (i) will not relieve it from any liability that it may have to any indemnified party under the foregoing provisions of this Section 6 unless, and only to the extent that, it did not otherwise learn of such action and such omission results in the forfeiture of substantive rights or defenses by the indemnifying party and (ii) will not, in any event relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligations in Sections 6(a) and 6(b) hereof. If any such action is brought against any indemnified party and it notifies the indemnifying party of its commencement, the indemnifying party will be entitled to participate in and, to the extent that it elects by delivering written notice to the indemnified party promptly after receiving notice of the commencement of the action from the indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense of the action, with counsel satisfactory to the indemnified party, and after notice from the indemnifying party to the indemnified party of its election to assume the defense, the indemnifying party will not be liable to the indemnified party for any legal or other expenses except as provided below and except for the reasonable costs of investigation subsequently incurred by the indemnified party in connection with the defense. The indemnified party will have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based on advice of counsel to the indemnified party) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. An indemnifying party will not be liable for any settlement of any action or claim effected without its written consent (which consent will not be unreasonably withheld or delayed). It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm admitted to practice in such jurisdiction at any one time for all such indemnified party or parties. Such firm shall be designated in writing by the Initial Purchaser in the case of parties indemnified pursuant to Section 6(a) and by the Company, in the case of parties indemnified pursuant to Section 6(b). All such fees, disbursements and other charges will be reimbursed by the indemnifying party promptly as they are incurred. No indemnifying party shall, without the prior written consent of each indemnified party, settle or 25 compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding relating to the matters contemplated by this Section 6 (whether or not any indemnified party is a party thereto), unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising or that may arise out of such claim, action or proceeding. (d) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in the foregoing paragraphs of this Section 6 is applicable in accordance with its terms but for any reason is held to be unavailable from the Company or the Initial Purchaser, as the case may be, or insufficient, the Company and the Initial Purchaser, as the case may be, will contribute to the total losses, claims, liabilities, expenses and damages (including any investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, but after deducting any contribution received by the Company from persons other than the Initial Purchaser, such as persons who control the Company within the meaning of the Securities Act or the Exchange Act, and directors of the Company, who also may be liable for contribution) to which the Company and the Initial Purchaser may be subject in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and the Initial Purchaser on the other. The relative benefits received by the Company on the one hand and the Initial Purchaser on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total discounts and sales commissions received by the Initial Purchaser in the purchase of the Securities from the Company and the resale thereof by the Initial Purchaser, in each case as set forth in the Offering Memorandum. If, but only if, the allocation provided by the foregoing sentence is not permitted by applicable law, the allocation of contribution shall be made in such proportion as is appropriate to reflect not only the relative benefits referred to in the foregoing sentence but also the relative fault of the Company, on the one hand, and the Initial Purchaser, on the other, with respect to the statements or omissions which resulted in such loss, claim, liability, expense or damage, or action in respect thereof, as well as any other relevant equitable considerations with respect to such offering. Such relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the Initial Purchaser, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Initial Purchaser agree that it would not be just and equitable if contributions pursuant to this Section 6(d) were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, liability, expense or damage, or action in respect thereof, referred to above in this Section 6(d) shall be deemed to include, for purpose of this Section 6(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6(d), the Initial Purchaser shall not be required to contribute any amount in excess of the discounts and sales commissions received by it in the purchase of the Securities from the Company and the resale by it of the Securities, and no person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 26 Securities Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 6(d), any person who controls a party to this Agreement within the meaning of the Securities Act will have the same rights to contribution as that party, subject in each case to the provisions hereof. Any party entitled to contribution, promptly after receipt of notice of commencement of any action against such party in respect of which a claim for contribution may be made under this Section 6(d), will notify any such party or parties from whom contribution may be sought, but the omission so to notify will not relieve the party or parties from whom contribution may be sought from any other obligation it or they may have under this Section 6(d). Except for a settlement entered into pursuant to the last sentence of Section 6(c) hereof, no party will be liable for contribution with respect to any action or claim settled without its written consent (which consent will not be unreasonably withheld or delayed). (e) The indemnity and contribution agreements contained in this Section 6 and the agreements, representations, warranties and other statements of the Company contained in this Agreement shall remain operative and in full force and effect regardless of (i) any investigation (or any statements as to the results thereof) made by or on behalf of the Initial Purchaser or any controlling person of the Initial Purchaser, (ii) acceptance of any of the Securities and payment therefor or (iii) any termination of this Agreement. 7. Termination. ------------ The obligations of the Initial Purchaser under this Agreement may be terminated at any time on or prior to the Closing Date by notice to the Company from the Initial Purchaser, without liability on the part of the Initial Purchaser to the Company, if, prior to delivery and payment for the Securities, in the sole judgment of the Initial Purchaser, (i) there has been, since the respective dates as of which information is given in the Preliminary Offering Memoranda and Offering Memorandum, any material adverse change in the Company's business, properties, business prospects, condition (financial or otherwise) or results of operations, (ii) trading in any of the equity securities of the Company shall have been suspended by the Commission, the NASD or an exchange that lists such securities, (iii) trading in securities generally on the New York Stock Exchange, the American Stock Exchange or the Nasdaq Stock Market shall have been suspended or limited or minimum or maximum prices shall have been generally established on such exchange, or additional material governmental restrictions, not in force on the date of this Agreement, shall have been imposed upon trading in securities generally by such exchange or by order of the Commission or any court or other governmental authority, (iv) a general banking moratorium shall have been declared by either Federal or New York State authorities or (v) any material adverse change in the financial or securities markets in the United States or in political, financial or economic conditions in the United States or any outbreak or material escalation of hostilities or other calamity or crisis shall have occurred the effect of which is such as to make it, in the sole judgment of the Initial Purchaser, impracticable or inadvisable to market the Securities or proceed with the completion of the offering or sale of and payment for the Securities on the terms and in the manner contemplated by the Offering Memorandum. 27 8. Representations, Warranties and Covenants of the Initial -------------------------------------------------------- Purchaser. ---------- (a) The Initial Purchaser has advised the Company that it proposes to offer the Securities for resale upon the terms and conditions set forth in this Agreement. The Initial Purchaser hereby represents and warrants to, and agrees with, the Company that the Initial Purchaser is an "accredited investor" within the meaning of Regulation D under the Securities Act and (ii) will solicit offers for the Securities only from, and will offer the Securities only (x) to persons who it reasonably believes are Qualified Institutional Buyers in transactions meeting the requirements of Rule 144A, (y) to a limited number of persons reasonably believed by the Initial Purchaser to be Institutional Accredited Investors, or (z) outside the United States to certain persons in reliance on Regulation S under the Securities Act, as more fully set forth in the case of clauses (x) and (z) in Section 8(b) below. (b) The Initial Purchaser further represents and warrants to, and agrees with, the Company that: (i) The Initial Purchaser acknowledges that the Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S or pursuant to an exemption from the registration requirements of the Securities Act; that it has offered and sold the Securities, and will offer and sell the Securities, (x) as part of their distribution at any time and (y) otherwise until 40 days after the later of the commencement of the offering of the Securities and the Closing Date, only in accordance with Rule 903 under the Securities Act or Rule 144A or to a limited number of Institutional Accredited Investors in accordance with subsection (ii) and accordingly, neither the Initial Purchaser nor its affiliates, nor any persons acting on its behalf, have engaged or will engage in any directed selling efforts within the meaning of Rule 901(b) of Regulation S with respect to the Securities, and the Initial Purchaser, its affiliates and all persons acting on its behalf have complied and will comply with the offering restrictions requirements of Regulation S at or prior to confirmation of sale of the Securities, other than a sale pursuant to Rule 144A or a sale to an Institutional Accredited Investor in accordance with subsection (ii), the Initial Purchaser will have sent to each distributor, dealer or other person receiving a selling concession, fee or other remuneration that purchases the Securities from the Initial Purchaser during the restricted period a confirmation or notice substantially to the following effect: "The Securities covered hereby have not been registered under the U.S. Securities Act of 1933 (the "Securities Act") and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the date of the commencement of the offering and the closing date, except in either case in accordance with Regulation S (or Rule 144A if available) under the Securities Act. Terms used above have the meanings given to them by Regulation S." 28 Terms used in this paragraph have the meanings given to them by Regulation S; (ii) The Initial Purchaser has offered, or may offer and sell, Securities to institutions, each of which is reasonably believed by the Initial Purchaser to be an "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act or an entity in which all of the equity owners are "accredited investors" within the meaning of Rule 501(a)(1), (2), (3), or (7) under the Securities Act; provided that each such Institutional Accredited Investor executes and delivers to the Initial Purchaser and the Company, prior to the consummation of any sale of Securities to such Institutional Accredited Investor, an Initial Purchaser's Letter in substantially the form attached as Exhibit A to the Offering Memorandum (an "Initial Purchaser's Letter"); (iii) The Initial Purchaser will not offer or sell the Securities purchased from the Company hereunder in the United States by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act, including, but not limited to (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising; provided, however, that such limitation shall not preclude the Initial Purchaser from placing any tombstone announcement with respect to the resale by the Initial Purchaser of the Securities, provided that such announcement is not prohibited by Regulation S; (iv) With respect to resales made in reliance on Rule 144A, other than through PORTAL, of any of the Securities purchased from the Company hereunder, the Initial Purchaser will deliver either with the confirmation of such resale or otherwise prior to settlement of such resale a notice to the effect that the resale of such Securities has been made in reliance upon the exemption from the registration requirements of the Securities Act provided by Rule 144A; and (v) The Initial Purchaser (i) has not offered or sold, and will not offer or sell in the United Kingdom, by means of any document, any Securities other than to persons whose ordinary business it is to buy or sell notes, shares or warrants, whether as a principal or agent, or in circumstances which do not constitute an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995, (ii) have complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Securities in, from or otherwise involving the United Kingdom, and (iii) have only issued or passed on and will only issue or pass on to any person in the United Kingdom any document received by it in connection with the issue of the Securities if the person is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995 or is a person to whom the document may otherwise lawfully be issued or passed on. 29 (c) The Initial Purchaser warrants and agrees that it has not entered, and will not enter, into any contractual arrangement with respect to the distribution of the Securities except with its affiliates or with the prior written consent of the Company. 9. Miscellaneous. -------------- Notice given pursuant to any of the provisions of this Agreement shall be in writing and, unless otherwise specified, shall be mailed or delivered (a) if to the Company, at the office of the Company, One City Centre, 515 N. Sixth Street, St. Louis, Missouri 63101, Attention: General Counsel; fax no. (314) 589-3267 or (b) if to the Initial Purchaser, care of PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New York 10019, Attention: Corporate Finance Department; fax no. 212-713-1054. Any such notice shall be effective only upon receipt. Any notice under Section 6 or 9 may be made by telex or telephone, but if so made shall be subsequently confirmed in writing. This Agreement has been and is made solely for the benefit of the Initial Purchaser and the Company and of the controlling persons, directors, officers, employees and agents referred to in Section 6, and their respective successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" as used in this Agreement shall not include a purchaser, as such purchaser, of Securities from the Initial Purchaser. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE. This Agreement may be signed in two or more counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument. In case any provision in this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. The Company and the Initial Purchaser each hereby irrevocably waives any right they may have to a trial by jury in respect of any claim based upon or arising out of this Agreement or the transactions contemplated hereby. This Agreement may not be amended or otherwise modified or any provision hereof waived except by an instrument in writing signed by the Initial Purchaser and the Company. 30 Please confirm that the foregoing correctly sets forth the agreement among the Company and the Initial Purchaser. Very truly yours, TRANS WORLD AIRLINES, INC. By: M. J. Palumbo ---------------------------------------- Title: Senior Vice President and Chief Financial Officer Confirmed as of the date first above mentioned: PAINEWEBBER INCORPORATED By: Joseph M. Cerulli ------------------------------ Title: First Vice President 31 Exhibit A "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT, OR ANY STATE SECURITIES LAWS. NEITHER THESE SECURITIES NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THESE SECURITIES BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL, OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE RESALE RESTRICTION TERMINATION DATE WHICH IS THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE DATE OF ORIGINAL ISSUANCE AND THE LAST DATE ON WHICH THE CORPORATION OR ANY AFFILIATE OF THE CORPORATION WAS THE OWNER OF THESE SECURITIES (OR ANY PREDECESSOR OF THESE SECURITIES) ONLY (A) TO THE CORPORATION, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE CORPORATION'S AND THE TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE, OR TRANSFER (i) PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN 32 EACH OF THE FOREGOING CASES, TO REQUIRE A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THESE SECURITIES IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE." 33 EX-3.4 3 THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3.4 AMENDED CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS RELATING TO THE IAM PREFERRED STOCK OF TRANS WORLD AIRLINES, INC. The undersigned, Richard P. Magurno, Senior Vice President and General Counsel of Trans World Airlines, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), does hereby certify on behalf of the Corporation: FIRST: That the Board of Directors of this Corporation have duly filed resolutions, filed with the minutes of the Board, setting forth the proposed amendment and restatement of the Certificate of Designations, Preferences and Rights Relating to the IAM Preferred Stock of this Corporation, declaring said amendment to be advisable. The resolution setting forth the proposed amendment and restatement is as follows: RESOLVED, that the Certificate of Designations, Preferences and Rights Relating to the IAM Preferred Stock of this Corporation be amended to increase the total number of shares of IAM Preferred Stock authorized for issuance from 3,821,473 to 6,380,528; and RESOLVED, that the Certificate of Designations, Preferences and Rights Relating to the IAM Preferred Stock of this Corporation be amended to read as follows: FIRST: The name of the Corporation is Trans World Airlines, Inc. SECOND: The Restated Certificate of Incorporation of the Corporation was filed in the Office of the Secretary of State of the State of Delaware on November 3, 1993, and amended and restated pursuant to the Amended and Restated Certificate of Incorporation of Trans World Airlines, Inc. filed in the Office of the Secretary of State of the State of Delaware, and effective on August 23, 1995, and further amended and restated pursuant to the Second Amended and Restated Certificate of Incorporation of Trans World Airlines, Inc. filed in the Office of the Secretary of State of the State of Delaware on November 21, 1995 (as corrected on April 29, 1997), and further amended and restated pursuant to the Third Amended and Restated Certificate of Incorporation of Trans World Airlines, Inc. filed in the Office of the Secretary of State of the State of Delaware and effective on May 24, 1996 (as corrected on April 29, 1997) (as so amended, such Restated Certificate of Incorporation hereinafter referred to as the "Certificate of Incorporation"). THIRD: Pursuant to the provisions of Section 151(g) of the General Corporation Law of the State of Delaware and Article Fifth, Section 4 of the Certificate of 1 Incorporation, the Board of Directors of the Corporation (the "Board") adopted the following resolution: RESOLVED, that a series of preferred stock of the Corporation be and hereby is created (the "IAM Preferred Stock"), and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions thereof, are as follows: Section 1. Designation. The shares of such series shall be designated "IAM Preferred Stock." Section 2. Number of Shares. The number of shares constituting the IAM Preferred Stock shall be 6,380,528. Section 3. Par Value. The IAM Preferred Stock shall have a stated par value of $.01 per share. Section 4. Rank. (a) Other than the Liquidation Preference described in Section 6 hereof, the IAM Preferred Stock shall, with respect to dividend rights and rights upon any liquidation, dissolution or winding up of the Corporation, rank on a parity with the common stock of the Corporation, par value $.01 per share (the "Common Stock"). (b) All equity securities of the Corporation as to which the IAM Preferred Stock may rank prior with respect to dividends and upon liquidation, dissolution, winding up or otherwise are collectively referred to herein as the "Junior Securities"; all equity securities of the Corporation as to which the IAM Preferred Stock may rank on a parity as to any one of dividends or upon liquidation, dissolution, winding up or otherwise and does not rank senior as to any of the same are collectively referred to herein as the "Parity Securities"; and all equity securities of the Corporation as to which the IAM Preferred Stock may rank junior, whether with respect to dividends or upon liquidation, dissolution, winding up or otherwise, are collectively referred to herein as the "Senior Securities." The IAM Preferred Stock shall be subject to the creation of Junior Securities, Parity Securities and Senior Securities. (c) In the event of a stock split effected in the form of a dividend, reverse stock split, recapitalization or similar fundamental change in the rights or number of shares of the Common Stock, an equitably similar change shall be effected in the IAM Preferred Stock to the end of maintaining the IAM Preferred Stock as the functional equivalent of 2 Common Stock on a share per share basis except with respect to (i) the Liquidation Preference described in Section 6 hereof and (ii) the right of the holders of IAM Preferred Stock to elect directors to the Board as provided in Section 7 hereof. Section 5. Dividends. Subject to the rights of holders of Senior Securities, the holders of the IAM Preferred Stock shall be entitled to receive, when, as and if declared by the Board, out of funds legally available therefor, dividends payable in cash, stock or otherwise. No dividend shall be paid on the Common Stock unless an equivalent dividend is paid on the IAM Preferred Stock, which dividend shall be in the same amount per share and in the same medium as that paid on the Common Stock; provided, however, that stock -------- ------- dividends declared on the Common Stock and the IAM Preferred Stock shall be payable in shares of Common Stock and IAM Preferred Stock, respectively. Section 6. Liquidation Preference. Subject to the rights of holders of Senior Securities, upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of IAM Preferred Stock shall be entitled to and be paid the sum of $.01 per share from the net assets of the Corporation (the "Liquidation Preference") before any amounts are paid to or on account of the holders of Common Stock, and thereafter the remaining net assets of the Corporation shall be distributed pro rata to the holders of the IAM Preferred Stock, the Common Stock and such other equity securities of the Corporation which rank on a parity with such stock with respect to such rights, all in accordance with their respective rights and interests. Section 7. Voting Rights. The holders of the IAM Preferred Stock shall have the following voting rights: (a) The holders of the IAM Preferred Stock shall be entitled to one vote for each share of IAM Preferred Stock held of record by such holder as of the record date for a meeting of the Corporation's stockholders (i) on each matter submitted to a vote at such meeting other than the election of directors and (ii) for each of the directors to be elected by the holders of IAM Preferred Stock at an annual meeting of the Corporation's stockholders pursuant to this Section 7. (b) So long as any shares of IAM Preferred Stock are outstanding and in accordance with Article Ninth of the Certificate of Incorporation, the holders of the IAM Preferred Stock shall have the following rights with respect to the election of directors; 3 (i) the exclusive right to elect to the Board two (2) directors (each such director, an "IAM Director"), one of which shall be a Class II director and one of which shall be a Class III director; and (ii) in the event that the IAM Directors, together with the aggregate number of directors elected by the holders of the shares of the Corporation's two series of preferred stock designated "ALPA Preferred Stock" and "IFFA Preferred Stock," respectively, shall be fewer than twenty-two and one-half percent (22.5%) of the total number of directors comprising the Board, then the holders of the IAM Preferred Stock, ALPA Preferred Stock and IFFA Preferred Stock voting as a single class shall have the right to elect additional directors to the Board so that the aggregate number of directors elected by the holders of the IAM Preferred Stock, ALPA Preferred Stock and IFFA Preferred Stock shall constitute at least 22.5% of the total number of directors comprising the Board. (c) At each meeting of stockholders at which the holders of the IAM Preferred Stock shall have the exclusive right to elect IAM Directors as provided in paragraph (b) of this Section 7, the presence in person or by proxy of the holders of record of one-third (1/3) of the total number of shares of the IAM Preferred Stock then outstanding shall be necessary and sufficient to constitute a quorum of such series for such election by such stockholders as a series. At any such meeting or adjournment thereof: (i) The absence of a quorum of the holders of IAM Preferred Stock shall not prevent the election of directors other than the IAM Directors, and the absence of a quorum of the holders of any other class or series of stock for the election of such other directors shall not prevent the election of the IAM Directors; and (ii) In the absence of either or both such quorums, a majority of the holders present in person or by proxy of the class or series which lack a quorum shall have the power to adjourn for a period of up to thirty (30) days the meeting for election of directors which they are entitled to elect from time to time without notice other than announcement at the meeting until a quorum shall be present. (d) Subject to Article Ninth of the Certificate of Incorporation, any vacancies on the Board resulting from the death, resignation, disqualification, or removal of any IAM Director shall be filled only by a vote of the holders of the IAM Preferred Stock. 4 (e) The IAM Preferred Stock shall be deemed "Voting Stock" for purposes of the Certificate of Incorporation. Section 8. Conversion. Each share of IAM Preferred Stock shall automatically convert into one share of Common Stock upon the withdrawal of such share of IAM Preferred Stock from the trust in which such stock is held. The certificate or certificates for shares of IAM Preferred Stock so converted may be surrendered to any transfer agent of the Corporation for such IAM Preferred Stock, duly endorsed in blank for transfer. As soon as practicable after the surrender of such certificate or certificates as provided above, the Corporation shall cause to be issued and delivered, at the office of such transfer agent, to or on the order of the holder of the certificates thus surrendered, a certificate or certificates for the number of shares of Common Stock issuable hereunder upon the conversion of such shares of IAM Preferred Stock. Section 9. Amendment. This Certificate of Designations, Preferences and Rights Relating to the IAM Preferred Stock may be amended only upon the unanimous approval of the holders of record of the outstanding shares of IAM Preferred Stock. This Amended Certificate of Designations, Preferences and Rights Relating to the IAM Preferred Stock shall be effective as of the date filed. SECOND: That shareholder approval of the amendment to the Certificate of Designations, Preferences and Rights Relating to the IAM Preferred Stock is not required pursuant to Section 151(g) under the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned has executed this Amended Certificate of Designations, Preferences and Rights Relating to the IAM Preferred Stock and does affirm the foregoing as true under the penalties of perjury this 29th day of April, 1997. TRANS WORLD AIRLINES, INC. By: /s/ Richard P. Magurno ---------------------- Richard P. Magurno Senior Vice President and General Counsel ATTEST: By: /s/ Kathleen A. Soled --------------------- Kathleen A. Soled Corporate Secretary 5 EXHIBIT 3.4 THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF TRANS WORLD AIRLINES, INC. (which further amends and restates the Second Amended and Restated Certificate of Incorporation of Trans World Airlines, Inc. originally incorporated on August 15, 1978 as "New TWA Corporation") The undersigned, Jeffrey H. Erickson, President and Chief Executive Officer of Trans World Airlines, Inc. (the "Corporation"), a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware ("GCL"), does hereby certify on behalf of the Corporation as follow: That pursuant to the provisions of Section 245 of the GCL, the Corporation's Second Amended and Restated Certificate of Incorporation dated November 16, 1995 be amended and restated by deleting the text therein in its entirety and inserting in lieu thereof the following: ARTICLE FIRST. The name of the corporation is Trans World Airlines, Inc. (the "Corporation"). ARTICLE SECOND. The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801. The name of the Corporation's registered agent at such address is The Corporation Trust Company. ARTICLE THIRD. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the GCL, except that the Corporation shall not in any state, territory, district, possession or country carry on any business or exercise any powers which a corporation organized under the laws thereof could not carry on or exercise. ARTICLE FOURTH. Intentionally left blank. ARTICLE FIFTH. Section 1. Authorized Capital Stock. The Corporation is authorized to issue two classes of capital stock. The total number of shares of capital stock that the Corporation is authorized to issue is two hundred eighty seven million five hundred thousand (287,500,000) shares, consisting of (i) one hundred fifty million (150,000,000) shares of common stock with a par value of $.01 per share (the "Common Stock") and (ii) one hundred thirty seven million five hundred thousand (137,500,000) shares of preferred stock with a par value of $.01 per share (the "Preferred Stock"). Section 2. Intentionally left blank. 6 Section 3. Common Stock. Except as may otherwise be provided in any Preferred Stock Designation (as hereinafter defined), the holders of Common Stock will be entitled to one vote for each share of Common Stock held of record by such holder as of the record date for such meeting (i) on each matter submitted to a vote at a meeting of stockholders and (ii) for each of the directors to be elected at an annual meeting of shareholders. Except as may otherwise be provided in any Preferred Stock Designations, (i) the holders of the Common Stock shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation (the "Board"), out of funds legally available therefor, dividends payable in cash, stock or otherwise, and (ii) upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the remaining net assets of the Corporation shall be distributed pro rata to the holders of the Common Stock in accordance with their respective rights and interests. Section 4. Preferred Stock. The Preferred Stock shall be issued in one or more series. The Board is hereby authorized to issue shares of Preferred Stock and to fix before issuance the number of shares to be issued and the designation, relative powers, preferences, and rights and qualifications, limitations, or restrictions of all shares. The authority of the Board will include, without limiting the generality of the foregoing, the determination of any or all of the following: (a) the number of shares and the designation to distinguish the shares; (b) the voting powers, if any, and whether such voting powers are full or limited; (c) the redemption provisions, if any, including the redemption price or prices to be paid; (d) whether dividends, if any, will be cumulative or noncumulative, the dividend rate, and the dates and preferences of dividends; (e) the rights upon the voluntary or involuntary dissolution of, or upon any distribution of the assets of, the Corporation; (f) the provisions, if any, of a sinking fund; and (g) any other relative, participating, optional, or other special powers, preferences, rights, qualifications, limitations, or restrictions thereof; all as may be determined by the Board and stated in the resolution or resolutions providing for the issuance or issuances of such Preferred Stock (each such designation is collectively, the "Preferred Stock Designation"). ARTICLE SIXTH. The Board may make, amend, and repeal the By-Laws of the Corporation. Any By-Law made by the Board under the powers conferred hereby may be amended or repealed by the Board (except as specified in any such By-Law so made or amended) or by the Corporation's stockholders in the manner provided in the By-Laws of the Corporation; provided, however, that notwithstanding anything in the By-Laws to the contrary, no provision of the By-Laws may be adopted, amended, altered or repealed by the holders of the Company's capital stock other than by the affirmative vote of the holders of three-fourths or more of the then outstanding shares of Voting Stock (defined below) voting together as a single class. The Corporation may in its By-Laws confer powers upon the Board in addition to the foregoing and in addition to the powers and authorities expressly conferred upon the Board by applicable law. For the purposes of this Third Amended and Restated Certificate of Incorporation, the term "Voting Stock" means stock of the Corporation of all classes and series entitled to vote generally in the election of directors and shall not include any class or series of preferred stock of the Corporation unless the certificate of designations, preferences and rights for such class or series shall specifically state that such class or series shall be deemed Voting Stock for purposes of this Article Sixth. Notwithstanding anything contained in this Third Amended and Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least three- 7 fourths of the Voting Stock, voting together as a single class, is required to amend or repeal, or to adopt any provisions inconsistent with, this Article Sixth. ARTICLE SEVENTH. The existence of the Corporation shall be perpetual. ARTICLE EIGHTH. Subject to the rights of holders of Preferred Stock: (a) any action required or permitted to be taken by the stockholders of the Corporation must be effected at duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing of such stockholders; and (b) special meetings of stockholders of the Corporation may be called only by (i) the Chairman of the Board (the "Chairman"), (ii) the Corporate Secretary of the Corporation (the "Secretary") within ten(10) calendar days after receipt of the written request of a majority of the total number of Directors that the Corporationwould have if there were no vacancies, provided, however, that the total number of Directors shall be determined without inclusion of Directors to be named by holders of Preferred Stock until such persons have been elected in accordance with the By-Laws of the Corporation (the "Whole Board"), and (iii) as provided in Section 2.3(b) of the By-Laws. At any annual meeting or special meeting of stockholders of the Corporation, only such business will be conducted or considered as has been brought before such meeting in the manner provided in the By-Laws of the Corporation. Notwithstanding anything contained in this Third Amended and Restated Certificate of Incorporation to the contrary, the affirmative vote of at least a majority of the Voting Stock, voting together as a single class, will be required to amend or repeal, or adopt any provision inconsistent with, this Article Eighth. ARTICLE NINTH. Section 1. Number, Election and Terms of Directors. The Board shall be reconstituted pursuant to the Plan of Reorganization and Section 303 of the GCL. Subject to the rights, if any, of the holders of Preferred Stock to elect additional Directors under circumstances specified in the Preferred Stock Designation, the number of Directors of the Corporation shall be fifteen (15). The Directors, other than those who may be elected by the holders of Preferred Stock, shall be classified with respect to the time for which they severally hold office into three (3) classes of five (5) Directors per class, designated Class I, Class II and Class III. Effective upon November 3, 1993, the following persons shall be Directors of the Corporation pursuant to the Confirmation Order and Section 303 of the GCL: in Class I, William R. Howard, Glenn R. Zander, Robert H. H. Wilson, Eugene Conese, Sr. and Lawrence K. Roos; in Class II, Gerald Gitner, Myron Kaplan, William O'Driscoll, William Compton and Victoria Frankovich; in Class III, James A. Lawrence, Thomas Meagher, Joseph Reddington, Donald Craib and Timothy Connolly. The Directors first appointed to Class I will hold office for a term expiring at the annual meeting of stockholders to be held in 1994; the Directors first appointed to Class II will hold office for a term expiring at the annual meeting of stockholders to be 8 held in 1995; and the Directors first appointed to Class III will hold offices for a term expiring at the annual meeting of stockholders to be held in 1996. The members of each such class will hold office until their successors are elected and qualified. The subsequent terms of service for all Directors will be three (3) years for the second term and one (1) year for each term thereafter for all Directors, regardless of their classification. Subject to the rights, if any, of the holders of Preferred Stock to elect additional Directors under circumstances specified in the Preferred Stock Designation, Directors may be elected by the stockholders only at an annual meeting of stockholders. Election of Directors need not be by written ballot unless requested by the Chairman or by the holders of a majority of the Voting Stock present in person or represented by proxy at a meeting of the stockholders at which Directors are to be elected. Section 2. Nomination of Director Candidates. Except as otherwise provided herein, advance notice of stockholder nominations for the election of Directors must be given in the manager provided in the By-Laws of the Corporation. The reconstituted Board of Directors, as set forth in Section 1 of this Article Ninth, was nominated as follows: the management of the Corporation nominated William R. Howard, Glenn R. Zander, and Robert H.H. Wilson as Directors in Class I; the Creditors' Committee (as hereinafter defined) nominated Eugene Conese, Sr. and Lawrence K. Roos as Directors in Class I, Gerald Gitner and Myron Kaplan as Directors in Class II and James A. Lawrence, Thomas Meagher, Joseph Reddington and Donald Craib as Directors in Class III; IAM (as hereinafter defined) nominated William O'Driscoll as a Director in Class II and Timothy Connolly as a Director in Class III; ALPA (as hereinafter defined) nominated William Compton as a Director in Class II; and IFFA nominated Victoria Frankovich as a Director in Class II. In connection with the first three annual elections of Directors following November 3, 1993, the Board will, at least seventy-five (75) calendar days prior to the date of the relevant election, request the continuing Directors who were nominated by the same Original Nominating Entity (as hereinafter defined) as the Director whose term is then expiring to nominate a person to succeed the retiring Director. If no such Directors remain, the Board will, at least seventy-five (75) calendar days prior to the date of the relevant election, request nomination of a person from such Original Nominating Entity. Such nomination shall be accompanied by the signed consent of the nominee to serve as Director of the Corporation if elected and information about the nominee as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, by the Board. Not more than five (5) business days after receipt of the nomination, the Board of Directors will advise the nominating Directors or the Original Nominating Entity, as the case may be, if the nominee is not acceptable. If such notice of unacceptability is given, the Directors or entity making the nomination will provide an additional nominee or nominees. A notice of unacceptability may be given by the Board of Directors only after obtaining an opinion of outside counsel stating that the acceptance of the relevant nominee would be a breach of fiduciary duty of the Board to the stockholders of the Corporation. If no notice of unacceptability is given, the nominee shall be deemed to be acceptable to the Board of Directors to fill the position of the vacating director. If a notice of unacceptability is given, the Original Nominating Entity or Directors, as the case may be, and the Board of Directors will, in good faith, repeat the foregoing procedures until an acceptable nominee if found. 9 Vacancies on the Board created by resignation, removal or otherwise and occurring prior to the third annual election of Directors and as to Directors elected at such third annual election shall be filled by a nominee of the remaining Directors who were nominated by the same Original Nominating Entity as the vacating Director. If no such Directors remain, the Board will request nomination of a person for the vacant directorship from the Original Nominating Entity which nominated the vacating Director. Promptly upon receipt of such name, the Board will advise the nominating Director or entity, as the case may be, if the nominee is not acceptable. If such notice of unacceptability is given, the Directors or entity making the nomination will provide an additional nominee or nominees. A notice of unacceptability may be given by the Board only after obtaining an opinion of outside counsel stating the acceptance of the relevant nominee would be a breach of fiduciary duty of the Board to the stockholders of the Corporation. If no notice of unacceptability is given, the nominee shall fill the position of the vacating Director. If a notice of unacceptability is given, the Original Nominating Entity or Directors, as the case may be, and the Board will, in good faith, repeat the foregoing procedures until an acceptable nominee is found. The following terms shall have the following meanings: "ALPA" mean the Air Line Pilots Association, International. "Creditors' Committee" means the Official Unsecured Creditors' Committee of the Corporation appointed by the Office of the United States Trustee pursuant to Section 1102 of the Bankruptcy Code in the bankruptcy case captioned In re Trans World Airlines, Inc. (Case No. 92-115) filed in the United States Bankruptcy Court for the District of Delaware. "IAM" means the International Association of Machinists and Aerospace Workers. "IFFA" means the Independent Federation of Flight Attendants. "Original Nominating Entity" means, as applicable, each of the management of the Corporation, ALPA, IAM, IFFA and the Creditors' Committee until dissolved and thereafter in lieu thereof, the Voting Trust. "Voting Trust" means the voting trust established pursuant to the Plan of Reorganization for holding shares of Common Stock. Section 3. Newly Created Directorships and Vacancies. Subject to the rights, if any, of the holders of Preferred Stock to elect additional Directors under circumstances specified in the Preferred Stock Designation, and subject to the provisions of Section 2 of this Article Ninth and Article III of the By-Laws regarding appointment of successor Directors, any vacancies on the Board resulting from death, resignation, disqualification, removal or other cause will be filed solely by the affirmative vote of a majority of the remaining Directors then in office, even though less than a quorum of the Board, or by a sole remaining Director. Any Director elected in accordance with the preceding sentence will hold office for the remainder of the full term of the class of Directors in which the vacancy occurred and 10 until such Director's successor has been elected and qualified. No decrease in the number of Directors constituting the Board may shorten the term of any incumbent Director. Section 4. Removal. Subject to the rights, if any, of the holders of Preferred Stock to elect additional Directors under circumstances specified in the Preferred Stock Designation, and Section 2 of this Article Ninth and Article III of the By-Laws, any Director may be removed from office by the stockholders only for cause and only in the manner provided in this Section 4. At any annual meeting or special meeting of the stockholders, the notice of which states that the removal of a Director or Directors is among the purposes of the meeting, the affirmative vote of the holders of at least a majority of the Voting Stock, voting together as a single class, may remove such Director or Directors for cause. Section 5. Meetings of Board. Except as otherwise provided herein, at all meetings of the Board, a majority of the Whole Board shall be required to constitute a quorum for the transaction of business. No action may be taken at a meeting at which a quorum is not present, except to vote to adjourn such meeting or fill a vacancy on the Board. Except as otherwise provided herein, no action shall be taken by the Corporation unless such action is authorized by the affirmative vote of a majority of the Directors in attendance at a meeting at which a quorum is present. Section 5. Amendment, Repeal, Etc. Notwithstanding anything contained in this Amended and Restated Certificate of Incorporation to the contrary, the affirmative vote of at least eighty percent (80%) of the Voting Stock, voting together as a single class, is required to amend or repeal, or adopt any provision inconsistent with, this Article Ninth. ARTICLE TENTH. To the full extent permitted by the GCL or any applicable law currently or hereinafter in effect, a Director of the Corporation shall not be personally liable either to the Corporation or to any stockholder for monetary damages for breach of fiduciary duty as a Director, except for liability of a Director (i) for any breach of the Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions which are not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for an act or omission for which the liability of such Director is expressly provided under the GCL or (iv) for any transaction from which the Director derived an improper personal benefit. Neither amendment nor repeal of this Article Tenth nor the adoption of any provision of this Third Amended and Restated Certificate of Incorporation inconsistent with this Article Tenth shall eliminate or reduce the effect of this Article Tenth in respect of any matter occurring or any cause of action, suit or claim that, but for this Article Tenth, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. This Article Tenth shall not eliminate or limit the personal liability of a Director for any act or omission occurring prior to the effective date hereof. No contact or transaction between the Corporation and one or more of its directors, officers, or stockholders or between the Corporation or any person (as used herein "person" means any other corporation, partnership, association, firm, trust, joint venture, political subdivision, or instrumentality) or other organization in which one or more of its directors, officers, or stockholders are directors, officers, or stockholders, or have a financial interest, shall be void or voidable solely for this reason, or 11 solely because the director or officer is present at or participates in the meeting of the Board or committee which authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose, if: (i) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or the committee, in good faith, authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors are less than a quorum; or (ii) the material facts as to his, her or their relationship or interest and as to the contact or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved, or ratified by the Board, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction. Any amendment or repeal of, or adoption of any provision inconsistent with, this Article Tenth will not adversely affect any right or protection existing hereunder, or arising out of facts occurring, prior to such amendment, repeal, or adoption, and no such amendment, repeal, or adoption will affect the legality, validity, or enforceability of any contact entered into or right granted prior to the effective date of such amendment, repeal, or adoption. ARTICLE ELEVENTH. The Corporation shall indemnity any person who was or is a party or is threatened to be made a party to, or testifies in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative in nature, by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding to the full extent permitted by law, and the Corporation may adopt By-Laws or enter into agreements with any such person for the purpose of providing for such indemnification. To the extent that a director or officer of the Corporation has been successful on the merits or otherwise (including without limitation settlement by nolo contendere) in defense of any action, suit or proceeding referred to in the immediately preceding paragraph, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. Expenses incurred by an officer, director, employee or agent in defending or testifying in a civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or office to repay such amount if it shall ultimately be determined that such director or officer is not entitled to be indemnified by the Corporation against such expenses as authorized by this Article Eleventh, and the Corporation may adopt By-Laws or enter into agreements with such persons for the purpose of providing for such advances. 12 The indemnification permitted by Article Eleventh shall not be deemed exclusive of any other rights to which any person may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding an office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, employee benefit plan trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article Eleventh or otherwise. If the GCL is amended to further expand the indemnification permitted to directors, officers, employees or agents of the Corporation, then the Corporation shall indemnify such persons to the fullest extent permitted by the GCL, as so amended. Nothing contained in this Third Amended and Restated Certificate of Incorporation shall be deemed to reinstate any obligation of the Corporation to indemnify any person or entity, which was otherwise released under or in connection with that certain Settlement Agreement, dated as of January 5, 1993 (the "Settlement Agreement") among Trans World Airlines, Inc., Official Unsecured Creditors' Committee of Trans World Airlines, Inc., Pension Benefit Guaranty Corporation, International Association of Machinists and Aerospace Workers, Independent Federation of Flight Attendants, Air Line Pilots Association, International, Transport Workers Union of America, Carl C. Icahn, The Icahn Entities (as set forth therein), and Pichin Corp., as the Icahn Sponsor or which was otherwise expressly released or discharged. ARTICLE TWELFTH. The Corporation reserves the right to amend, alter, change or repeal any provision of this Third Amended and Restated Certificate of Incorporation in the manner now or hereafter prescribed by statute or herein, and all rights conferred upon stockholders herein are granted subject to this reservation. ARTICLE THIRTEENTH. The affirmative vote of at least two-thirds of the Voting Stock of the Corporation, voting together as a single class, shall be necessary for the purpose of authorizing or effecting any of the following actions prior to September 1, 2000: (a) any merger or consolidation of the Corporation with or into any other entity; (b) any business combination within the meaning of Section 203 of the Delaware General Corporation Law; (c) any dissolution or liquidation of the Corporation; and (d) any repurchase, retirement or redemption of the Corporation's capital stock or other securities, issued after the effective date of this Article Thirteenth, prior to their scheduled maturity or expiration except for mandatory redemptions of any redeemable preferred stock of the Corporation and redemptions out of the proceeds of any substantially concurrent offering of comparable or junior securities unless such matter referred to in (a) through (d) shall have been 13 approved by a vote of at least eighty percent (80%) of the Board of Directors then in office in which event no vote by the holders of Voting Stock shall be required except to the extent otherwise required by this Certificate of Incorporation, by law or as the Board of Directors may recommend by the affirmative vote of a majority of the Board of Directors then in office. This Article Thirteenth will terminate on September 1, 2000. IN WITNESS WHEREOF, Jeffrey H. Erickson, a duly authorized representative of the Corporation, has signed this Third Amended and Restated Certificate of Incorporation on this, the 23rd day of May, 1996. TRANS WORLD AIRLINES, INC. By: /s/ Jeffrey H. Erickson ----------------------- Jeffrey H. Erickson Its: President and Chief Executive Officer ATTEST: By: /s/ Kathleen A. Soled --------------------- Kathleen A. Soled Its: Corporate Secretary [CORPORATE SEAL] 14 STATE OF MISSOURI ) ) SS COUNTY OF ST. LOUIS CITY ) The undersigned, a Notary Public in and for the aforesaid County and State, certifies that on this 23rd day of May, 1996, Jeffrey H. Erickson, the President and Chief Executive Officer of Trans World Airlines, Inc. (the "Corporation") and Kathleen A. Soled, Corporate Secretary of the Corporation, known to me personally to be such, duly executed the foregoing Certificate before me and acknowledged said Certificate to be their act and deed made on behalf of the Corporation, and acknowledged that the facts stated therein are true. The signatures on the attached Certificate of said President and Chief Executive Officer and Corporate Secretary of the Corporation are in the handwriting of said President and Chief Executive Officer and said Corporate Secretary, respectively, and the seal affixed to the Certificate is the corporate seal of the Corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal of office this 23rd day of May, 1996. /s/ Barbara A. Creely - ----------------------------- Notary Public Barbara A. Creely, Notary Public (Notarial Seal) St. Louis County, State of Missouri My Commission Expires 6/30/97 15 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS RELATING TO THE IAM PREFERRED STOCK OF TRANS WORLD AIRLINES, INC. The undersigned, Robert Peiser, Executive Vice President and Chief Financial Officer of Trans World Airlines, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), does hereby certify on behalf of the Corporation: FIRST: The name of the Corporation is Trans World Airlines, Inc. SECOND: The Restated Certificate of Incorporation of the Corporation was filed in the Office of the Secretary of State of the State of Delaware on November 3, 1993, and amended and restated pursuant to the Amended and Restated Certificate of Incorporation of Trans World Airlines, Inc. filed in the Office of the Secretary of State of the State of Delaware, and effective on August 23, 1995 (as so amended, such Restated Certificate of Incorporation hereinafter referred to as the "Certificate of Incorporation"). THIRD: Pursuant to the provisions of Section 151(g) of the General Corporation Law of the State of Delaware and Article Fifth, Section 4 of the Certificate of Incorporation, the Board of Directors of the Corporation (the "Board") adopted the following resolution: RESOLVED, that a series of preferred stock of the Corporation be and hereby is created (the "IAM Preferred Stock"), and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions thereof, are as follows: Section 1. Designation. The shares of such series shall be designated "IAM Preferred Stock." Section 2. Number of Shares. The number of shares constituting the IAM Preferred Stock shall be Three Million Eight Hundred Twenty-One Thousand Four Hundred and Seventy-Three (3,821,473). Section 3. Par Value. The IAM Preferred Stock shall have a stated par value of $.01 per share. Section 4. Rank. (a) Other than the Liquidation Preference described in Section 6 hereof, the IAM Preferred Stock shall, with respect to dividend rights and rights upon any liquidation, dissolution or winding 16 up of the Corporation, rank on a parity with the common stock of the Corporation, par value $.01 per share (the "Common Stock"). (b) All equity securities of the Corporation as to which the IAM Preferred Stock may rank prior with respect to dividends and upon liquidation, dissolution, winding up or otherwise are collectively referred to herein as the "Junior Securities;" all equity securities of the Corporation as to which the IAM Preferred Stock may rank on a parity as to any one of dividends or upon liquidation, dissolution, winding up or otherwise and does not rank senior as to any of the same are collectively referred to herein as the "Parity Securities;" and all equity securities of the Corporation as to which the IAM Preferred Stock may rank junior, whether with respect to dividends or upon liquidation, dissolution, winding up or otherwise, are collectively referred to herein as the "Senior Securities." The IAM Preferred Stock shall be subject to the creation of Junior Securities, Parity Securities and Senior Securities. (c) In the event of a stock split effected in the form of a dividend, reverse stock split, recapitalization or similar fundamental change in the rights or number of shares of the Common Stock, an equitably similar change shall be effected in the IAM Preferred Stock to the end of maintaining the IAM Preferred Stock as the functional equivalent of Common Stock on a share per share basis except with respect to (i) the Liquidation Preference described in Section 6 hereof and (ii) the right of the holders of IAM Preferred Stock to elect directors to the Board as provided in Section 7 hereof. Section 5. Dividends. Subject to the rights of holders of Senior Securities, the holders of the IAM Preferred Stock shall be entitled to receive, when, as and if declared by the Board, out of funds legally available therefor, dividends payable in cash, stock or otherwise. No dividend shall be paid on the Common Stock unless an equivalent dividend is paid on the IAM Preferred Stock, which dividend shall be in the same amount per share and in the same medium as that paid on the Common Stock; provided, however, that stock dividends declared on the Common Stock and -------- ------- the IAM Preferred Stock shall be payable in shares of Common Stock and IAM Preferred Stock, respectively. Section 6. Liquidation Preference. Subject to the rights of holders of Senior Securities, upon any 17 liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of IAM Preferred Stock shall be entitled to and be paid the sum of $.01 per share from the net assets of the Corporation (the "Liquidation Preference") before any amounts are paid to or on account of the holders of Common Stock, and thereafter the remaining net assets of the Corporation shall be distributed pro rata to the holders of the IAM Preferred Stock, the Common Stock and such other equity securities of the Corporation which rank on a parity with such stock with respect to such rights, all in accordance with their respective rights and interests. Section 7. Voting Rights. The holders of the IAM Preferred Stock shall have the following voting rights: (a) The holders of the IAM Preferred Stock shall be entitled to one vote for each share of IAM Preferred Stock held of record by such holder as of the record date for a meeting of the Corporation's stockholders (i) on each matter submitted to a vote at such meeting other than the election of directors and (ii) for each of the directors to be elected by the holders of IAM Preferred Stock at an annual meeting of the Corporation's stockholders pursuant to this Section 7. (b) So long as any shares of IAM Preferred Stock are outstanding and in accordance with Article Ninth of the Certificate of Incorporation, the holders of the IAM Preferred Stock shall have the following rights with respect to the election of directors; (i) the exclusive right to elect to the Board two (2) directors (each such director, an "IAM Director"), one of which shall be a Class II director and one of which shall be a Class III director; and (ii) in the event that the IAM Directors, together with the aggregate number of directors elected by the holders of the shares of the Corporation's two series of preferred stock designated "ALPA Preferred Stock" and "IFFA Preferred Stock," respectively, shall be fewer than twenty-two and one-half percent (22.5%) of the total number of directors comprising the Board, then the holders of the IAM Preferred Stock, ALPA Preferred Stock and IFFA Preferred Stock voting as a single class shall have the right to elect additional directors to the Board so that the 18 aggregate number of directors elected by the holders of the IAM Preferred Stock, ALPA Preferred Stock and IFFA Preferred Stock shall constitute at least 22.5% of the total number of directors comprising the Board. (c) At each meeting of stockholders at which the holders of the IAM Preferred Stock shall have the exclusive right to elect IAM Directors as provided in paragraph (b) of this Section 7, the presence in person or by proxy of the holders of record of one-third (1/3) of the total number of shares of the IAM Preferred Stock then outstanding shall be necessary and sufficient to constitute a quorum of such series for such election by such stockholders as a series. At any such meeting or adjournment thereof: (i) The absence of a quorum of the holders of IAM Preferred Stock shall not prevent the election of directors other than the IAM Directors, and the absence of a quorum of the holders of any other class or series of stock for the election of such other directors shall not prevent the election of the IAM Directors; and (ii) In the absence of either or both such quorums, a majority of the holders present in person or by proxy of the class or series which lack a quorum shall have the power to adjourn for a period of up to thirty (30) days the meeting for election of directors which they are entitled to elect from time to time without notice other than announcement at the meeting until a quorum shall be present. (d) Subject to Article Ninth of the Certificate of Incorporation, any vacancies on the Board resulting from the death, resignation, disqualification, or removal of any IAM Director shall be filled only by a vote of the holders of the IAM Preferred Stock. (e) The IAM Preferred Stock shall be deemed "Voting Stock" for purposes of the Certificate of Incorporation. Section 8. Conversion. Each share of IAM Preferred Stock shall automatically convert into one share of Common Stock upon the withdrawal of such share of IAM Preferred Stock from the trust in which such stock is held. The certificate or certificates for shares of IAM Preferred 19 Stock so converted may be surrendered to any transfer agent of the Corporation for such IAM Preferred Stock, duly endorsed in blank for transfer. As soon as practicable after the surrender of such certificate or certificates as provided above, the Corporation shall cause to be issued and delivered, at the office of such transfer agent, to or on the order of the holder of the certificates thus surrendered, a certificate or certificates for the number of shares of Common Stock issuable hereunder upon the conversion of such shares of IAM Preferred Stock. Section 9. Amendment. This Certificate of Designations, Preferences and Rights relating to the IAM Preferred Stock (the "Certificate of Designations") may be amended only upon the unanimous approval of the holders of record of the outstanding shares of IAM Preferred Stock. This Certificate of Designations, Preferences and Rights shall be effective as of August 23, 1995. IN WITNESS WHEREOF, the undersigned has executed this Certificate of Designations and does affirm the foregoing as true under the penalties of perjury this [ ] day of August, 1995. TRANS WORLD AIRLINES, INC. By: /s/ Robert Peiser ----------------- Robert Peiser Its: Executive Vice President and Chief Financial Officer ATTEST: By: /s/ Kathleen A. Soled --------------------- Kathleen A. Soled Its: Secretary [CORPORATE SEAL] 20 STATE OF MISSOURI ) ) SS. COUNTY OF ST. LOUIS ) The undersigned, a Notary Public in and for the aforesaid County and State, certifies that on this ____ day of August, 1995, Robert Peiser, the Executive Vice President and Chief Financial Officer of Trans World Airlines, Inc. (the "Corporation") and Kathleen A. Soled, Secretary of the Corporation, known to me personally to be such, duly executed the foregoing Certificate before me and acknowledged said Certificate to be their act and deed made on behalf of the Corporation, and acknowledged that the facts stated therein are true. The signatures on the attached Certificate of said Chief Financial Officer and said Secretary of the Corporation are in the handwriting of said Chief Financial Officer and said Secretary, respectively, and the seal affixed to the Certificate is the corporate seal of the Corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal of office this 17 day of August, 1995. /s/ Kristine R. Wall -------------------- Notary Public (Notarial Seal) Kristine R. Wall Notary Public-Notary Seal State of Missouri St. Louis County My Commission Expires: August 29, 1997 21 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS RELATING TO THE 8% CUMULATIVE CONVERTIBLE EXCHANGEABLE PREFERRED STOCK OF TRANS WORLD AIRLINES, INC. The undersigned, Jeffrey H. Erickson, President and Chief Executive Officer of Trans World Airlines, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), does hereby certify on behalf of the Corporation: FIRST: The name of the Corporation is Trans World Airlines, Inc. SECOND: The Restated Certificate of Incorporation of the Corporation was filed in the Office of the Secretary of State of the State of Delaware on November 3, 1993, as amended pursuant to the Amended and Restated Certificate of Incorporation filed in the Office of the Secretary of State of the State of Delaware on August 21, 1995 and effective as of August 23, 1995, as further amended and restated pursuant to the Second Amended and Restated Certificate of Incorporation filed in the Office of the Secretary of State of the State of Delaware on November 21, 1995 (as so amended, such Second Amended and Restated Certificate of Incorporation is hereinafter referred to as the "Certificate of Incorporation"). THIRD: Pursuant to the provisions of Sections 141 and 151 of the General Corporation Law of the State of Delaware and Article Fifth, Section 4 of the Certificate of Incorporation, the Board of Directors of the Corporation (the "Board of Directors" or the "Board"), acting at a meeting duly convened and held on March 7, 1996, at which a quorum was at all times present and voting, adopted resolutions, which are in full force and effect and are not in conflict with any provisions of the Corporation's Certificate of Incorporation or Amended and Restated By-laws (the "By-laws"), which resolutions provided for the issuance of a series of the Corporation's preferred stock and conferred on a special committee of the Board (the "Pricing Committee") the full authority of the Board to fix the final number, terms, designations, relative rights, preferences and limitations of such stock. FOURTH: The Pricing Committee at meetings duly called and held on March 18, 1996 and March 21, 1996, at which a quorum was at all times present and voting, fixed the final number, terms, designations, relative rights, preferences and limitations of such stock as follows: Section 1. Designation and Par Value. Four Million Twenty Five Thousand (4,025,000) shares of the preferred stock of the Corporation are hereby constituted as a series of the preferred stock and designated as "8% Cumulative Convertible Exchangeable Preferred Stock" (the "8% Preferred Stock"). Stated Capital. The amount to be represented in stated capital at all times for each share of 8% Preferred Stock shall be $.01. Section 2. Cash Dividends. The holders of 8% Preferred Stock shall be entitled to receive when, as and if declared by the Board of Directors out of funds legally available therefor, 22 cash dividends, at the annual rate of 8% per annum per share (equivalent to $ 4.00 per share per annum), and no more, which shall be fully cumulative and shall accrue without interest from the date of original issuance. Dividends and liquidated damages, if any, payable pursuant to the Registration Rights Agreement dated March 22, 1996 among the Corporation, PaineWebber Incorporated and Alex. Brown & Sons Incorporated, as it may be amended from time to time (the "Liquidated Damages"), if any, shall be paid quarterly in arrears on March 15, June 15, September 15, and December 15 of each year (each such date being referred to herein as a "Dividend Payment Date"), commencing with June 15, 1996 (and in the case of any accrued but unpaid dividends, at such additional times and for such interim periods, if any, as determined by the Board of Directors) to the holders of record as they appear on the stock books of the transfer agent for the Corporation (the "Transfer Agent") on such record dates, which shall be not more than 30 days nor less than 10 days preceding the Dividend Payment Dates, as fixed by the Board of Directors (the "8% Preferred Record Date"), provided that holders of shares of 8% Preferred Stock called for redemption on a redemption date falling between a 8% Preferred Record Date and the Dividend Payment Date shall, in lieu of receiving such dividend payment and Liquidated Damages, if any, on the Dividend Payment Date fixed therefore, receive such dividend payment together with all other accrued and unpaid dividends and Liquidated Damages, if any, on the date fixed for redemption (unless such holders convert such shares in accordance with the terms hereof, in which case such holders shall receive such payment on the corresponding Dividend Payment Date). The amount of dividends payable per share of 8% Preferred Stock for each quarterly dividend period shall be computed by dividing the annual dividend amount per share by four. The amount of dividends payable for the initial dividend period and dividends payable for any other period that is shorter or longer than a full quarterly dividend period shall be computed on the basis of a 360-day year of twelve 30-day months. Holders of shares of 8% Preferred Stock shall not be entitled to receive any dividends, whether payable in cash, property or stock, which are in excess of the cumulative dividends provided for herein. In the case of the original issuance of shares of 8% Preferred Stock, such dividends shall be cumulative from the date of first issuance of the 8% Preferred Stock (the "Issue Date"). In the case of shares of 8% Preferred Stock issued in exchange for issued shares, such dividends shall be cumulative from the Dividend Payment Date next preceding the date of issue of such shares to which dividends have been paid, unless the date of issue is a Dividend Payment Date or is a date after the date fixed as the 8% Preferred Stock Record Date and before the Dividend Payment Date relating thereto, in either of which events such dividends shall be cumulative from such Dividend Payment Date; provided, however, that, if dividends shall not be paid to that Dividend Payment Date, then dividends shall be cumulative from the Dividend Payment Date to which dividends have been paid or from the Issue Date if no dividends have been paid. Accumulations of dividends shall not bear interest. So long as any shares of 8% Preferred Stock are outstanding, the Corporation shall not declare or pay or set apart for payment any dividends (other than dividends paid solely in Common Stock (as defined in Section 7) or other stock ranking junior as to dividends and distributions upon Liquidation (as defined in Section 3) to the 8% Preferred Stock and rights to acquire the foregoing) payable in cash, evidences of indebtedness, assets or other property, or stock of the Corporation ranking on a parity with or senior to the 8% Preferred Stock as to dividends and/or distributions upon Liquidation, or make any other distribution on or in respect of, Common Stock or any series of preferred stock or any other class or series of stock of the 23 Corporation ranking on a parity with or junior to the 8% Preferred Stock as to dividends, or redeem, purchase or otherwise acquire for any consideration, any shares of Common Stock or any series of preferred stock or any other class or series of stock of the Corporation ranking on a parity with or junior to the 8% Preferred Stock as to dividends (except (i) for repurchases from employees under and in accordance with the terms of the Corporation's employee benefit plans in existence on the Issue Date and (ii) conversions into or exchanges for stock of the Corporation ranking junior to the 8% Preferred Stock as to dividends and distributions upon Liquidation), unless the Corporation has paid, or at the same time pays or provides for the payment of, all accrued and unpaid dividends on and Liquidated Damages, if any, as to, the 8 % Preferred Stock; provided however, that the Corporation may pay less than the amount of all accrued and unpaid dividends on any class or series of stock of the Corporation ranking on a parity with the 8% Preferred Stock as to dividends if such payment is made ratably in accordance with respective accrued and unpaid dividends on the 8% Preferred Stock and such class or series of stock ranking on a parity with the 8% Preferred Stock as to dividends. The 8% Preferred Stock shall rank senior as to payment of dividends to the Corporation's Common Stock, the ALPA Preferred Stock, par value $.01 per share (the "ALPA Preferred Stock"), the IFFA Preferred Stock, par value $.01 per share (the "IFFA Preferred Stock"), the IAM Preferred Stock, par value $.01 per share (collectively with the ALPA Preferred Stock and the IFFA Preferred Stock, the "Employee Preferred Stock"), the Corporation's Series A Participating Cumulative Preferred Stock, par value $.01 per share (the "Series A Preferred Stock") and any other class or series of stock of the Corporation which are not by their terms expressly made senior, or on a parity as to dividends to the 8% Preferred Stock. The 8% Preferred Stock shall rank on a parity as to dividends with any preferred stock and any other class or series of stock, the terms of which expressly provide that it ranks on a parity with the 8% Preferred Stock as to dividends. The 8% Preferred Stock shall rank junior as to payment of dividends to the 12% Cumulative Preferred Stock of the Corporation, $.01 par value per share (the "12% Preferred Stock") and to any preferred stock and any other class or series of stock of the Corporation, the terms of which expressly provide that it ranks senior to the 8% Preferred Stock as to dividends. For purposes of the 8% Preferred Stock, the amount of dividends "accrued" on any share of stock of any class or series as of any date shall be deemed to be the amount of any unpaid dividends accumulated thereon to and including the date of such determination. The amount of dividends "accumulated" on any share of stock of any class or series shall be calculated as the amount of any unpaid dividends accrued thereon to and including the next preceding Dividend Payment Date, plus an amount calculated on the basis of the annual dividend rate fixed for the shares of such series for the period after such next preceding Dividend Payment Date to and including the date as of which the calculation is made. Section 3. Preference on Liquidation. In the event of the liquidation, dissolution or winding up of the Corporation (the "Liquidation"), and after provision is made for any preferential amounts to which the holders of any preferred stock ranking senior to the 8% Preferred Stock as to distributions upon Liquidation may be entitled, the holders of the 8% Preferred Stock shall be entitled to have paid to them out of the assets of the Corporation available for distribution to stockholders, before any distribution is made to or set apart for the holders of shares of Common Stock, Employee Preferred Stock, Series A Preferred Stock or 24 other securities ranking junior to the 8% Preferred Stock in respect of distributions upon Liquidation, an amount equal to $50.00 per share plus all accrued and unpaid dividends thereon whether or not declared, and Liquidated Damages, if any, with respect thereto, to the date of Liquidation (the "Liquidation Preference"). After payment to holders of 8% Preferred Stock of the full preferential amount as aforesaid, holders of 8% Preferred Stock shall, as such, have no right or claim to any of the remaining assets of the Corporation. If, upon any Liquidation, the assets of the Corporation or proceeds thereof distributable among the holders of shares of 8% Preferred Stock and of any class or series of stock ranking on a parity with the 8% Preferred Stock as to distributions upon Liquidation shall be insufficient to permit the payment in full of the 8% Preferred Liquidation Preference for each share of 8% Preferred Stock then outstanding and the full liquidating payments on all securities ranking on a parity with the 8% Preferred Stock as to distributions upon Liquidation, then such assets or proceeds thereof shall be distributed among such holders ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. The 8% Preferred Stock shall rank junior as to distributions upon Liquidation to the 12% Preferred Stock, and to any preferred stock and any other class or series of stock of the Corporation the terms of which expressly provide that it ranks senior as to distributions upon Liquidation to the 8% Preferred Stock. The 8% Preferred Stock shall rank on a parity as to distributions upon Liquidation to any preferred stock and any class or series of stock of the Corporation the terms of which expressly provide that it ranks on a parity as to distributions upon Liquidation with the 8% Preferred Stock. The 8% Preferred Stock shall rank senior as to distributions upon Liquidation to the Common Stock, the Employee Preferred Stock, the Series A Preferred Stock and any other class or series of stock of the Corporation the terms of which expressly provide that it ranks junior as to distributions upon Liquidation to the 8% Preferred Stock. For purposes of this Certificate, the voluntary sale, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all the property or assets of the Corporation to, or a consolidation, merger or other business combination of the Corporation with or into, one or more corporations shall not be deemed to be a Liquidation. Section 4. Voting. The holders of the 8% Preferred Stock shall have the following voting rights: (a) Except as herein provided or as otherwise required by law, holders of 8% Preferred Stock shall have no voting rights. (b)(i) In the event that the equivalent of six quarterly dividends payable on the 8% Preferred Stock are accrued and unpaid (whether or not consecutive and whether or not earned or declared) the holders of the 8% Preferred Stock and any stock ranking on a parity as to dividends with the shares of 8% Preferred Stock and having similar voting rights then exercisable shall be entitled, voting separately as a class without regard to series, to elect two directors to the Corporation's Board of Directors (the "8% Preferred Directors") (but not any other directors). In exercising any such vote, each outstanding 25 share of 8% Preferred Stock shall be entitled to one vote, excluding shares held by the Corporation or any entity controlled by the Corporation, which shares shall have no vote. If then permitted by the Certificate of Incorporation and By-laws, whenever the power to elect the 8% Preferred Directors has vested in the holders of the 8% Preferred Stock, the size of the Board of Directors shall be increased by two additional directors during such times as holders of 8% Preferred Stock have such right to elect the 8% Preferred Directors. If not then permitted by the Certificate of Incorporation and By-laws, the size of the Board of Directors shall not be increased, and up to two of the members of the Board whose terms expire at the next scheduled meeting of the Corporation's stockholders will not stand for re-election to permit the 8% Preferred Directors to be elected. (ii) Whenever any such right of the holders of 8% Preferred Stock shall have vested, such right may be exercised initially either at (A) the next annual meeting of the Corporation's stockholders held for the purpose of electing directors or (B) if then permitted by the Certificate of Incorporation and the By-laws, at the next special meeting of the Corporation's stockholders, and thereafter at each subsequent annual meeting of the Corporation's stockholders or by the written consent of such holders pursuant to Section 228 of the General Corporation Law of the State of Delaware. The right of holders of 8% Preferred Stock, voting separately as a class without regard to series, to elect the 8% Preferred Directors as aforesaid shall continue until such time as all dividends accumulated and unpaid on all shares of the 8% Preferred Stock shall have been paid in full or declared and funds set aside in trust for payment in full, at which time such right shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned. (iii) At any time when the power to elect the 8% Preferred Directors shall have vested in the holders of 8% Preferred Stock as provided in the preceding paragraph, the proper officer of the Corporation shall, if then permitted by the Certificate of Incorporation and By-laws, upon the written request of the holders of record of at least 25% of the then outstanding voting power of shares of the 8% Preferred Stock, addressed to the Secretary of the Corporation, call a special meeting of the holders of 8% Preferred Stock for the purpose of electing the 8% Preferred Directors. Such meeting shall be held at the earliest practicable date upon the notice required for special meetings of stockholders at the place for holding annual meetings of stockholders of the Corporation or, if none, at a place designated by the Secretary of the Corporation. If such meeting shall not be called by the proper officer of the Corporation within twenty days after personal service of such written request upon the Secretary of the Corporation, or within twenty days of mailing the same within the United States of America, by registered mail addressed to the Secretary of the Corporation at its principal office, then the holders of record of at least 25% of the then outstanding voting power of shares of 8% Preferred Stock may designate in writing any person to call such meeting at the expense of the Corporation, and such meeting may be called by such person so designated by giving the notice required for special meetings of stockholders and shall be held at the same place as is elsewhere provided in this paragraph, provided, however, that in any case, in the event of a vacancy in the directors elected by the 8% Preferred Stock as provided in 26 subsection (vi) to this Section 4, the holders of the 8% Preferred Stock shall be entitled to request a special meeting, and the Corporation shall call such special meeting according to the procedures described above. Any holder of 8% Preferred Stock so designated shall have access to the stock books of the Transfer Agent for the purpose of causing meetings of stockholders to be called pursuant to these provisions. Notwithstanding the provisions of this paragraph, no such special meeting shall be called during the period within ninety days immediately preceding the date fixed for the next annual meeting of stockholders of the Corporation. (iv) At each meeting of stockholders at which the holders of the 8% Preferred Stock shall have the exclusive right to elect 8% Preferred Directors as provided in paragraph (b) of this Section 4, the presence in person or by proxy of the holders of record of one- third (1/3) of the total number of shares of the 8% Preferred Stock then outstanding shall be necessary and sufficient to constitute a quorum of such series for such election by such stockholders as a series. At any such meeting or adjournment thereof: (A) the absence of a quorum of the holders of 8% Preferred Stock shall not prevent the election of directors other than the 8% Preferred Directors, and the absence of a quorum of the holders of any other class or series of stock for the election of such other directors shall not prevent the election of the 8% Preferred Directors; and (B) in the absence of either or both such quorums, a majority of the holders present in person or by proxy of the class or series which lack a quorum shall have the power to adjourn for a period of up to thirty (30) days the meeting for election of directors which they are entitled to elect from time to time without notice other than announcement at the meeting until a quorum shall be present. (v) The 8% Preferred Stock shall not be deemed "Voting Stock" for purposes of the Certificate of Incorporation. (vi) During any period when the holders of 8% Preferred Stock have the right to vote separately as a class for the 8% Preferred Directors as provided in subsection (b) hereof, (1) the 8% Preferred Directors so elected shall continue in office until the next succeeding annual meeting and until their successors, if any, are elected by such holders and qualify or, until termination of the right of the holders of the 8% Preferred Stock to vote separately as a class for directors as provided in subsection (b) hereof and (2) vacancies in the directors elected by the 8% Preferred Stock shall be filled only by the remaining 8% Preferred Director theretofore elected by the holders of 8% Preferred Stock which elected the director whose office shall have become vacant or if there be no such remaining director, directors to fill such vacancies shall be elected by the holders of the 8% Preferred Stock at a special meeting called pursuant to the provisions of subsection (b) hereof. Immediately upon any termination of the right of the holders of 8% Preferred Stock to vote separately as a class for 8% Preferred Directors as provided in subsection (b) hereof, the term of office of the directors then in office so elected by the holders of 8% Preferred Stock shall terminate. Whenever the term of office of the 8% Preferred Directors so elected by the holders of 8% Preferred Stock shall terminate, the special voting power vested in the holders of 8% Preferred Stock as provided in subsection (b) hereof shall terminate. (vii) So long as any shares of the 8% Preferred Stock remain outstanding in addition to any other vote required by law, without the consent of the holders representing at least a majority of the then outstanding shares of 8% Preferred Stock, voting as a class, the Corporation may not, (A) create or issue or increase the authorized 27 number of shares of any class or series of stock ranking senior to the 8% Preferred Stock either as to dividends or distributions upon Liquidation or any security convertible into or exercisable or exchangeable for, such stock, (B) amend, alter or repeal any of the provisions of this Certificate of Designations or any other provision of the Certificate of Incorporation so as to affect adversely any right, preference, privilege or voting power of the 8% Preferred Stock or the holders thereof, provided, that any change in the form of Debenture Indenture (as defined in Section 9(a) herein), prior to the exchange contemplated by Section 9, other than a change permitted by Section 9(d), shall be deemed to affect adversely such rights, preferences or voting powers, or (C) authorize any reclassification of the 8% Preferred Stock by merger or otherwise; provided, however, that any increase in the amount of authorized shares of such series or of any other series of preferred stock, in each case ranking on a parity with or junior to the 8% Preferred Stock as to dividends and distributions upon Liquidation shall not be deemed to affect adversely such rights, preferences or voting powers. Section 5. Redemption. The 8% Preferred Stock may not be redeemed by the Corporation prior to March 15, 1999. The Corporation at its option may redeem outstanding shares of 8% Preferred Stock out of funds legally available for that purpose in whole or in part, at any time on or after March 15, 1999, at the redemption prices per share set forth below in effect on the date fixed for redemption (the "Redemption Date") at a redemption price (the "Redemption Price") during the period beginning on March 15 of the years shown below plus an amount equal to the dividends accrued and unpaid on the shares of 8% Preferred Stock to be redeemed, whether or not earned or declared, and Liquidated Damages, if any, to the Redemption Date:
Year Redemption Price Per Share ---- -------------------------- 1999 $52.80 2000 52.40 2001 52.00 2002 51.60 2003 51.20 2004 50.80 2005 50.40 2006 and thereafter 50.00
Section 6. Redemption Procedure. (a)(i) In the event the Corporation shall redeem shares of 8% Preferred Stock, the Corporation shall cause a notice to be mailed, first-class postage prepaid, or by any other equitable method determined by the Board of Directors in its sole discretion, at least 30 days but not more than 60 days, prior to the date fixed for redemption, to each holder of record of shares of 8% Preferred Stock to be redeemed. Such notice shall be mailed to such record holders at their respective addresses as they shall appear upon the stock books of the Transfer Agent. Each such notice shall state: (i) the Redemption Date; (ii) the number of shares of 8% Preferred Stock to be redeemed and, if less than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the Redemption Price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the Redemption Price; (v) that payment shall be made upon presentation and surrender of such 8% Preferred Stock; (vi) the then current Conversion Price and the Conversion Termination Date (as such terms are defined in Section 7(b)); (vii) that dividends on and Liquidated Damages, if any, with respect to, the shares to be 28 redeemed shall cease to accrue following such Redemption Date; (viii) that such redemption is at the option of the Corporation; and (ix) that dividends accrued to and including the Redemption Date, as well as Liquidated Damages, if any, shall be paid as specified in said notice. Notice having been mailed as aforesaid, on and after the Redemption Date, unless the Corporation shall be in default in providing money for the payment of the Redemption Price plus an amount equal to any accrued and unpaid dividends and Liquidated Damages, if any, to and including the Redemption Date, (x) dividends on and Liquidated Damages, if any, with respect to, the shares of 8% Preferred Stock so called for redemption shall cease to accrue, (y) said shares shall be deemed no longer outstanding, and (z) all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the monies payable upon redemption, without interest thereon, upon surrender of the certificates evidencing such shares) shall cease. The Corporation's obligation to provide monies in accordance with the preceding sentence shall be deemed fulfilled if, on or before the Redemption Date, the Corporation shall deposit with a bank or trust company having capital and surplus of at least $500,000,000, in trust for the account of the holders of the shares so called for redemption, funds in an amount equal to the Redemption Price, plus all accrued and unpaid dividends and Liquidated Damages, if any, applicable to the shares to be redeemed to and including the Redemption Date, together with irrevocable instruments and authority to such bank or trust company to redeem such shares on and after the date of such deposit upon surrender of the certificates therefor, then upon the making of such deposit in trust the shares with respect to which such deposit shall have been made shall no longer be deemed to be outstanding. (ii) If such notice of redemption shall have been duly given and if no such deposit shall have been made, then upon the date fixed for redemption, unless default shall be made in providing funds at the time and place specified for the payment of the Redemption Price, the shares so called for redemption shall no longer be deemed to be outstanding, and all rights with respect to such shares shall forthwith terminate, except only the right to receive the Redemption Price, plus all accrued and unpaid dividends and Liquidated Damages, if any, without interest. If the Corporation shall default in providing such funds, the shares in respect of which the default was made shall continue to be outstanding. (b) Any interest accrued on funds so deposited in trust shall belong to the Corporation and be paid to it from time to time. All funds deposited in accordance with this Section 6 which shall remain unclaimed by the holders of shares called for redemption at the end of three years after the Redemption Date shall be returned by such bank or trust company to the Corporation, after which the holders of such shares shall look only to the Corporation for the payment of such unclaimed amounts, without interest. (c) In the event that fewer than all of the outstanding shares of 8% Preferred Stock are to be redeemed at any one time, the shares so to be redeemed shall be selected by lot or pro rata or by any other equitable manner determined by the Board of Directors in its discretion. In case fewer than all of the shares represented by any certificate are redeemed, a new certificate representing the unredeemed shares shall be issued to the surrendering holder at the expense of the Corporation. Section 7. Conversion. (a) Each share of 8% Preferred Stock may be converted, at any time and at the option of the holder, unless previously redeemed or exchanged, into fully paid, 29 non-assessable shares of Common Stock on and subject to the terms and conditions of this Section 7. (b) Shares of Common Stock are issuable upon conversion of each share of the 8% Preferred Stock at an initial conversion price of $20.269 per share of Common Stock (equivalent to a conversion rate of approximately 2.467 shares of Common Stock for each share of 8% Preferred Stock), subject to adjustment under certain circumstances (the "Conversion Price"); provided, however, that such Conversion Price shall be adjusted and readjusted from time to time as provided in this Section 7 and, as so adjusted and readjusted, shall remain in effect until a further adjustment or readjustment thereof is required by this Section 7. The right to convert 8% Preferred Stock called for redemption shall expire at the close of business on the fifth business day prior to the Redemption Date (the "Conversion Termination Date"). (c) Holders of shares of 8% Preferred Stock at the close of business on a 8% Preferred Record Date shall be entitled to receive the dividend and Liquidated Damages, if any, payable on or with respect to such shares on the corresponding Dividend Payment Date, notwithstanding the conversion thereof following the close of business on such 8% Preferred Record Date and prior to the close of business on such Dividend Payment Date. However, shares of 8% Preferred Stock surrendered for conversion during the period between the close of business on any 8% Preferred Record Date and the close of business on the corresponding Dividend Payment Date (except shares of 8% Preferred Stock called for redemption on a Redemption Date or with a Conversion Termination Date during such period) must be accompanied by payment of an amount equal to the dividend payment and Liquidated Damages, if any, to be received on such Dividend Payment Date with respect to such shares of 8% Preferred Stock presented for conversion; provided, however, that no such payment need be made if, at the time of conversion, dividends payable on the shares of 8% Preferred Stock outstanding shall be in arrears for more than 30 days beyond the previous Dividend Payment Date. Except as provided above, the Corporation shall make no payment or allowance for unpaid dividends, whether or not in arrears, on converted shares or for dividends on the shares of Common Stock issued upon such conversion. (d) Upon surrender to the Corporation at the office of the Transfer Agent or such other place or places, if any, as the Board of Directors may determine, of certificates duly endorsed to the Corporation, or in blank for shares of 8% Preferred Stock to be converted, together with appropriate evidence of the payment of any transfer or similar tax, if required, and written instructions to the Corporation requesting conversion of such shares and specifying the name and address of the person, corporation, firm or other entity to whom such shares of Common Stock are to be issued, the Corporation shall issue (i) the number of full shares of Common Stock issuable upon conversion thereof as of the date of such surrender, and as promptly as practicable thereafter shall deliver certificates for such shares of Common Stock and (ii) an amount of cash equal to any amount payable in lieu of a fractional share of Common Stock otherwise issuable upon conversion, as provided in this Section 7. Upon surrender of a certificate representing shares of 8% Preferred Stock to be converted in part, in addition to the foregoing, the Corporation shall also issue to such holder a new certificate representing any unconverted shares of 8% Preferred Stock represented by the certificate surrendered for conversion. (e) The Corporation shall pay all documentary, stamp or similar issue or transfer taxes due on the issue of shares of Common Stock issuable upon conversion of the 8% Preferred Stock; provided, however, that the holder of shares of 8% Preferred Stock so converted, and not the Corporation, shall pay any such tax which is due because such shares are to be issued in a 30 name other than that of the holder, and no delivery of certificates for such Common Stock shall be made unless and until there has been paid to the Corporation the amount of any such tax, or it shall have been established to the satisfaction of the Corporation that such tax has been or is not required to be paid. (f) The Conversion Price shall be adjusted from time to time by the Corporation as follows: (i) In case the Corporation shall (w) pay a dividend in shares of Common Stock to all holders of Common Stock, (x) make a distribution in shares of Common Stock to all holders of Common Stock, (y) subdivide its outstanding Common Stock into a greater number of shares, or (z) combine its outstanding Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior thereto shall be adjusted so that the holder of any 8% Preferred Stock thereafter surrendered for conversion shall receive that number of shares of Common Stock which would have been received upon consummation of such event by a holder of the number of shares of Common Stock into which such 8% Preferred Stock might have been converted immediately prior to such event. An adjustment made pursuant to this subsection (i) shall become effective immediately after the record date in the case of a dividend in shares or distribution and shall become effective immediately after the effective date in the case of subdivision or combination. (ii) In case the Corporation shall issue warrants, options or other rights to all or substantially all holders of its Common Stock entitling them (for a period commencing no earlier than the record date described below and expiring not more than 60 days after such record date) to subscribe for or purchase shares of Common Stock (or securities convertible into or exchangeable for Common Stock) at a price per share less that the Average Current Market Price per share (as defined in subsection (v) of this Section 7(f)) of Common Stock at the record date for the determination of stockholders entitled to receive such warrants, options or other rights, the Conversion Price in effect immediately prior thereto shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to such record date by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on such record date, plus the number of shares which the aggregate offering price of the total number of shares of Common Stock so offered (or the aggregate Conversion Price of the convertible or exchangeable securities so offered) would purchase at such Average Current Market Price, and of which the denominator shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock offered (or into which the convertible or exchangeable securities so offered are convertible or exchangeable for). Such adjustment shall be made successively whenever any such warrants, options or other rights are issued, and shall become effective immediately after such record date. If at the end of the period during which such warrants, options or other rights are exercisable, not all warrants, options or other rights shall have been exercised, the adjusted Conversion Price shall be immediately readjusted to what it would have been based upon the number of additional shares of Common Stock actually issued (or the number of shares of Common Stock issuable upon conversion of convertible securities or exchange of exchangeable securities actually issued). The Corporation shall not issue any warrants, options or other rights in respect of shares of Common Stock held in the treasury of the Corporation. 31 (iii) In case the Corporation shall distribute to all or substantially all holders of its Common Stock (A) any shares of capital stock of the Corporation (other than shares of the Company's Series A Preferred Stock upon exercise of the rights of holders of Common Stock and Employee Preferred Stock to purchase one one- hundredth of a share of Series A Preferred Stock), (B) evidences of indebtedness, (C) other non-cash assets (including securities of any corporation other than the Corporation), or (D) warrants, options or other rights to subscribe for or purchase any of its securities (excluding those referred to in subsection (ii) of this Section 7(f)), then in each such case the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date of such distribution by a fraction of which the numerator shall be the Average Current Market Price per share of Common Stock on the record date mentioned below less the fair market value on each such record date (as determined by the Board of Directors, whose determination shall be conclusive evidence of such fair market value) of the portion of the capital stock or assets or evidences of indebtedness so distributed or of such warrants, options or other rights applicable to one share of Common Stock (determined on the basis of the number of shares of Common Stock outstanding on the record date), and of which the denominator shall be the Average Current Market Price per share of the Common Stock on such record date. Such adjustment shall become effective immediately after the record date for the determination of stockholders entitled to receive such distribution. (iv) In case the Corporation shall, by dividend or otherwise, at any time distribute (a "Triggering Distribution") to all or substantially all holders of its Common Stock cash in an aggregate amount that, together with the aggregate amount of any other cash distributions to all or substantially all holders of its Common Stock made within the 12 months preceding the date of payment of the Triggering Distribution and in respect of which no Conversion Price adjustment pursuant to this Section 7(f) has been made, exceeds 20% of the Average Current Market Price per share of Common Stock on the Trading Day (as defined in subsection (v) below) (the "Determination Date") immediately preceding the day on which such Triggering Distribution is declared by the Corporation multiplied by the number of shares of Common Stock outstanding on such date (excluding shares held in the treasury of the Corporation), the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying such Conversion Price in effect immediately prior to the Determination Date by a fraction of which the numerator shall be the Average Current Market Price per share of the Common Stock on the Determination Date less the amount of cash so distributed within such 12 months (including, without limitation, the Triggering Distribution) applicable to one share of Common Stock (determined on the basis of the number of shares of Common Stock outstanding on the Determination Date) and the denominator shall be such Average Current Market Price per share of the Common Stock on the Determination Date, such reduction to become effective immediately prior to the opening of business on the day following the date on which the Triggering Distribution is paid. (v) For the purpose of any computation under subsections (ii), (iii) and (iv) of this Section 7(f), the "Average Current Market Price" per share of Common Stock on any date shall be deemed to be the average of the daily Closing Prices (as defined below) for the 30 consecutive Trading Days commencing 45 Trading Days before (x) the Determination Date with respect to distributions under subsection (iv) of this Section 32 7(f) or (y) the record date with respect to distributions, issuances or other events requiring such computation under subsection (ii) or (iii) of this Section 7(f). The "Closing Price" for each day shall be the last reported sales price, regular way, or, in case no such reported sale takes place on such date, the average of the reported closing bid and asked prices, regular way, in either case on the American Stock Exchange, or, if the Common Stock is not listed or admitted to trading on the American Stock Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, the closing sales price, regular way, of the Common Stock as quoted by National Association of Securities Dealers Automated Quotation System ("NASDAQ") or, in case no reported sales takes place, the average of the closing bid and asked prices, regular way, as quoted by NASDAQ or any comparable system or, if the Common Stock is not quoted on NASDAQ or any comparable system, the closing sales price, regular way, or, in case no reported sale takes place, the average of the closing bid and asked prices, regular way, as furnished by any two members of the National Association of Securities Dealers, Inc. selected from time to time by the Corporation for that purpose. The Average Current Market Price of Common Stock will be appropriately and equitably adjusted to reflect the effects of any stock dividend, stock split, reclassification, recapitalization, combination or distribution of assets, securities or other property (other than ordinary course cash dividends) to holders of Common Stock by the Corporation affecting the Common Stock, the record date, ex- dividend date or similar date of which occurs during the period in which the Average Current Market Price is to be determined. "Trading Day" means, with respect to any security, each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day on which securities are not generally traded on the exchange or market in which such security is traded. Issuances of options and securities convertible into Common Stock are deemed to be issuances of the underlying Common Stock for purposes of adjustments to the Conversion Price. (vi) In any case in which this Section 7(f) shall require that an adjustment be made following a record date or a Determination Date, as the case may be, established for purposes of this Section 7(f), the Corporation may elect to defer (but only until five Trading Days following the filing by the Corporation with the Transfer Agent of the certificate described in Section 7(j)) issuing to the holder of any 8% Preferred Stock converted after such record date or Determination Date the shares of Common Stock and other capital stock of the Corporation issuable upon such conversion over and above the shares of Common Stock and other capital stock of the Corporation issuable upon such conversion only on the basis of the Conversion Price prior to adjustment; and, in lieu of the shares the issuance of which is so deferred, the Corporation shall issue or cause its Transfer Agent to issue due bills or other appropriate evidence prepared by the Corporation of the right to receive such shares. (g) No adjustment in the Conversion Price need be made unless the adjustment would require an increase or decrease of at least 1% in the Conversion Price; provided, however, that any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 7 shall be made to the nearest cent or to the nearest one hundredth (1/100th) of a share. (h) The Corporation shall not be required to issue fractional shares of Common Stock upon conversion of shares of the 8% Preferred Stock. If more than one share of the 8% Preferred 33 Stock shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares so surrendered. If any fractional interest in a share of Common Stock would be deliverable upon the conversion of any shares, the Corporation shall, in lieu of delivering the fractional share therefor, make a cash payment in respect of such fraction in an amount equal to the same fraction of the Closing Price of one share of the Common Stock of the Corporation on the last Trading Day before the date of conversion. (i) No adjustment need be made for a change in the par value of the Common Stock. (j) In the event: (a) of the occurrence of any of the events referred to in subsections (i), (ii) (iii) or (iv) of Section 7(f) and in Section 7(k) which would require an adjustment in the Conversion Price under any such subsection (including an adjustment of less than 1%); or (b) of the Liquidation of the Corporation; then the Corporation shall file at its principal office and cause to be mailed to any Transfer Agent for the 8% Preferred Stock and Common Stock and to the holders of record of the outstanding shares of 8% Preferred Stock at least twenty days prior to the applicable date hereinafter specified, a certificate signed by the President or Chief Financial Officer of the Corporation describing the event and stating the effect, if any, that such event shall have upon the Conversion Price, including a reasonably detailed description of the method of the recalculation of the Conversion Price, and (i) the date on which a record is to be taken for the purpose of any such distribution referred to in Sections (i), (ii) or (iii) of Section 7(f), or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such distribution are to be determined, or (ii) the date on which any such subdivision, combination or other capital reorganization or reclassification, consolidation, change, merger or transfer or sale of assets referred to in subsection (i) of Section 7(f) or Section 7(k) or such Liquidation is expected to become effective. (k) Subject to the applicable right of the holders of 8% Preferred Stock upon a Change in Control (as defined in Section 8(e) hereto), (a) in case of any reclassification, reorganization or other change of shares of Common Stock issuable upon conversion of the 8% Preferred Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination); (b) in case of any consolidation or merger of the Corporation with any other entity other than a merger in which the Corporation is the continuing corporation and which does not result in any reclassification of, or change (other than a change in name, or in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination) in, outstanding shares of Common Stock; (c) in case of any sale or transfer or other conveyance of all or substantially all of the assets of the Corporation; or (d) in the case of any share exchange pursuant to which all of the outstanding shares of Common Stock are converted into or exchanged for other securities or property (including cash), the Corporation shall make appropriate provision or cause appropriate provision to be made so that holders of each share of 8% Preferred Stock then outstanding shall have the right thereafter to convert such share of 8% Preferred Stock into the kind and amount of shares of stock and other securities and property (including cash) receivable upon such reclassification, reorganization, change, consolidation, merger, sale, transfer or share exchange 34 by a holder of the number of shares of Common Stock into which such share of 8% Preferred Stock might have been converted immediately prior to the effective date of such reclassification, reorganization, change, consolidation, merger, sale, transfer or share exchange. If in connection with any such reclassification, reorganization, change, consolidation, merger, sale, transfer or share exchange, each holder of shares of Common Stock is entitled to elect to receive either securities, cash or other assets upon completion of such transaction, the Corporation shall provide or cause to be provided to each holder of 8% Preferred Stock the right to elect to receive the securities, cash or other assets into which the 8% Preferred Stock held by such holder shall be convertible after completion of any such transaction on the same terms and subject to the same conditions applicable to holders of the Common Stock (including, without limitation, notice of the right to elect, limitations on the period in which such election shall be made and the effect of failing to exercise the election). The Corporation shall not effect any such transaction unless the provisions of this paragraph have been fulfilled. The above provisions shall similarly apply to successive reclassifications, reorganizations, changes, consolidations, mergers, sales, transfers or share exchanges. (l) The Corporation shall reserve and at all times keep available, free from preemptive rights, out of its authorized but unissued stock, for the purpose of effecting the conversion of the 8% Preferred Stock, such number of its duly authorized Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding 8% Preferred Stock. "Common Stock" when used in Sections 7 and 8 herein with reference to the Common Stock into which the 8% Preferred Stock is convertible shall mean only Common Stock as authorized by the Certificate of Incorporation, as amended to the date of this Certificate of Designations, and any shares into which such Common Stock may thereafter have been changed, and, when otherwise used throughout this Certificate of Designations, shall also include shares of the Corporation of any other class or series, whether now or hereafter authorized, that ranks or is entitled to participation, as to distributions upon Liquidation and payment of dividends, substantially on a parity with such Common Stock or other class of shares into which such Common Stock may have changed. Section 8. Conversion Upon Change in Control. (a) In the event that there shall occur a Change in Control (as defined in subsection (e) of this Section) at a time when the Market Value (as defined in subsection (e) of this Section) of the Common Stock is less than the Conversion Price then in effect, the Conversion Price shall, as provided in this Section, be reduced to the Special Conversion Price (as defined in subsection (e) hereof). (b) In the event of a Change in Control, a holder exercising his or her conversion right shall receive Common Stock or such other securities, property or cash as may be issuable upon conversion as provided in Section 7(k) hereto, provided, however, that the Corporation or its successor may, at its option, elect to provide such converting holder with an amount of cash equaling the Market Value of the number of shares of Common Stock into which such holder's 8% Preferred Stock is convertible at the Special Conversion Price. 8% Preferred Stock that is not converted pursuant to this Section at the Special Conversion Price shall continue to be convertible pursuant to Section 7 hereto. (c) If a Change in Control shall occur, then, as soon as practicable and in any event within 30 days after the occurrence of such Change in Control, the Corporation shall mail to each registered holder of a share of 8% Preferred Stock a notice (the "Special Conversion Notice") setting forth details regarding the special conversion right of the holders to convert their shares 35 of 8% Preferred Stock as a result of such Change in Control, including, if applicable, notice of the Corporation's or the successors corporation's election to provide such holder with cash in lieu of Common Stock or other consideration. A holder of a share of 8% Preferred Stock must exercise such conversion right within the 45-day period after the mailing of the Special Conversion Notice by the Corporation or such special right shall expire. The conversion date for shares so converted shall be the 45th day after the mailing of the Special Conversion Notice. Within five Trading Days following the conversion date, the Corporation shall deliver a certificate for the Common Stock together with a check for any fractional shares issuable or the cash, securities, property or other assets receivable by a holder. (d) The Special Conversion Notice shall state: (i) the event constituting the Change in Control, together with such other information as may be required pursuant to the securities laws; (ii) the last date upon which holders may submit shares of 8% Preferred Stock for conversion; (iii) the Special Conversion Price; (iv) the Conversion Price then in effect under Section 7 and the continuing conversion rights, if any, under Section 7; (v) the name and address of any paying agent and conversion agent; (vi) that holders who wish to convert shares of 8% Preferred Stock must satisfy the requirements of Section 7 and must exercise such conversion right within the 45-day period after the mailing of the Special Conversion Notice by the Corporation; (vii) that exercise of such conversion right shall be irrevocable and no dividends on or Liquidated Damages, if any, with respect to, shares of 8% Preferred Stock tendered for conversion shall accrue from and after the conversion date; (viii) whether or not the Corporation has elected to exercise its option to pay cash (specifying the amount thereof, per share) for all shares of 8% Preferred Stock tendered for conversion; and (ix) that the consideration to be received shall be delivered within five Trading Days after the last date upon which holders must submit 8% Preferred Stock for conversion. (e) For purposes of this Section: (i) "Change in Control" means the occurrence of any of the following events: (a) 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 of 1934, as amended (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 Corporation's capital stock representing greater than 50% of the total voting power of all shares of capital stock of the Corporation entitled to vote in the election of directors under ordinary circumstances 36 or to elect a majority of the board of directors of the Corporation, (b) the Corporation sells, transfers or otherwise disposes of all or substantially all of the assets of the Corporation, (c) when, during any period of 12 consecutive months after the date of original issuance of the 8% Preferred Stock, individuals who at the beginning of any such 12-month period constituted the Board of Directors of the Corporation (together with any new directors whose election by such Board or whose nomination for election by the stockholders of the Corporation was approved by a vote of a majority of the directors still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved), cease for any reason to constitute a majority of the Board of Directors of the Corporation then in office or (d) the date of the consummation of the merger or consolidation of the Corporation with another corporation where the stockholders of the Corporation, immediately prior to the merger or consolidation, would not beneficially own, immediately after the merger or consolidation, shares entitling such stockholders to 50% or more of all votes (without consideration of the rights of any class of stock to elect directors by a separate class vote) to which all stockholders of the corporation issuing cash or securities in the merger or consolidation would be entitled in the election of directors or where members of the Board of Directors of the Corporation, 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. (ii) "Market Value" of a share of the Common Stock shall be the average of the Closing Prices of the Common Stock for the five Trading Days ending on the last Trading Day preceding the date of the Change in Control. (iii) "Special Conversion Price" means the higher of the Market Value of the Common Stock or $11.75 per share (which amount shall, each time the Conversion Price is adjusted, be adjusted so that the ratio of such amount to the Conversion Price, after giving effect to such adjustment, shall always be the same as the ratio of $11.75 to the initial Conversion Price without giving effect to any such adjustment). The Corporation agrees that it shall not complete any Change in Control described in this Subsection (e) unless proper provisions have been made to satisfy its obligation under this Section 8. Section 9. Exchange Provisions. (a) In addition to the optional redemption rights of the Corporation as set forth in Section 5 above, the Corporation shall have the right to exchange the 8% Preferred Stock, in whole but not in part, on any Dividend Payment Date beginning on March 15, 1998 for the Corporation's 8% Convertible Subordinated Debentures due 2006 (the "Debentures") to be issued substantially in the form set forth in the Indenture (the "Debenture Indenture") approved by the Corporation and PaineWebber Incorporated and Alex. Brown & Sons Incorporated (collectively, the "Initial Purchasers") prior to the original issuance of the 8% Preferred Stock. (b) No such exchange shall be made unless all dividends accrued and payable on, and Liquidated Damages, if any, with respect to, the 8% Preferred Stock have been paid or declared and such amount set aside for their payment prior to the date fixed for such exchange (the "Exchange Date"). Holders of outstanding shares of 8% Preferred Stock shall be entitled to receive $50.00 principal amount of Debentures in exchange for each share of 8% Preferred Stock 37 held by them at the time of exchange; provided that the Debentures shall be issued in denominations of $1,000 and integral multiples thereof. If the exchange results in an amount of Debentures that is not an integral multiple of $1,000, the amount in excess of the closest integral multiple of $1,000 shall be paid in cash by the Corporation. (c) Notice of such exchange of shares of 8% Preferred Stock shall be mailed at least 30 days but not more than 60 days prior to the Exchange Date to each holder of 8% Preferred Stock at such holder's address as it appears on the stock transfer books of the Corporation. The notice shall specify the Exchange Date and the place where certificates for shares of 8% Preferred Stock are to be surrendered for Debentures and shall state that dividends on and Liquidated Damages, if any, with respect to 8% Preferred Stock shall cease to accrue on the Exchange Date and that interest on the Debentures shall accrue from the Exchange Date. (d) Prior to giving notice of intention to exchange pursuant to subsection (c) above, the Corporation and a bank or trust company selected by the Corporation and reasonably satisfactory to the Initial Purchasers shall execute and deliver an indenture substantially in the form of the Debenture Indenture with such changes as may be required by law, stock exchange rule, or usage that do not materially and adversely affect the rights of the holders of the Debentures. Prior to any exchange of shares of 8% Preferred Stock in accordance with subsection (c) above, any amendments or supplements to the Debenture Indenture which materially and adversely affect the rights of the holders of the Debentures shall be consented to by the holders of more than 50 percent of the then outstanding shares of 8% Preferred Stock. A copy of the Debenture Indenture may be inspected by the holders of the 8% Preferred Stock at the offices of the Corporation during normal business hours. The Corporation shall not give notice of its intention to exchange pursuant to subsection (c) above unless it shall file at the office or agency of the Corporation maintained for the exchange of shares of 8% Preferred Stock a written opinion from legal counsel who shall not be an employee of the Corporation that the Debenture Indenture has been duly authorized, executed and delivered by the Corporation, has been duly qualified under the Trust Indenture Act of 1939 (or that such qualification is not necessary) and constitutes a valid and legally binding instrument enforceable against the Corporation in accordance with its terms (subject to bankruptcy, insolvency, reorganization or other laws of general applicability relating to or affecting creditors' rights and to the general principles of equity; and subject to such other qualifications as are then customarily contained in opinions of counsel experienced in such matters); and to the effect that the Debentures have been duly authorized and, when executed and authenticated in accordance with the provisions of the Debenture Indenture and delivered in exchange for the shares of 8% Preferred Stock, shall constitute valid and legally binding obligations of the Corporation entitled to the benefits of the Debenture Indenture (subject as aforesaid); and that under the laws of the State of New York, the Debentures shall be treated as on a parity with the indebtedness of the Corporation to its general unsecured creditors, except to the extent subordinated in the Debenture Indenture, and that the exchange of Debentures for the 8% Preferred Stock shall not violate the laws of the State of New York; and that neither the execution and delivery of the Debenture Indenture or the Debentures nor compliance with the terms, conditions or provisions of such instruments shall result in a breach or violation of any of the terms or provisions of, or constitute a default under and do not and shall not result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of the Corporation, or any of the subsidiaries of the Corporation pursuant to the terms or provisions of, or give any party a right to terminate any of their respective obligations under, or result in the acceleration of any obligation under or breach of any provision of, the Certificate of Incorporation or By-laws of the Corporation or any of the subsidiaries of the Corporation, any indenture, mortgage, deed of trust or other agreement or instrument, known to such counsel, to 38 which the Corporation or any of its subsidiaries is a party or by which it or any of them or any of their respective properties is bound or affected, or violate or conflict with any decree, judgment, order, rule, ruling, statute or regulations of any court or governmental agency or body having jurisdiction over the Corporation and such subsidiaries or any of their property; and that issuance of the Debentures in exchange for the shares of 8% Preferred Stock is exempt from registration under the Securities Act of 1933, as amended. (e) If on the Exchange Date, the Corporation has taken all action required to authorize the issuance of the Debentures in exchange for the 8% Preferred Stock, then, notwithstanding that the certificates for such shares have not been surrendered for cancellation, from and after the Exchange Date, all of the shares of 8% Preferred Stock shall no longer be deemed outstanding and all rights relating to such shares shall terminate, except only the right to receive dividends accrued and unpaid on and any Liquidated Damages, with respect to, the 8% Preferred Stock to the Exchange Date and, upon surrender of certificates therefore, the right to receive the Debentures, and the person or persons entitled to receive the Debentures issuable upon the exchange shall be treated for all purposes as the registered holder or holders of such Debentures. Upon due surrender of a certificate representing shares of 8% Preferred Stock, the holder thereof shall receive the principal amount of Debentures to which such holder is thereby entitled plus any amounts of cash which may be due hereunder. Section 10. Limitation and Rights Upon Insolvency. Notwithstanding any other provision of this Certificate of Designations, the Corporation shall not be required to pay any dividend on, or to pay any amount in respect to any redemption of, the 8% Preferred Stock at a time when immediately after making such payment the Corporation is or would be rendered insolvent (as defined by applicable law), provided that the obligation of the Corporation to make any such payment shall not be extinguished in the event the foregoing limitation applies. Section 11. Shares to be Retired. Any share of 8% Preferred Stock converted, redeemed, exchanged or otherwise acquired by the Corporation shall be retired and canceled and shall upon cancellation be restored to the status of authorized but unissued shares of preferred stock, subject to reissuance by the Board of Directors as 8% Preferred Stock or as shares of preferred stock of one or more other series. Section 12. Record Holders. The Corporation and the Transfer Agent may deem and treat the record holder of any shares of 8% Preferred Stock as the true and lawful owner thereof for all purposes, and neither the Corporation nor the Transfer Agent shall be affected by any notice to the contrary. Section 13. Notice. Except as may otherwise be provided for herein, all notice referred to herein shall be in writing, and all notices hereunder shall be deemed to have been given upon the earlier of (x) receipt of such notice, (y) three Trading Days after the mailing of such notice if sent by registered mail (unless first-class mail shall be specifically permitted for such notice under the terms hereof) or (z) the Trading Day following sending such notice by overnight courier, in any case with postage or delivery charges prepaid, addressed: if to the Corporation, to its offices at One City Centre, 515 North Sixth Street, St. Louis, Missouri 63101, Attention: Chief Financial Officer, or to an agent of the Corporation designated as permitted by the Certificate of Incorporation, or, if to any holder of the 8% Preferred Stock, to such holder at the address of such holder of the 8% Preferred Stock as listed in the stock record books of the Corporation, or as the holder shall have designated by written notice similarly given by the holder and received by the Corporation. 39 Section 14. Other Rights. Other than as may be prescribed by law, the holders of the 8% Preferred Stock shall not have any other voting rights, preferences or special rights. This Certificate of Designations, Preferences and Rights shall be effective as of March 21, 1996. IN WITNESS WHEREOF, the undersigned has executed this Certificate of Designations and does affirm the foregoing as true under the penalties of perjury this 21st day of March, 1996. TRANS WORLD AIRLINES, INC. By: /s/ Jeffrey H. Erickson ----------------------- Jeffrey H. Erickson President and Chief Executive Officer [SEAL] ATTEST: /s/ Kathleen A. Soled - --------------------- Kathleen A. Soled Secretary STATE OF MISSOURI ) ) SS. COUNTY OF ST. LOUIS ) The undersigned, a Notary Public in and for the aforesaid County and State, certifies that on this ____ day of March, 1996, Jeffrey H. Erickson, the President and Chief Executive Officer of Trans World Airlines, Inc. (the "Corporation") and Kathleen A. Soled, Secretary of the Corporation, known to me personally to be such, duly executed the foregoing Certificate before me and acknowledged said Certificate to be their act and deed made on behalf of the Corporation, and acknowledged that the facts stated therein are true. The signatures on the attached Certificate of said Chief Executive Officer and said Secretary of the Corporation are in the handwriting of said Chief Executive Officer and said Secretary, respectively, and the seal affixed to the Certificate is the corporate seal of the Corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal of office this 21st day of March, 1996. /s/ Jacqueline Chandler ----------------------- Notary Public (Notarial Seal) Jacqueline Chandler Notary Public State of Missouri St. Louis County My Commission Exp. Oct 25, 1997 40 AMENDED CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS RELATING TO THE ALPA PREFERRED STOCK OF TRANS WORLD AIRLINES, INC. The undersigned, Richard P. Magurno, Senior Vice President & General Counsel of Trans World Airlines, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), does hereby certify on behalf of the Corporation: FIRST: That the Board of Directors of this Corporation have duly adopted resolutions, filed with the minutes of the Board, setting forth the proposed amendment of the Certificate of Designations, Preferences and Rights Relating to the ALPA Preferred Stock of this Corporation, declaring said amendment to be advisable. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Designations, Preferences and Rights Relating to the ALPA Preferred Stock of this Corporation be amended to increase the total number of shares of ALPA Preferred Stock authorized for issuance from 1,721,765 to 2,874,745; and RESOLVED, that the Certificate of Designations, Preferences and Rights Relating to the ALPA Preferred Stock of this Corporation be amended to read as follows: FIRST: The name of the Corporation is Trans World Airlines, Inc. SECOND: The Restated Certificate of Incorporation of the Corporation was filed in the Office of the Secretary of State of the State of Delaware on November 3, 1993, and amended and restated pursuant to the Amended and Restated Certificate of Incorporation of Trans World Airlines, Inc. filed in the Office of the Secretary of State of the State of Delaware, and effective on August 23, 1995, and further amended and restated pursuant to the Second Amended and Restated Certificate of Incorporation of Trans World Airlines, Inc. filed in the Office of the Secretary of State of the State of Delaware on November 21, 1995 (as corrected on April 29, 1997), and further amended and restated pursuant to the Third Amended and Restated Certificate of Incorporation of Trans World Airlines, Inc. filed in the Office of the Secretary of State of the State of Delaware and effective on May 24, 1996 (as corrected on April 29, 1997) (as so amended, such Restated Certificate of Incorporation hereinafter referred to as the "Certificate of Incorporation"). THIRD: Pursuant to the provisions of Section 151(g) of the General Corporation Law of the State of Delaware and Article Fifth, Section 4 of the Certificate of Incorporation, the Board of Directors of the Corporation (the "Board") adopted the following resolution: 41 RESOLVED, that a series of preferred stock of the Corporation be and hereby is created (the "ALPA Preferred Stock"), and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions thereof, are as follows: Section 1. Designation. The shares of such series shall be designated "ALPA Preferred Stock." Section 2. Number of Shares. The number of shares constituting the ALPA Preferred Stock shall be 2,874,745. Section 3. Par Value. The ALPA Preferred Stock shall have a stated par value of $.01 per share. Section 4. Rank. (a) Other than the Liquidation Preference described in Section 6 hereof, the ALPA Preferred Stock shall, with respect to dividend rights and rights upon any liquidation, dissolution or winding up of the Corporation, rank on a parity with the common stock of the Corporation, par value $.01 per share (the "Common Stock"). (b) All equity securities of the Corporation as to which the ALPA Preferred Stock may rank prior with respect to dividends and upon liquidation, dissolution, winding up or otherwise are collectively referred to herein as the "Junior Securities"; all equity securities of the Corporation as to which the ALPA Preferred Stock may rank on a parity as to any one of dividends or upon liquidation, dissolution, winding up or otherwise and does not rank senior as to any of the same are collectively referred to herein as the "Parity Securities"; and all equity securities of the Corporation as to which the ALPA Preferred Stock may rank junior, whether with respect to dividends or upon liquidation, dissolution, winding up or otherwise, are collectively referred to herein as the "Senior Securities." The ALPA Preferred Stock shall be subject to the creation of Junior Securities, Parity Securities and Senior Securities. (c) In the event of a stock split effected in the form of a dividend, reverse stock split, recapitalization or similar fundamental change in the rights or number of shares of the Common Stock, an equitably similar change shall be effected in the ALPA Preferred Stock to the end of maintaining the ALPA Preferred Stock as the functional equivalent of Common Stock on a share per share basis except with respect to (i) the Liquidation Preference described in Section 6 hereof and (ii) the right 42 of the holders of ALPA Preferred Stock to elect directors to the Board as provided in Section 7 hereof. Section 5. Dividends. Subject to the rights of holders of Senior Securities, the holders of the ALPA Preferred Stock shall be entitled to receive, when, as and if declared by the Board, out of funds legally available therefor, dividends payable in cash, stock or otherwise. No dividend shall be paid on the Common Stock unless an equivalent dividend is paid on the ALPA Preferred Stock, which dividend shall be in the same amount per share and in the same medium as that paid on the Common Stock; provided, however, -------- ------- that stock dividends declared on the Common Stock and the ALPA Preferred Stock shall be payable in shares of Common Stock and ALPA Preferred Stock, respectively. Section 6. Liquidation Preference. Subject to the rights of holders of Senior Securities, upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of ALPA Preferred Stock shall be entitled to and be paid the sum of $.01 per share from the net assets of the Corporation (the "Liquidation Preference") before any amounts are paid to or on account of the holders of Common Stock, and thereafter the remaining net assets of the Corporation shall be distributed pro rata to the holders of the ALPA Preferred Stock, the Common Stock and such other equity securities of the Corporation which rank on a parity with such stock with respect to such rights, all in accordance with their respective rights and interests. Section 7. Voting Rights. The holders of the ALPA Preferred Stock shall have the following voting rights: (a) The holders of the ALPA Preferred Stock shall be entitled to one vote for each share of ALPA Preferred Stock held of record by such holder as of the record date for a meeting of the Corporation's stockholders (i) on each matter submitted to a vote at such meeting other than the election of directors and (ii) for each of the directors to be elected by the holders of ALPA Preferred Stock at an annual meeting of the Corporation's stockholders pursuant to this Section 7. (b) So long as any shares of ALPA Preferred Stock are outstanding and in accordance with Article Ninth of the Certificate of Incorporation, the holders of the ALPA Preferred Stock shall have the following rights with respect to the election of directors; 43 (i) the exclusive right to elect to the Board one (1) director (the "ALPA Director"), which director shall be a Class II director; and (ii) in the event that the ALPA Director, together with the aggregate number of directors elected by the holders of the shares of the Corporation's two series of preferred stock designated "IAM Preferred Stock" and "IFFA Preferred Stock," respectively, shall be fewer than twenty-two and one-half percent (22.5%) of the total number of directors comprising the Board, then the holders of the ALPA Preferred Stock, IAM Preferred Stock and IFFA Preferred Stock voting as a single class shall have the right to elect additional directors to the Board so that the aggregate number of directors elected by the holders of the ALPA Preferred Stock, IAM Preferred Stock and IFFA Preferred Stock shall constitute at least 22.5% of the total number of directors comprising the Board. (c) At each meeting of stockholders at which the holders of the ALPA Preferred Stock shall have the exclusive right to elect the ALPA Director as provided in paragraph (b) of this Section 7, the presence in person or by proxy of the holders of record of one- third (1/3) of the total number of shares of the ALPA Preferred Stock then outstanding shall be necessary and sufficient to constitute a quorum of such series for such election by such stockholders as a series. At any such meeting or adjournment thereof: (i) The absence of a quorum of the holders of ALPA Preferred Stock shall not prevent the election of directors other than the ALPA Director, and the absence of a quorum of the holders of any other class or series of stock for the election of such other directors shall not prevent the election of the ALPA Director; and (ii) In the absence of either or both such quorums, a majority of the holders present in person or by proxy of the class or series which lack a quorum shall have the power to adjourn for a period of up to thirty (30) days the meeting for election of directors which they are entitled to elect from time to time without notice other than announcement at the meeting until a quorum shall be present. (d) Subject to Article Ninth of the Certificate of Incorporation, any vacancies on the Board resulting from the death, resignation, disqualification, or removal of the ALPA Director shall be filled only by a vote of the holders of the ALPA Preferred Stock. 44 (e) The ALPA Preferred Stock shall be deemed "Voting Stock" for purposes of the Certificate of Incorporation. Section 8. Conversion. Each share of ALPA Preferred Stock shall automatically convert into one share of Common Stock upon the withdrawal of such share of ALPA Preferred Stock from the trust in which such stock is held. The certificate or certificates for shares of ALPA Preferred Stock so converted may be surrendered to any transfer agent of the Corporation for such ALPA Preferred Stock, duly endorsed in blank for transfer. As soon as practicable after the surrender of such certificate or certificates as provided above, the Corporation shall cause to be issued and delivered, at the office of such transfer agent, to or on the order of the holder of the certificates thus surrendered, a certificate or certificates for the number of shares of Common Stock issuable hereunder upon the conversion of such shares of ALPA Preferred Stock. Section 9. Amendment. This Certificate of Designations, Preferences and Rights Relating to the ALPA Preferred Stock may be amended only upon the unanimous approval of the holders of record of the outstanding shares of ALPA Preferred Stock. This Amended Certificate of Designations, Preferences and Rights Relating to the ALPA Preferred Stock shall be effective as of the date of filing in the Office of the Secretary of State of Delaware. SECOND: That shareholder approval of the amendment to the Certificate of Designations, Preferences and Rights Relating to the ALPA Preferred Stock is not required pursuant to Section 151(g) under the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned has executed this Amended Certificate of Designations, Preferences and Rights Relating to the ALPA Preferred Stock and does affirm the foregoing as true under the penalties of perjury this 29th day of April, 1997. TRANS WORLD AIRLINES, INC. By: /s/ Richard P. Magurno ----------------------- Richard P. Magurno Senior Vice President & General Counsel ATTEST: /s/ Kathleen A. Soled ------------------------- Kathleen A. Soled Corporate Secretary 45 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS RELATING TO THE IFFA PREFERRED STOCK OF TRANS WORLD AIRLINES, INC. The undersigned, Robert Peiser, Executive Vice President and Chief Financial Officer of Trans World Airlines, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), does hereby certify on behalf of the Corporation: FIRST: The name of the Corporation is Trans World Airlines, Inc. SECOND: The Restated Certificate of Incorporation of the Corporation was filed in the Office of the Secretary of State of the State of Delaware on November 3, 1993, and amended and restated pursuant to the Amended and Restated Certificate of Incorporation of Trans World Airlines, Inc. filed in the Office of the Secretary of State of the State of Delaware, and effective on August 23, 1995 (as so amended, such Restated Certificate of Incorporation hereinafter referred to as the "Certificate of Incorporation"). THIRD: Pursuant to the provisions of Section 151(g) of the General Corporation Law of the State of Delaware and Article Fifth, Section 4 of the Certificate of Incorporation, the Board of Directors of the Corporation (the "Board") adopted the following resolution: RESOLVED, that a series of preferred stock of the Corporation be and hereby is created (the "IFFA Preferred Stock"), and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions thereof, are as follows: Section 1. Designation. The shares of such series shall be designated "IFFA Preferred Stock." Section 2. Number of Shares. The number of shares constituting the IFFA Preferred Stock shall be Eight Hundred Eighty-One Thousand Eight Hundred and Eighty (881,880). Section 3. Par Value. The IFFA Preferred Stock shall have a stated par value of $.01 per share. Section 4. Rank. (a) Other than the Liquidation Preference described in Section 6 hereof, the IFFA Preferred Stock shall, with respect to dividend rights and rights upon any liquidation, dissolution or winding 46 up of the Corporation, rank on a parity with the common stock of the Corporation, par value $.01 per share (the "Common Stock"). (b) All equity securities of the Corporation as to which the IFFA Preferred Stock may rank prior with respect to dividends and upon liquidation, dissolution, winding up or otherwise are collectively referred to herein as the "Junior Securities;" all equity securities of the Corporation as to which the IFFA Preferred Stock may rank on a parity as to any one of dividends or upon liquidation, dissolution, winding up or otherwise and does not rank senior as to any of the same are collectively referred to herein as the "Parity Securities;" and all equity securities of the Corporation as to which the IFFA Preferred Stock may rank junior, whether with respect to dividends or upon liquidation, dissolution, winding up or otherwise, are collectively referred to herein as the "Senior Securities." The IFFA Preferred Stock shall be subject to the creation of Junior Securities, Parity Securities and Senior Securities. (c) In the event of a stock split effected in the form of a dividend, reverse stock split, recapitalization or similar fundamental change in the rights or number of shares of the Common Stock, an equitably similar change shall be effected in the IFFA Preferred Stock to the end of maintaining the IFFA Preferred Stock as the functional equivalent of Common Stock on a share per share basis except with respect to (i) the Liquidation Preference described in Section 6 hereof and (ii) the right of the holders of IFFA Preferred Stock to elect directors to the Board as provided in Section 7 hereof. Section 5. Dividends. Subject to the rights of holders of Senior Securities, the holders of the IFFA Preferred Stock shall be entitled to receive, when, as and if declared by the Board, out of funds legally available therefor, dividends payable in cash, stock or otherwise. No dividend shall be paid on the Common Stock unless an equivalent dividend is paid on the IFFA Preferred Stock, which dividend shall be in the same amount per share and in the same medium as that paid on the Common Stock; provided, -------- however, that stock dividends declared on the Common Stock and the IFFA ------- Preferred Stock shall be payable in shares of Common Stock and IFFA Preferred Stock, respectively. Section 6. Liquidation Preference. Subject to the rights of holders of Senior Securities, upon any 47 liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the IFFA Preferred Stock shall be entitled to and be paid the sum of $.01 per share from the net assets of the Corporation (the "Liquidation Preference") before any amounts are paid to or on account of the holders of Common Stock and thereafter the remaining net assets of the Corporation shall be distributed pro rata to the holders of the IFFA Preferred Stock, the Common Stock and such other equity securities of the Corporation which rank on a parity with such stock with respect to such rights, all in accordance with their respective rights and interests. Section 7. Voting Rights. The holders of the IFFA Preferred Stock shall have the following voting rights: (a) The holders of the IFFA Preferred Stock shall be entitled to one vote for each share of IFFA Preferred Stock held of record by such holder as of the record date for a meeting of the Corporation's stockholders (i) on each matter submitted to a vote at such meeting other than the election of directors and (ii) for each of the directors to be elected by the holders of IFFA Preferred Stock at an annual meeting of the Corporation's stockholders pursuant to this Section 7. (b) So long as any shares of IFFA Preferred Stock are outstanding and in accordance with Article Ninth of the Certificate of Incorporation, the holders of the IFFA Preferred Stock shall have the following rights with respect to the election of directors: (i) the exclusive right to elect to the Board one (1) director (the "IFFA Director"), which director shall be a Class II director; and (ii) in the event that the IFFA Director, together with the aggregate number of directors elected by the holders of the shares of the Corporation's two series of preferred stock designated "IAM Preferred Stock" and "ALPA Preferred Stock," respectively, shall be fewer than twenty-two and one-half percent (22.5%) of the total number of directors comprising the Board, then the holders of the IFFA Preferred Stock, IAM Preferred Stock and ALPA Preferred Stock voting as a single class shall have the exclusive right to elect additional directors to the Board so that the aggregate number of directors elected by the holders of the IFFA Preferred Stock, IAM Preferred 48 Stock and ALPA Preferred Stock shall constitute at least 22.5% of the total number of directors comprising the Board. (c) At each meeting of stockholders at which the holders of the IFFA Preferred Stock shall have the exclusive right to elect the IFFA Director as provided in paragraph (b) of this Section 7, the presence in person or by proxy of the holders of record of one-third (1/3) of the total number of shares of the IFFA Preferred Stock then outstanding shall be necessary and sufficient to constitute a quorum of such series for such election by such stockholders as a series. At any such meeting or adjournment thereof: (i) The absence of a quorum of the holders of IFFA Preferred Stock shall not prevent the election of directors other than the IFFA Director, and the absence of a quorum of the holders of any other class or series of stock for the election of such other directors shall not prevent the election of the IFFA Director; and (ii) In the absence of either or both such quorums, a majority of the holders present in person or by proxy of the class or series which lack a quorum shall have the power to adjourn for a period of up to thirty (30) days the meeting for election of directors which they are entitled to elect from time to time without notice other than announcement at the meeting until a quorum shall be present. (d) Subject to Article Ninth of the Certificate of Incorporation, any vacancies on the Board resulting from the death, resignation, disqualification, or removal of any IFFA Director shall be filled only by a vote of the holders of the IFFA Preferred Stock. (e) The IFFA Preferred Stock shall be deemed "Voting Stock" for purposes of the Certificate of Incorporation. Section 8. Conversion. Each share of IFFA Preferred Stock shall automatically convert into one share of Common Stock upon the withdrawal of such share of IFFA Preferred Stock from the trust in which such stock is held. The certificate or certificates for shares of IFFA Preferred Stock so converted may be surrendered to any transfer agent of the Corporation for such IFFA Preferred Stock, duly endorsed in blank for transfer. As soon as practicable after the surrender of 49 such certificate or certificates as provided above, the Corporation shall cause to be issued and delivered, at the office of such transfer agent, to or on the order of the holder of the certificates thus surrendered, a certificate or certificates for the number of shares of Common Stock issuable hereunder upon the conversion of such shares of IFFA Preferred Stock. Section 9. Amendment. This Certificate of Designations, Preferences and Rights relating to the IFFA Preferred Stock (the "Certificate of Designations") may be amended only upon the unanimous approval of the holders of record of the outstanding shares of IFFA Preferred Stock. This Certificate of Designations, Preferences and Rights shall be effective as of August 23, 1995. IN WITNESS WHEREOF, the undersigned has executed this Certificate of Designations and does affirm the foregoing as true under the penalties of perjury this [ ] day of August, 1995. TRANS WORLD AIRLINES, INC. By: /s/ Robert Peiser ----------------- Robert Peiser Its: Executive Vice President and Chief Financial Officer ATTEST: By: /s/Kathleen A. Soled -------------------- Kathleen A. Soled Its: Secretary [CORPORATE SEAL] 50 STATE OF MISSOURI ) ) SS. COUNTY OF PLATTE ) The undersigned, a Notary Public in and for the aforesaid County and State, certifies that on this 17 day of August, 1995, Robert Peiser, the Executive Vice President and Chief Financial Officer of Trans World Airlines, Inc. (the "Corporation") and Kathleen A. Soled, Secretary of the Corporation, known to me personally to be such, duly executed the foregoing Certificate before me and acknowledged said Certificate to be their act and deed made on behalf of the Corporation, and acknowledged that the facts stated therein are true. The signatures on the attached Certificate of said Chief Financial Officer and said Secretary of the Corporation are in the handwriting of said Chief Financial Officer and said Secretary, respectively, and the seal affixed to the Certificate is the corporate seal of the Corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal of office this 17 day of August, 1995. /s/ Kristine R. Wall -------------------- Notary Public (Notarial Seal) Kristine R. Wall Notary Public-Notary Seal State of Missouri St. Louis County My Commission Expires: August 29, 1997 51 CERTIFICATE OF DESIGNATION OF SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK OF TRANS WORLD AIRLINES, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware I, Richard P. Magurno, Senior Vice President and General Counsel of Trans World Airlines, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware ("Delaware Law"), in accordance with the provisions thereof, DO HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the Corporation, the Board of Directors on December 19, 1995, adopted the following resolution creating a series of Preferred Stock in the amount and having the designation, voting powers, preferences and relative, participating, optional and other special rights and qualifications., limitations and restrictions thereof as follows: Section 1. Designation and Number of Shares. The shares of such -------------------------------- series shall be designated as "Series A Participating Cumulative Preferred Stock" (the "Series A Preferred Stock"), and the number of shares constituting such series shall be 750,000. Such number of shares of the Series A Preferred Stock may be increased or decreased by resolution of the Board of Directors; provided that no decrease shall reduce the number of shares of Series A -------- Preferred Stock to a number less than the number of shares then outstanding plus the number of shares issuable upon exercise or conversion of outstanding rights, options or other securities issued by the Corporation. Section 2. Dividends and Distributions. --------------------------- (A) The holders of shares of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of 52 funds legally available for the purpose, quarterly dividends payable on the first day of February, May, August and November of each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of any share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 and (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends or other distributions and 100 times the aggregate per share amount of all non-cash dividends or other distributions (other than (i) a dividend payable in shares of Common Stock, par value $.0l per share, of the Corporation (the "Common Stock") or (ii) a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise)), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. If the Corporation shall at any time after December 19, 1995 (the "Rights Declaration Date") pay any dividend on Common Stock payable in shares of Common Stock or effect a subdivision or combination of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than as described in clauses (i) and (ii) of the first sentence of paragraph (A)); provided that if no dividend or distribution shall have been declared on the -------- Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date (or, with respect to the first Quarterly Dividend Payment Date, the period between the first issuance of any share or fraction of a share of Series A Preferred Stock and such first Quarterly Dividend Payment Date), a dividend of $1.00 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Preferred Stock, unless the date of issue of such shares is on or before the record date for the first Quarterly Dividend Payment Date, in which case dividends on 53 such shares shall begin to accrue and be cumulative from the date of issue of such shares, or unless the date of issue is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and on or before such Quarterly Dividend Payment Date, in which case dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall not be more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. In addition to any other voting rights ------------- required by law, the holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of stockholders of the Corporation. If the Corporation shall at any time after the Rights Declaration Date pay any dividend on Common Stock payable in shares of Common Stock or effect a subdivision or combination of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock shall vote together as a single class on all matters submitted to a vote of stockholders of the Corporation. (C)(i) If at any time dividends on any Series A Preferred Stock shall be in arrears in an amount equal to six quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a "default period") which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Series A Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of Preferred Stock and any other series 54 of Preferred Stock then entitled as a class to elect directors, voting together as a single class, irrespective of series, shall have the right to elect one Director. (ii) During any default period, such voting right of the holders of Series A Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of stockholders, and thereafter at annual meetings of stockholders, provided that neither such voting right nor the right of the holders of any other series of Preferred Stock, if any, to increase, in certain cases, the authorized number of Directors shall be exercised unless the holders of 10% in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of holders of Common Stock shall not affect the exercise by holders of Preferred Stock of such voting right. At any meeting at which holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancy, if any, in the Board of Directors as may then exist up to one Director or, if such right is exercised at an annual meeting, to elect one Director. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series ---- ----- A Preferred Stock. (iii) Unless the holders of Preferred Stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any stockholder or stockholders owning in the aggregate not less than 10% of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of special meeting of holders of Preferred Stock, which meeting shall thereupon be called by the President, a Vice President or the Secretary of the Corporation. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this paragraph (C)(iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to him at his last address as the same appears on the books of the Corporation. Such meeting shall be called for a time not earlier than 20 days and not later than 60 days after such order or request or in default of the calling of such meeting within 60 days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than 10% of the total number of shares of Preferred Stock outstanding, irrespective of series. Notwithstanding the provisions of this paragraph (C)(iii), no such special meeting 55 shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of stockholders. (iv) In any default period, the holders of Common Stock, and other classes of stock of the Corporation if applicable, shall continue to be entitled to elect the whole number of Directors until the holders of Preferred Stock shall have exercised their right to elect one Director voting as a class, after the exercise of which right (x) the Directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in paragraph (C)(ii) of this Section 3) be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class of stock which elected the Director whose office shall have become vacant. References in this paragraph (C) to Directors elected by the holders of a particular class of stock shall include Directors elected by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence. (v) Immediately upon the expiration of a default period, (x) the right of the holders of Preferred Stock as a class to elect Directors shall cease, (y) the term of any Directors elected by the holders of Preferred Stock as a class shall terminate, and (z) the number of Directors shall be such number as may be provided for in the certificate of incorporation or bylaws irrespective of any increase made pursuant to the provisions of paragraph (C)(ii) of this Section 3 (such number being subject, however, to change thereafter in any manner provided by law or in the certificate of incorporation or bylaws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors. (D) The Certificate of Incorporation of the Corporation shall not be amended in any manner (whether by merger or otherwise) so as to adversely affect the powers, preferences or special rights of the Series A Preferred Stock without the affirmative vote of the holders of a majority of the outstanding shares of Series A Preferred Stock, voting separately as a class. (E) Except as otherwise provided herein, holders of Series A Preferred Stock shall have no special voting rights, and their consent shall not be required for taking any corporate action. Section 4. Certain Restrictions. -------------------- (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on outstanding shares of Series A Preferred Stock shall have been paid in full, the Corporation shall not: 56 (i) declare or pay dividends on, or make any other distributions on, any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends on, or make any other distributions on, any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such other parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem, purchase or otherwise acquire for value any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; provided that the -------- Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of stock of the Corporation ranking junior (as to dividends and upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) redeem, purchase or otherwise acquire for value any shares of Series A Preferred Stock, or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of Series A Preferred Stock and all such other parity stock upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for value any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Preferred ----------------- Stock redeemed, purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock without designation as to series and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors as permitted by the Certificate of Incorporation or as otherwise permitted under Delaware Law. 57 Section 6. Liquidation, Dissolution or Winding Up. Upon any -------------------------------------- liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $1.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment; provided that the holders of shares of -------- Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of Common Stock, or (2) to the holders of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such other parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. If the Corporation shall at any time after the Rights Declaration Date pay any dividend on Common Stock payable in shares of Common Stock or effect a subdivision or combination of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. If the Corporation shall -------------------------- enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash or any other property, then in any such case the shares of Series A Preferred Stock shall at the same time be similarly exchanged for or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount of stock, securities, cash or any other property, as the case may be, into which or for which each share of Common Stock is changed or exchanged. If the Corporation shall at any time after the Rights Declaration Date pay any dividend on Common Stock payable in shares of Common Stock or effect a subdivision or combination of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 58 Section 8. No Redemption. The Series A Preferred Stock shall not ---------------- be redeemable. Section 9. Rank. The Series A Preferred Stock shall rank junior ---- (as to dividends and upon liquidation, dissolution and winding up) to all other series of the Corporation's preferred stock, except any series that specifically provides that such series shall rank junior to the Series A Preferred Stock. Section 10. Fractional Shares. Series A Preferred Stock may be ----------------- issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Preferred Stock. IN WITNESS WHEREOF, we have executed and subscribed this Certificate this 27th day of December, 1995. /s/ Richard P. Magurno ---------------------- Richard P. Magurno Senior Vice President and General Counsel Attest: /s/ Kathleen A. Soled --------------------- Kathleen A. Soled Vice President and Corporate Secretary 59 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS RELATING TO THE ALPA PREFERRED STOCK OF TRANS WORLD AIRLINES, INC. The undersigned, Robert Peiser, Executive Vice President and Chief Financial Officer of Trans World Airlines, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), does hereby certify on behalf of the Corporation: FIRST: The name of the Corporation is Trans World Airlines, Inc. SECOND: The Restated Certificate of Incorporation of the Corporation was filed in the Office of the Secretary of State of the State of Delaware on November 3, 1993, and amended and restated pursuant to the Amended and Restated Certificate of Incorporation of Trans World Airlines, Inc. filed in the Office of the Secretary of State of the State of Delaware, and effective on August 23, 1995 (as so amended, such Restated Certificate of Incorporation hereinafter referred to as the "Certificate of Incorporation"). THIRD: Pursuant to the provisions of Section 151(g) of the General Corporation Law of the State of Delaware and Article Fifth, Section 4 of the Certificate of Incorporation, the Board of Directors of the Corporation (the "Board") adopted the following resolution: RESOLVED, that a series of preferred stock of the Corporation be and hereby is created (the "ALPA Preferred Stock"), and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions thereof, are as follows: Section 1. Designation. The shares of such series shall be designated "ALPA Preferred Stock." Section 2. Number of Shares. The number of shares constituting the ALPA Preferred Stock shall be One Million Seven Hundred Twenty-One Thousand Seven Hundred Sixty-Five (1,721,765). Section 3. Par Value. The ALPA Preferred Stock shall have a stated par value of $.01 per share. Section 4. Rank. (a) Other than the Liquidation Preference described in Section 6 hereof, the ALPA Preferred Stock shall, with respect to dividend rights and rights upon any liquidation, dissolution or winding up of the Corporation, rank on a parity with the common stock of the Corporation, par value $.01 per share (the "Common Stock"). 60 (b) All equity securities of the Corporation as to which the ALPA Preferred Stock may rank prior with respect to dividends and upon liquidation, dissolution, winding up or otherwise are collectively referred to herein as the "Junior Securities;" all equity securities of the Corporation as to which the ALPA Preferred Stock may rank on a parity as to any one of dividends or upon liquidation, dissolution, winding up or otherwise and does not rank senior as to any of the same are collectively referred to herein as the "Parity Securities;" and all equity securities of the Corporation as to which the ALPA Preferred Stock may rank junior, whether with respect to dividends or upon liquidation, dissolution, winding up or otherwise, are collectively referred to herein as the "Senior Securities." The ALPA Preferred Stock shall be subject to the creation of Junior Securities, Parity Securities and Senior Securities. (c) In the event of a stock split effected in the form of a dividend, reverse stock split, recapitalization or similar fundamental change in the rights or number of shares of the Common Stock, an equitably similar change shall be effected in the ALPA Preferred Stock to the end of maintaining the ALPA Preferred Stock as the functional equivalent of Common Stock on a share per share basis except with respect to (i) the Liquidation Preference described in Section 6 hereof and (ii) the right of the holders of ALPA Preferred Stock to elect directors to the Board as provided in Section 7 hereof. Section 5. Dividends. Subject to the rights of holders of Senior Securities, the holders of the ALPA Preferred Stock shall be entitled to receive, when, as and if declared by the Board, out of funds legally available therefor, dividends payable in cash, stock or otherwise. No dividend shall be paid on the Common Stock unless an equivalent dividend is paid on the ALPA Preferred Stock, which dividend shall be in the same amount per share and in the same medium as that paid on the Common Stock; provided, -------- however, that stock dividends declared on the Common Stock and the ALPA ------- Preferred Stock shall be payable in shares of Common Stock and ALPA Preferred Stock, respectively. Section 6. Liquidation Preference. Subject to the rights of holders of Senior Securities, upon any 61 liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of ALPA Preferred Stock shall be entitled to and be paid the sum of $.01 per share from the net assets of the Corporation (the "Liquidation Preference") before any amounts are paid to or on account of the holders of Common Stock, and thereafter the remaining net assets of the Corporation shall be distributed pro rata to the holders of the ALPA Preferred Stock, the Common Stock and such other equity securities of the Corporation which rank on a parity with such stock with respect to such rights, all in accordance with their respective rights and interests. Section 7. Voting Rights. The holders of the ALPA Preferred Stock shall have the following voting rights: (a) The holders of the ALPA Preferred Stock shall be entitled to one vote for each share of ALPA Preferred Stock held of record by such holder as of the record date for a meeting of the Corporation's stockholders (i) on each matter submitted to a vote at such meeting other than the election of directors and (ii) for each of the directors to be elected by the holders of ALPA Preferred Stock at an annual meeting of the Corporation's stockholders pursuant to this Section 7. (b) So long as any shares of ALPA Preferred Stock are outstanding and in accordance with Article Ninth of the Certificate of Incorporation, the holders of the ALPA Preferred Stock shall have the following rights with respect to the election of directors: (i) the exclusive right to elect to the Board one (1) director (the "ALPA Director"), which director shall be a Class II director; and (ii) in the event that the ALPA Director, together with the aggregate number of directors elected by the holders of the shares of the Corporation's two series of preferred stock designated "IAM Preferred Stock" and "IFFA Preferred Stock," respectively, shall be fewer than twenty-two and one-half percent (22.5%) of the total number of directors comprising the Board, then the holders of the ALPA Preferred Stock, IAM Preferred Stock and IFFA Preferred Stock voting as a single class shall have the right to elect additional directors to the Board so that the aggregate number of directors elected by the holders of the ALPA Preferred Stock, IAM Preferred 62 Stock and IFFA Preferred Stock shall constitute at least 22.5% of the total number of directors comprising the Board. (c) At each meeting of stockholders at which the holders of the ALPA Preferred Stock shall have the exclusive right to elect the ALPA Director as provided in paragraph (b) of this Section 7, the presence in person or by proxy of the holders of record of one-third (1/3) of the total number of shares of the ALPA Preferred Stock then outstanding shall be necessary and sufficient to constitute a quorum of such series for such election by such stockholders as a series. At any such meeting or adjournment thereof: (i) The absence of a quorum of the holders of ALPA Preferred Stock shall not prevent the election of directors other than the ALPA Director, and the absence of a quorum of the holders of any other class or series of stock for the election of such other directors shall not prevent the election of the ALPA Director; and (ii) In the absence of either or both such quorums, a majority of the holders present in person or by proxy of the class or series which lack a quorum shall have the power to adjourn for a period of up to thirty (30) days the meeting for election of directors which they are entitled to elect from time to time without notice other than announcement at the meeting until a quorum shall be present. (d) Subject to Article Ninth of the Certificate of Incorporation, any vacancies on the Board resulting from the death, resignation, disqualification, or removal of any ALPA Director shall be filled only by a vote of the holders of the ALPA Preferred Stock. (e) The ALPA Preferred Stock shall be deemed "Voting Stock" for purposes of the Certificate of Incorporation. Section 8. Conversion. Each share of ALPA Preferred Stock shall automatically convert into one share of Common Stock upon the withdrawal of such share of ALPA Preferred Stock from the trust in which such stock is held. The certificate or certificates for shares of ALPA Preferred Stock so converted may be surrendered to any transfer agent of the Corporation for such ALPA Preferred Stock, duly endorsed in blank for transfer. As soon as practicable after the surrender of 63 such certificate or certificates as provided above, the Corporation shall cause to be issued and delivered, at the office of such transfer agent, to or on the order of the holder of the certificates thus surrendered, a certificate or certificates for the number of shares of Common Stock issuable hereunder upon the conversion of such shares of ALPA Preferred Stock. Section 9. Amendment. This Certificate of Designations, Preferences and Rights relating to the ALPA Preferred Stock (the "Certificate of Designations") may be amended only upon the unanimous approval of the holders of record of the outstanding shares of ALPA Preferred Stock. This Certificate of Designations, Preferences and Rights shall be effective as of August 23, 1995. IN WITNESS WHEREOF, the undersigned has executed this Certificate of Designations and does affirm the foregoing as true under the penalties of perjury this __ day of August, 1995. TRANS WORLD AIRLINES, INC. By: /s/ Robert Peiser ----------------- Robert Peiser Its: Executive Vice President and Chief Financial Officer ATTEST: By: /s/ Kathleen A. Soled --------------------- Kathleen A. Soled Its: Secretary [CORPORATE SEAL] 64 STATE OF MISSOURI ) ) SS. COUNTY OF ST. LOUIS ) The undersigned, a Notary Public in and for the aforesaid County and State, certifies that on this ____ day of August, 1995, Robert Peiser, the Executive Vice President and Chief Financial Officer of Trans World Airlines, Inc. (the "Corporation") and Kathleen A. Soled, Secretary of the Corporation, known to me personally to be such, duly executed the foregoing Certificate before me and acknowledged said Certificate to be their act and deed made on behalf of the Corporation, and acknowledged that the facts stated therein are true. The signatures on the attached Certificate of said Chief Financial Officer and said Secretary of the Corporation are in the handwriting of said Chief Financial Officer and said Secretary, respectively, and the seal affixed to the Certificate is the corporate seal of the Corporation. IN WITNESS WHEREOF, I have hereunto set my hand and seal of office this 17 day of August, 1995. /s/ Kristine R. Wall -------------------- Notary Public (Notarial Seal) Kristine R. Wall Notary Public-Notary Seal State of Missouri St. Louis County My Commission Expires: August 29, 1997 65 EX-4.15 4 INDENTURE =============================================================================== TRANS WORLD AIRLINES, INC. and FIRST SECURITY BANK, NATIONAL ASSOCIATION, as Trustee INDENTURE Dated as of March 31, 1997 $50,000,000* 12% Senior Secured Notes Due 2002 =============================================================================== * Subject to an increase up to an aggregate of $7,500,000, for the additional issuance of 12% Senior Secured Notes Due 2002 pursuant to the Purchase Agreement as defined herein. TABLE OF CONTENTS ARTICLE 1.
Page ---- DEFINITIONS AND RULES OF CONSTRUCTION..................................... 1 Section 1.1 Definitions................................................ 1 Section 1.2 Rules of Construction...................................... 1 ARTICLE 2. THE SECURITIES............................................................ 1 Section 2.1 Designation, Form and Dating............................... 1 Section 2.2 Execution, Amount, Authentication and Delivery............. 2 Section 2.3 Registrar and Paying Agent................................. 5 Section 2.4 Paying Agent to Hold Payments In Trust..................... 5 Section 2.5 Securityholder Lists....................................... 7 Section 2.6 Transfer and Exchange...................................... 7 Section 2.7 Mutilated, Defaced, Destroyed, Lost and Stolen Securities.. 8 Section 2.8 Treasury Securities........................................ 9 Section 2.9 Temporary Securities....................................... 10 Section 2.10 Cancellation............................................... 10 Section 2.11 Defaulted Interest......................................... 10 ARTICLE 3. REDEMPTION AND REPURCHASE................................................. 11 Section 3.1 No Optional Redemption..................................... 11 Section 3.2 Use of Temporary Cash Collateral or Cash Collateral for Purchase............................................. 11 ARTICLE 4. COVENANTS................................................................. 12 Section 4.1 Payment of Securities...................................... 12 Section 4.2 Maintenance of Office or Agency............................ 13 Section 4.3 Limitation on Dividends and Acquisition of Common Stock.... 13 Section 4.4 Corporate Existence........................................ 14 Section 4.5 Payment of Taxes and other Claims.......................... 15 Section 4.6 Notices.................................................... 15 Section 4.7 Maintenance of Properties.................................. 16 Section 4.8 Default Notices and Compliance Certificates................ 16 Section 4.9 SEC Reports................................................ 17 Section 4.10 Waiver of Stay, Extension or Usury Laws.................... 18 Section 4.11 Amendment to Certain Agreements............................ 18
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Page ---- Section 4.12 Liens...................................................... 18 Section 4.13 Books, Records, Access; Confidentiality.................... 18 Section 4.14 Security Interests......................................... 19 Section 4.15 Change in Control.......................................... 20 ARTICLE 5. SUCCESSOR CORPORATION..................................................... 23 Section 5.1 Covenant Not to Consolidate, Merge, Convey or Transfer Except Under Certain Conditions.......................... 23 Section 5.2 Successor Person Substituted............................... 24 Section 5.3 Limitation on Lease of Properties.......................... 25 ARTICLE 6. DEFAULT AND REMEDIES...................................................... 25 Section 6.1 Events of Default.......................................... 25 Section 6.2 Acceleration............................................... 27 Section 6.3 Other Remedies............................................. 28 Section 6.4 Waiver of Past Defaults.................................... 28 Section 6.5 Control by Majority........................................ 28 Section 6.6 Limitation on Suits........................................ 29 Section 6.7 Rights of Holders to Receive Payment....................... 29 Section 6.8 Collection Suit by Trustee................................. 30 Section 6.9 Trustee May File Proofs of Claim........................... 30 Section 6.10 Application of Proceeds.................................... 30 Section 6.11 Undertaking for Costs...................................... 32 Section 6.12 Restoration of Rights on Abandonment of Proceedings........ 32 Section 6.13 Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default.................................... 32 ARTICLE 7. TRUSTEE................................................................... 33 Section 7.1 Duties of Trustee.......................................... 33 Section 7.2 Rights of Trustee.......................................... 34 Section 7.3 Individual Rights of Trustee............................... 34 Section 7.4 Trustee's Disclaimer....................................... 34 Section 7.5 Notice of Defaults......................................... 34 Section 7.6 Reports by Trustee to Holders.............................. 35 Section 7.7 Compensation and Indemnity................................. 35 Section 7.8 Replacement of Trustee..................................... 36 Section 7.9 Successor Trustee by Merger, etc........................... 37 Section 7.10 Eligibility; Disqualification.............................. 37
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Page ---- Section 7.11 Preferential Collection of Claims Against Company.......... 37 Section 7.12 Other Capacities........................................... 37 ARTICLE 8. DISCHARGE OF INDENTURE.................................................... 38 Section 8.1 Termination of Company's Obligations....................... 38 Section 8.2 Application of Trust Money................................. 39 Section 8.3 Repayment to Company....................................... 40 Section 8.4 Reinstatement.............................................. 40 ARTICLE 9. AMENDMENTS, SUPPLEMENTS AND WAIVERS....................................... 41 Section 9.1 Without Consent of Holders................................. 41 Section 9.2 With Consent of Holders.................................... 41 Section 9.3 Compliance with Trust Indenture Act........................ 42 Section 9.4 Revocation and Effect of Consents.......................... 42 Section 9.5 Notation on or Exchange of Securities...................... 43 Section 9.6 Trustee to Sign Amendments, etc............................ 43 Section 9.7 Effect of Supplement and/or Amendment...................... 43 ARTICLE 10. SECURITY.................................................................. 44 Section 10.1 Operative Documents........................................ 44 Section 10.2 Opinions, Certificates and Appraisals...................... 44 Section 10.3 Authorization of Actions to be Taken by the Trustee Under the Operative Documents............................ 46 Section 10.4 Payment of Expenses........................................ 46 Section 10.5 Authorization of Receipt of Funds by the Trustee Under the Operative Documents............................ 46 Section 10.6 Agreement as to Appraised Value and Fair Market Value...... 47 Section 10.7 Intercreditor Agreement.................................... 47 ARTICLE 11. MISCELLANEOUS............................................................. 47 Section 11.1 Trust Indenture Act Controls............................... 47 Section 11.2 Notices.................................................... 47 Section 11.3 Communications By Holders With Other Holders............... 48 Section 11.4 Certificate and Opinion as to Conditions Precedent......... 48 Section 11.5 Statements Required In Certificate or Opinion.............. 49 Section 11.6 Liens. Rules By Trustee, Paying Agent, Registrar........... 50
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Page ---- Section 11.7 Payment Dates............................................. 50 Section 11.8 Governing Law............................................. 50 Section 11.9 No Adverse Interpretation of Other Agreements............. 50 Section 11.10 No Recourse Against Others................................ 51 Section 11.11 Provisions of Indenture for the Sole Benefit of Parties and Securityholders............................. 51 Section 11.12 Successors................................................ 51 Section 11.13 Duplicate Originals....................................... 51 Section 11.14 Severability.............................................. 51 Section 11.15 Rating Agencies........................................... 51 Section 11.16 Effect of Headings........................................ 52 ARTICLE 12. RELEASE OF COLLATERAL..................................................... 52 Section 12.1 Release of Collateral..................................... 52
APPENDIX I Definitions APPENDIX II Rule 144A/Regulation S Appendix EXHIBIT A Form of 12% Senior Secured Note EXHIBIT B Form of Legend for Global Securities EXHIBIT C Form of Acquired Slot Trust Agreement with Form of Subsequent Deed of Conveyance attached thereto as Exhibit A thereto and Form of Master Sub-License Agreement attached thereto as Exhibit C thereto EXHIBIT D Form of Pledge and Security Agreement EXHIBIT E Form of Intercreditor Agreement iv INDENTURE dated as of March 31, 1997 between TRANS WORLD AIRLINES, INC., a Delaware corporation (the "Company"), and FIRST SECURITY BANK, NATIONAL ASSOCIATION, as Trustee (the "Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Company's 12% Senior Secured Notes Due 2002 (the "Initial Securities") and, if and when issued pursuant to a registered exchange for Initial Securities, the Company's 12% Senior Secured Notes Due 2002 (the "Exchange Securities") and, if and when issued pursuant to a private exchange for Initial Securities, the Company's 12% Senior Secured Notes Due 2002 (the "Private Exchange Securities", together with the Exchange Securities and the Initial Securities, the "Securities"). ARTICLE 1. DEFINITIONS AND RULES OF CONSTRUCTION Section 1.1 Definitions. ----------- Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to such terms in Section 1 of the Definitions Appendix attached hereto as Appendix I, which shall be a part of this Indenture as if fully set forth in this place. Section 1.2 Rules of Construction. --------------------- The rules of construction for this Indenture are set forth in Section 2 of the Definitions Appendix. ARTICLE 2. THE SECURITIES Section 2.1 Designation, Form and Dating. ---------------------------- Provisions relating to the Initial Securities, the Private Exchange Securities and the Exchange Securities are set forth in the Rule 144A/Regulation S Appendix attached hereto as Appendix II (the "Rule 144A Appendix") which is hereby incorporated in and expressly made part of this Indenture. The Initial Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit 1 to the Rule 144A Appendix (with such appropriate insertions, omissions, substitutions and other variations as are required by this Indenture) which is hereby incorporated in and expressly made a part of this Indenture. The Exchange Securities, the Private Exchange Securities, and the Trustee's certificates of authentication shall be substantially in the form of Exhibit A hereto which is hereby incorporated in and expressly made a part of this Indenture. The Exchange Securities and the Private Exchange Securities may be issued with the appropriate insertions, omissions, substitutions and other, variations. The Securities may have imprinted or otherwise reproduced thereon such notations, legends or endorsements, not inconsistent with the provisions of this Indenture, as may be required to comply with any law or with any rules or regulations pursuant thereto, or with the rules of any securities market in which the Securities are admitted to trading, or to conform to general usage. The Company shall approve the form of the Securities and any notation, legend or endorsement on them. Each Security shall be dated the date of its authentication and shall bear interest from the applicable date set forth in the form of security and shall be payable, unless previously Tendered, on the dates as specified on the face of the form of the Security. The terms and provisions contained in the Securities, annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a part of this Indenture. The Person in whose name any Security is registered at the close of business on any Record Date with respect to any Interest Payment Date shall be entitled to receive the interest and Liquidated Damages, if any, payable on such Interest Payment Date to the extent provided by such Security, notwithstanding any transfer, exchange, or tender, in connection with payment of the Exercise Price of the Warrants, of such Security subsequent to the Record Date and prior to such Interest Payment Date, except if and to the extent the Company shall default in the payment of the interest or Liquidated Damages due on such Interest Payment Date, in which case defaulted interest or Liquidated Damages, as the case may be, shall be paid to the Person in whose name the Outstanding Security is registered at the close of business on the subsequent record date (which shall be not less than five (5) Business Days prior to the date of payment of such defaulted interest) established by notice given by mail or on behalf of the Company to the Holders of Securities not less than fifteen (15) days preceding such subsequent record date (a "Special Record Date"). Section 2.2 Execution, Amount, Authentication and Delivery. ---------------------------------------------- The Securities shall be signed for the Company by the manual or facsimile signatures of an Officer and a Certifying Officer. The Company's seal shall be affixed to or reproduced on the Securities. Typographical or other errors or defects in any such reproduction of the seal or any such signature shall not affect the validity or enforceability of any Security which has been duly authenticated and delivered by the Trustee. If an officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to (a) $50,000,000 plus (b) such aggregate principal amount (which 2 may not exceed $7,500,000 principal amount) of Securities as shall be purchased by PaineWebber Incorporated pursuant to the exercise of its overallotment option under the Purchase Agreement, dated March 27, 1997, between the Company and PaineWebber Incorporated (the "Over-Allotment Option"), except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Sections 2.6, 2.7, 2.9, 4.15, or 9.5 or in conjunction with a Registered Exchange Offer or any Private Exchange. The Securities shall be known and designated as the "12% Senior Secured Notes Due 2002" of the Company. Their Stated Maturity shall be April 1, 2002, and they shall bear interest at the rate of 12% per anum, from March 31, 1997 or from the most recent Interest Payment Date to which interest and Liquidated Damages, if any, have been paid or duly provided for, as the case may be, payable semi-annually on April 1 and October 1, commencing October 1, 1997, until the principal thereof is paid or made available for payment. Subject to the limits set forth in the second preceding paragraph of this Indenture, the Trustee shall authenticate Securities for original issue upon written order of the Company signed by an Officer and by a Certifying Officer of the Company. The order shall specify the amount of Securities to be authenticated and the date on which the original issue of Securities is to be authenticated, shall provide instructions with respect to the delivery thereof and shall be accompanied by the documents specified in Sections 10.2 (except in the case of any original issuance of Securities pursuant to the Over-Allotment Option) and 11.4 and (except in the case of any original issuance of Securities pursuant to the Over-Allotment Option) by the following (each to the extent and in form acceptable to the Trustee, who is authorized conclusively to rely upon the documents specified in Section 11.4): (a) the grant to the Collateral Agent, by assignment, pledge, or otherwise pursuant to the Pledge Agreement, of a security interest in the Collateral and the conveyance to or otherwise vesting in the Slot Trust of the Acquired Slots; (b) (i) Officers' Certificates or other satisfactory confirmation (i) with respect to the Pledge Agreement and the Collateral, that the Company is the legal and beneficial owner of the Collateral, free and clear of all Liens except Permitted Liens; (ii) that the Acquired Slots are vested in the Slot Trustee; and (iii) describing the actions taken to make, obtain and accomplish all necessary filings, confirmations and identifications referred to in Section 4.15 hereof and Section 7.1(b)(i) of the Master Sub-License Agreement; (c) compliance with all applicable provisions of Sections 4.13 and 4.15 hereof; (d) an Officers' Certificate (i) listing (A) (by reference to exhibits or schedules to the Operative Documents or otherwise) as of the last day of the month preceding the date hereof the locations of and the Adjusted Cost of the Ground Equipment, and (B) as of the date of such Certificate, the Acquired Slots then held by the Slot Trust; and (ii) stating that (A) no dispositions of Ground Equipment outside of the Ordinary Course have occurred since the date of such list nor has any amount of Ground Equipment, as described on such list, been moved from the location 3 indicated other than in the ordinary course of business nor is the sum of such dispositions or movements, considered in the aggregate, material in relation to the Property set forth on such list, (B) no material changes in the information provided have occurred from the last day of the preceding month to the date hereof; and (C) confirming all representations and warranties of the Company contained in the Indenture and the Operative Documents as of the date of authentication; (e) an Officers' Certificate containing representations and warranties of the type usual and customary to the issuance of the Securities such as, but not limited to, representations regarding due authorization of the Indenture; due authorization of the issuance, sale and delivery of the Securities that the Securities; when so issued, sold and delivered against payment therefor will be duly and validly issued, fully paid and non-assessable; that no consent, approval or authorization of, or designation, declaration, or filing with, any governmental authority or any other person or entity is required of the Company in connection with the execution and delivery of the Indenture or the issuance, sale and delivery of the Securities; and that the Securities have been registered under the Securities Act or that registration is not required in connection with the offer, sale and delivery of the Securities; (f) an Opinion of Counsel to the effect that the Company has the requisite corporate power and authority to execute, deliver and perform its obligations under the Indenture; that the Securities have been duly authorized and validly issued; and that the offer and sale of the Securities have been registered or will be exempt from the registration requirements under the Securities Act; and (g) execution and delivery by the Company of the Securities and by all parties thereto of this Indenture and all Operative Documents; provided, however, that any Securities in fact authenticated by the Trustee upon - -------- ------- written order of the Company as set forth in the first sentence of this paragraph shall be deemed to have been duly authenticated hereunder and to constitute an enforceable contractual obligation of the Company and shall be entitled to all the benefits of this Indenture and the other Operative Documents equally and proportionately with any and all other Securities duly authenticated and delivered hereunder, in each case, notwithstanding any failure of the Company to deliver any of the documents specified in Sections 10.2 and 11.4 or above in this sentence; The Securities shall be issuable only in registered form, without coupons, in denominations of $1,000 and any integral multiple thereof, except that one Global Security may be issued in a different denomination. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. An authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company, any guarantor or any Affiliate of the Company. 4 Section 2.3 Registrar and Paying Agent. -------------------------- The Company shall maintain an office or agency where Securities eligible for transfer or exchange may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Securities may be presented for payment or repurchase ("Paying Agent") or tender in payment of the Exercise Price of the Warrants ("Tender Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange ("Register"). Such Register shall be in written form in the English language or any other form capable of being converted into such form within a reasonable time. At all reasonable times such Register shall be open for inspection by the Trustee. The Company may have one or more co-Registrars and one or more additional paying agents or tender agents. The term "Paying Agent" or "Tender Agent" includes any additional paying agent or tender agent. The Company may enter into an appropriate agency agreement with any Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any such Agent. If the Company fails to maintain a Registrar, Paying Agent or Tender Agent, the Trustee shall act as such. The Company initially appoints First Security Bank, National Association, as Registrar, Paying Agent and Tender Agent. Section 2.4 Paying Agent to Hold Payments In Trust. -------------------------------------- Each Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all Payments held by the Paying Agent for the payment of principal of, interest on, Liquidated Damages, if any, with respect to, the Securities (whether such Payment has been Paid to it by the Company or any other obligor on the Securities), and shall notify the Trustee of any default by the Company (or any other obligor on the Securities) in making any such Payment. The Company at any time may require a Paying Agent to Pay all Payments held by it to the Trustee and account for any funds disbursed and the Trustee may at any time during the continuance of any payment default, upon written request to a Paying Agent, require such Paying Agent to Pay all Payments held by it to the Trustee and to account for any Payments distributed. Upon doing so the Paying Agent shall have no further liability for the Payments. If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of, interest on, or Liquidated Damages, if any, with respect to, any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto Payments sufficient to pay the principal, interest or Liquidated Damages, if any, so becoming due until such Payments shall be Paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of such action or any failure so to act. The Company will, on or before each due date for the payment of the principal of, interest on, or Liquidated Damages, if any, with respect to, or any Securities, deposit with a Paying Agent Payments (in same day funds) sufficient to pay the principal, interest or Liquidated Damages, if any, 5 so becoming due, such Payments to be held in trust for the benefit of the Persons entitled to such principal, interest, or Liquidated Damages, if any, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of such action or any failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (a) hold all Payments received by it as such agent for the payment of the principal of, or Liquidated Damages, if any, with respect to or interest on Securities (whether such Payments have been Paid to it by the Company or by any other obligor on the Securities) in trust for the benefit of the Persons entitled thereto until such Payments shall be paid to such Persons or otherwise disposed of as herein provided; (b) promptly give the Trustee notice of any failure by the Company (or any other obligor upon the Securities) to make any payment of the principal of, interest on, or Liquidated Damages, if any, with respect to the Securities when the same shall be due and payable; and (c) at any time during the continuance of any such failure, upon the written request of the Trustee, forthwith pay to the Trustee all Payments so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, Pay, or direct any Paying Agent to Pay, to the Trustee all Payments held in trust by the Company or such Paying Agent, such Payments to be held by the Trustee upon the same trusts as those upon which such Payments were held by the Company or such Paying Agent; and, upon such Payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such Payments held by it as Paying Agent. Any Payments deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, Repurchase Price of, interest on or Liquidated Damages, if any, with respect to any Security and unclaimed for two (2) years after such principal, interest or Liquidated Damages, if any, has become due and payable shall be Paid to the Company on its request, or (if then held by the Company) shall be discharged from such trust, unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property law, and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof and all liability of the Trustee or such Paying Agent with regard to such Payments, and all liability of the Company as trustee thereof, shall thereupon cease. Section 2.5 Securityholder Lists. -------------------- The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders identified as to series. If the Trustee is not the Registrar, the Company shall furnish to the Trustee on or before each Interest 6 Payment Date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders. Section 2.6 Transfer and Exchange. --------------------- When Securities are presented to the Registrar or a co-Registrar with a request to register the transfer or to exchange them for an equal principal amount of Securities of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements, for such transactions are met. To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's request. All Securities presented for registration of transfer, exchange, redemption or payment shall (if so required by the Company or the Trustee) be duly endorsed by, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Company and the Trustee, duly executed by the Holder or his attorney duly authorized in writing. The Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with any registration of transfer or exchange, but not for any exchange pursuant to Sections 2.9, 3.5, 4.15 or 9.5 or any Tender not involving any transfer of Securities (other than to the Company). No service charge shall be made for any such transaction. In the case of any Security which is Tendered in part only, upon such Tender the Company shall execute and the Trustee shall authenticate and make available for delivery to the Holder thereof, without service charge, a new Security or Securities of any authorized denomination as requested by such Holder in aggregate principal amount equal to the non-Tendered portion of the principal of such Security. No Securities will be issued in denominations of less than $1000 upon tender of the Securities nor shall any cash be paid by the Company in connection with a tender of the Securities in payment of the Exercise Price of the Warrants other than in payment of fractional shares. All Securities issued upon any transfer or exchange of Securities shall be valid obligations of the Company, evidencing the same debt of the same series and entitled to the same benefits under this Indenture, as the Securities surrendered upon such transfer or exchange. Section 2.7 Mutilated, Defaced, Destroyed, Lost and Stolen Securities. --------------------------------------------------------- In case any temporary or definitive Security shall become mutilated, defaced or be apparently destroyed, lost or stolen, subject to compliance with the following sentence and in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute, and the Trustee shall authenticate and deliver, a new Security, bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated or defaced Security, or in lieu of and substitution for the Security so apparently destroyed, lost or stolen. In every case the applicant for a substitute Security shall furnish to the Company and to the Trustee and any agent of the Company or the Trustee such security or indemnity as may be required by them to indemnify and defend and to save each of them harmless and, in every case of 7 destruction, loss or theft, evidence to their satisfaction of the apparent destruction, loss or theft of such Security and of the ownership thereof. Upon the issuance of any substitute Security pursuant to the preceding paragraph, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. In case any Security which has matured or is about to mature, or has been tendered for repurchase pursuant to Section 4.15 or has been tendered in payment of the Exercise Price for the Warrants (as evidenced by an irrevocable written notice from the Holder to the Company and the Trustee), shall become mutilated or defaced or be apparently destroyed, lost or stolen, the Company may, instead of issuing a substitute Security, pay or authorize the payment of such Security or authorize the issuance of the securities issuable upon exercise of the Warrants (without surrender of such Security except in the case of a mutilated or defaced Security), as applicable, if the applicant for such payment shall furnish to the Company and to the Trustee and any agent of the Company or the Trustee such security or indemnity as any of them may require to save each of them harmless from all risks, however remote, and, in every case of apparent destruction, loss or theft, the applicant shall also furnish to the Company and the Trustee and any agent of the Company or the Trustee evidence to their satisfaction of the apparent destruction, loss or theft of such Security and of the ownership thereof. Every substitute Security issued pursuant to the provisions of this Section by virtue of the fact that any Security is apparently destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the apparently destroyed, lost or stolen Security shall be at any time enforceable by anyone and shall be entitled to all the benefits of (but shall also be subject to all the limitations of rights set forth in) this Indenture equally and proportionately with any and all other Securities duly authenticated and delivered hereunder. Every substitute Security issued pursuant to the provisions of this Section by virtue of the fact that any Security is mutilated or defaced shall constitute an additional contractual obligation of the Company and shall be entitled to all the benefits of (but shall also be subject to all the limitations of rights set forth in) this Indenture equally and proportionately with any and all other Securities of the same series duly authenticated and delivered hereunder. All Securities shall be held and owned upon the express condition that, to the extent permitted by law, the foregoing provisions are exclusive with respect to the replacement or payment of mutilated or defaced or apparently destroyed, lost or stolen Securities and shall preclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. Section 2.8 Treasury Securities. ------------------- In determining whether the Holders of the required principal amount of Securities have given or concurred in any amendment, request, demand, authorization, direction, notice, consent or waiver under this Indenture or any other Operative Document, Securities owned by the Company (including Securities Tendered), an Affiliate of the Company, any other obligor upon the Securities, any Affiliate of such obligor upon the Securities or any Person who has given or concurred in any such 8 amendment, request, demand, authorization, direction, notice, consent or waiver under the direction of, by agreement with, or as a condition or in consideration of any exchange offer by or transfer of such Person's Securities to the Company, an Affiliate of the Company, any other obligor, any Affiliate of such obligor or any such Person, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination, except that, for the purposes of determining whether the Trustee shall be protected in relying on any such amendment, request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows are so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee that neither the Company nor any such other obligor, Affiliate or Person is affiliated with the pledgee or any Affiliate of the pledgee and that the pledgee has the present right (subject to no contrary obligation or understanding) so to act with respect to the Securities on the basis of its best interests as a Holder independently of any direction by or interest of the Company. In case of a dispute as to such right, the Trustee in good faith shall be entitled to rely upon the advice of counsel, including counsel for the Company. Upon request of the Trustee, the Company shall promptly furnish to the Trustee a certificate of a Certifying Officer listing and identifying all Securities, if any, known by the Company to be owned or held by or for the account of any of the above- described Persons; and subject to Sections 7.1 and 7.2 herein, the Trustee shall be entitled to accept such certificate as conclusive evidence of the facts therein set forth and of the fact that all Securities not listed therein are Outstanding for the purpose of any such determination. The Company shall not, directly or indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any additional security, to any Holder of Securities as consideration for or as an inducement to giving or concurring in any amendment, request, demand, authorization, direction, notice, consent or waiver under this Indenture or any other Operative Document unless such remuneration is concurrently paid, or such security is concurrently granted, as the case may be, on the same terms ratably to the Holders of all Securities then Outstanding (regardless of whether any such Holder has given or concurred in such amendment, request, demand, authorization, direction, notice, consent or waiver under this Indenture or any other Operative Document). For purposes of this Section and without limiting the generality of the foregoing, Securities which are subject to a binding contract or irrevocable tender offer (including an offer which is in any way conditioned upon or simultaneous with, or requires as a condition precedent (whether by contract or otherwise) or which cannot be effected without, the agreement or consent of the transferor to any amendment, request, demand, authorization, direction, notice, consent or waiver hereunder) pursuant to which ownership (direct or indirect) is to be transferred (including for example, Securities tendered to the Company or any other Person in an exchange transaction) shall be deemed owned by such transferee, and therefore, any such simultaneous agreement or consent by the transferor shall be invalid. Section 2.9 Temporary Securities. -------------------- Until definitive Securities are ready for delivery, the Company may prepare, and, upon written order of the Company, the Trustee shall authenticate, temporary Securities in any authorized 9 denominations. Temporary Securities shall be substantially in the form of definitive Securities of the same series but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate and deliver definitive Securities in exchange for temporary Securities. Until so exchanged, the temporary Securities shall be entitled to the same benefits under this Indenture as definitive Securities of the same series. Section 2.10 Cancellation. ------------ The Company may at any time deliver Securities to the Trustee for cancellation. The Registrar, the Paying Agent and the Tender Agent shall forward to the Trustee any Securities surrendered to them (i) for transfer, exchange (including without limitation, Initial Securities exchanged for Exchanged Securities, Private Exchange Securities or both), repurchase or payment, or (ii) in payment (in whole or in part) of the Exercise Price of the Warrants. All Securities purchased pursuant to Section 3.2 shall be cancelled. The Trustee and no one else shall cancel all Securities surrendered for transfer, exchange, repurchase, payment (in whole or in part) of the Exercise Price of the Warrants or cancellation. The Company may not issue new Securities to replace Securities it has paid (upon Tender or otherwise) or which have been delivered to the Trustee for cancellation. The Trustee shall destroy all canceled Securities and, if requested, deliver a certificate of such destruction to the Company. If the Company shall acquire any of the Securities, such acquisition shall not operate as a satisfaction of the indebtedness represented by such Securities unless and until the same are delivered to the Trustee for cancellation. Section 2.11 Defaulted Interest. ------------------ If the Company defaults in a payment of interest on, or Liquidated Damages, if any, with respect to, the Securities, it shall pay the defaulted interest, plus interest on the defaulted interest or Liquidated Damages, as the case may be, at the rate then borne on the Securities to the extent permitted by law and the terms thereof, to the persons who are Securityholders on a subsequent Special Record Date. The Company shall fix the Special Record Date and payment date. At least fifteen (15) days before the Special Record Date, the Company shall mail to each Securityholder a notice that states the Special Record Date, the payment date and the amount of defaulted interest or Liquidated Damages, as the case may be, to be paid. ARTICLE 3. REDEMPTION AND REPURCHASE Section 3.1 No Optional Redemption. ---------------------- The Securities Outstanding shall not be subject to redemption in whole or in part at any time, at the option of the Company. Section 3.2 Use of Temporary Cash Collateral or Cash Collateral --------------------------------------------------- for Purchase ------------ 10 So long as no Event of Default shall have occurred and be continuing, the Company may at any time direct the Trustee by Request to apply moneys held by the Collateral Agent as Temporary Cash Collateral to the purchase of Securities for cancellation at prices not exceeding their face amount plus accrued interest and Liquidated Damages, if any, provided that (a) the Request shall specify the principal amount of Securities to be purchased, the date by which and maximum price at which the purchase of any Securities is directed, and the arrangements (which shall be satisfactory to the Trustee) the Company will make to assure payment of accrued interest and Liquidated Damages, if any, to the date of purchase on the Securities to be purchased from sources other than Temporary Cash Collateral; (b) the Trustee shall direct the Collateral Agent to hold for the account of or transfer to the Trustee Temporary Cash Collateral in the amounts and to be available at the times specified in the Request, and such Temporary Cash Collateral shall thereupon be held by the Trustee or Collateral Agent (together with accrued interest and Liquidated Damages, if any provided by the Company) for the exclusive purpose of paying, and shall be applied by them to pay, the principal amount of, accrued interest on, and Liquidated Damages, if any, with respect to, the Securities purchased on the applicable date of purchase; (c) the Trustee may enter into such purchase contracts for Securities as are necessary to comply with the Request; and shall notify the Company and the Collateral Agent as to the face amount of Securities (including accrued interest and Liquidated Damages, if any) purchased from time to time; and (d) Temporary Cash Collateral held exclusively for purposes of this Section may be returned to the Collateral Agent as Temporary Cash Collateral upon Request except to the extent it is needed by the Trustee to honor its contracts for the purchase of Securities or to pay the Repurchase Price of Securities tendered for repurchase pursuant to Section 4.15. So long as no Event of Default shall have occurred and be continuing, the Company may at any time direct the Trustee by Request to apply moneys held by the Collateral Agent as Cash Collateral to the purchase of Securities for cancellation under the terms and subject to the provisions of clauses (a) through (c) of the preceding sentence applicable to Temporary Cash Collateral. ARTICLE 4. COVENANTS Section 4.1 Payment of Securities. --------------------- The Company shall pay the principal of, interest on and Liquidated Damages, if any, with respect to the Securities on the dates and in the manner provided in this Indenture and in the Securities, subject to utilization of Securities in payment of the Exercise Price of the Warrants,. The Company shall pay interest semi-annually in arrears on each Interest Payment Date, commencing with the first such Interest Payment Date to occur after the Original Issuance Date. Interest shall be paid on each Interest Payment Date in an amount equal to the interest accrued for the period beginning from March 31, 1997, or from the most recent date to which interest and Liquidated Damages, if any, have been paid. All interest due and payable on the Securities shall be paid in cash. 11 In the case of any Security which is Tendered in payment of the Exercise Price of Warrants after any Record Date for the payment of interest and on or prior to the next succeeding Interest Payment Date, interest or Liquidated Damages whose Stated Maturity is on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such Tender, and such interest or Liquidated Damages (whether or not punctually paid or duly provided for) shall be paid to the Person in whose name that Security (or one or more predecessor Securities to such Security) is registered at the close of business on such Record Date. Any Security which is tendered in payment of the Exercise Price after any Record Date for the payment of interest or Liquidated Damages, if any, and on or prior to the next succeeding Interest Payment Date must be accompanied by funds equal to the interest and Liquidated Damages, if any, payable on such succeeding Interest Payment Dates on the principal amount to be tendered in payment of the Exercise Price of the Warrants. Except as otherwise expressly provided in the second preceding sentence, in the case of any Security which is Tendered in payment of the Exercise Price of Warrants, interest whose Stated Maturity is after the date of Tender of such Security shall not be payable. No Securities will be accepted in payment of the Exercise Price of the Warrants, if such acceptance would result in cash being due to Holder in payment of the principal amount of the Securities at any time other than the Stated Maturity of the Securities. An installment of principal, interest or Liquidated Damages, if any, shall be considered paid on the date due if the Trustee or Paying Agent (other than the Company or any Affiliate thereof) holds on that date Payments designated for and sufficient to pay the installment and the Trustee or Paying Agent has not received instructions from the Company not to make such payment or is not prohibited from Paying such Payments to the Holders of the Securities pursuant to this Indenture. An installment of principal on a Security also shall be considered paid on the date due if the Trustee or Paying Agent holds on such date instructions from the Holder of the Security to apply such principal to payment of the Exercise Price of the Warrants. The Company shall pay interest at the rate set forth in the Securities and the Company shall pay interest on unpaid interest or Liquidated Damages, if any, at the same rate to the extent legally permitted. Section 4.2 Maintenance of Office or Agency. ------------------------------- The Company shall maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be surrendered for registration of transfer or exchange or for presentation for payment, repurchase or tender in payment of the Exercise Price of Warrants and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. At the request of the Company, said office or agency may be the office of an agent appointed by the Trustee for such purpose. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency not designated or appointed by the Trustee. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office. 12 The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. Section 4.3 Limitation on Dividends and Acquisition of Common Stock. ------------------------------------------------------- The Company will not declare or pay any dividend or make any distribution on its Common Stock, Employee Preferred Stock or other capital stock of the Company (other than dividends or distributions payable in the Company's Common Stock or Employee Preferred Stock or options, warrants or other rights to acquire, subscribe for or purchase the Company's Common Stock or Employee Preferred Stock) and will not, and will not permit any of its Subsidiaries to, purchase, redeem or otherwise acquire for value any shares of its Common Stock, Employee Preferred Stock or other capital stock of the Company, whether in cash or property or in obligations of the Company, if, at the time of such declaration, payment, distribution, purchase, redemption or other acquisition or, after giving effect thereto, a Default or Event of Default shall have occurred and be continuing; provided, further, that notwithstanding anything to -------- ------- the contrary written above, this Section 4.3 shall not apply to: (a) any purchase or redemption of Common Stock or Preferred Stock by the Company or an employee stock ownership or benefit plan (i) from union employees or former union employees, or their respective transferees, pursuant to the terms of agreements with labor unions existing on the date hereof; (ii) from recipients or their transferees of such stock from employee stock ownership or benefit plans subject to ERISA; (iii) from employee stock ownership or benefit plans subject to ERISA in order to provide cash benefits to employees pursuant to the terms of such plans; and (iv) as required by ERISA; and (b) any purchase or redemption of Common Stock or Preferred Stock by an employee stock ownership or benefit plan subject to ERISA for an aggregate consideration, without regard to purchases or redemptions pursuant to clause (a) above, of up to $200,000,000; (c) the payment of fixed or mandatory dividends on or scheduled redemptions or exchanges of any of the Company's 8% Preferred Stock and the payment of any interest on the securities issuable upon such exchange; (d) the payment of any dividends on or the purchase, redemption or other acquisition or retirement of the Common Stock or Preferred Stock of the Company within sixty (60) days after the date of declaration of such dividend or the commitment to make such purchase, redemption or other acquisition or retirement, if at said date of declaration or commitment such payment or commitment complied with this Section 4.3; (e) the purchase, redemption, retirement or other acquisition of any shares of the Company's Common Stock or Preferred Stock in exchange for, or out of the proceeds of the substantially concurrent sale of, Common Stock or Preferred Stock of the Company; (f) any consolidation or merger with or into any Person or conveyance or transfer of all or substantially all of the Company's Property to one or more Persons substantially as an entirety, not prohibited by the terms of Section 5.1; and (g) the conversion of Employee Preferred Stock into Common Stock. 13 Section 4.4 Corporate Existence. ------------------- (a) Except as otherwise provided in Article 5, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate existence of each Pledged Subsidiary and the corporate existence of each other Subsidiary engaged in substantial business activity each in accordance with the respective organizational documents of the Company and each such Subsidiary and the rights (charter and statutory), licenses, permits, approvals and governmental franchises of the Company and each such Subsidiary necessary to the conduct of its respective business; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or (other than with respect to the Pledged Subsidiaries) to preserve the corporate existence of any such Subsidiary, if the Board of Directors shall determine that the preservation thereof is no longer in the interest of the Company and that termination of the corporate existence is not disadvantageous to the Holders in any material respect. (b) The Company shall continue to be an air carrier certificated under Section 604(b) of the Federal Aviation Act. (c) The Company is and, to the extent required to operate its business as presently conducted and to perform its obligations under this Indenture and the Operative Documents, shall remain a "citizen of the United States" as defined in Section 101(16) of the Federal Aviation Act. Section 4.5 Payment of Taxes and other Claims. --------------------------------- The Company shall, and shall cause each Subsidiary to, pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all taxes, assessments and governmental charges levied or imposed upon the Company and each Subsidiary or upon the income, profits or Property of the Company and each Subsidiary or upon the Collateral, the Slot Trust or the Acquired Slots and (b) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon the Collateral, the Slot Trust, the Acquired Slots or the other Property of the Company or a Subsidiary; provided, however, that the Company or a Subsidiary, as the case may be, shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim (i) the amount, applicability or validity of which is being contested in good faith by appropriate proceedings as permitted by and in accordance with the provisions of the Operative Documents, to the extent applicable, and for which adequate reserves have been established in accordance with generally accepted accounting principles, as in effect from time to time, or (ii) if the Company delivers to the Trustee a Certificate of an Officer stating that such non- payment and non-discharge is in the interest of the Company and not prejudicial in any material respect to the Holders. Nothing contained herein or in the Securities shall be deemed to impose on the Trustee or on the Company any obligation to pay on behalf of the Holder of any Securities any tax, assessment or governmental charge required by any present or future law of the U.S. or of any state, county, municipality or other taxing authority thereof to be paid on behalf of, or withheld from the amount 14 payable to, the Holder of any Securities; rather any tax, assessment or governmental charge shall, to the extent required by law, be withheld from the amounts provided for herein. Section 4.6 Notices. ------- The Company shall notify the Trustee in writing of any of the following promptly (and in any event within five (5) Business Days after an Officer learns of the occurrence thereof) describing the same and, if applicable, the steps being taken by the Person(s) affected with respect thereto: (a) In the event of any failure to pay any Senior Obligation at its stated maturity or any default on any Senior Obligations giving any Person the right to cause such Senior Obligations to become due prior to their stated maturity or exercise other remedies, regardless of any waiver of such default or non- exercise of such right; (b) In the event that any other Indebtedness of the Company in a principal amount in excess of $15,000,000 (i) is declared due and payable before its stated maturity because of the occurrence of any default (or any event which, with notice or the lapse of time, or both, shall constitute such default) under such Indebtedness or (ii) is not paid at its stated maturity; or (c) Any litigation, arbitration proceeding or governmental proceeding involving damages or potential liability in excess of $15,000,000 is instituted against the Company or any of its Subsidiaries which, if adversely determined, would have a material adverse effect on the business, operations or financial condition of the Company and its Subsidiaries taken as a whole. Section 4.7 Maintenance of Properties. ------------------------- Except as otherwise provided in this Indenture, the Company shall, and shall cause each Subsidiary to, cause all material Properties owned by or leased to it and used or useful in the conduct of the business of the Company or any Subsidiary, as the case may be, to be maintained and kept in normal condition, repair and working order, except for reasonable wear and use, and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary, so that the business carried on in connection therewith may be properly and advantageously conducted at all times, except, in every case, as and to the extent that the Company or any Subsidiary may be prevented by fire, strikes, lockouts, acts of God, inability to obtain labor or materials, governmental restrictions, enemy action, civil commotion or unavoidable casualty or similar causes beyond the control of the Company or such Subsidiary; provided, however, that subject to all requirements of the Operative Documents, nothing in this Section 4.7 shall prevent the Company or any Subsidiary from discontinuing the use, operation or maintenance of any such Properties, or disposing of any of them, if such discontinuance or disposal is, in the good faith judgment of an Officer of the Company (or other agent employed by the Company) having managerial responsibility for any such Property (or, in the case of any materially important item, with respect to operations or value, in the good faith judgment of the Company as expressed in a resolution of the Board of Directors), desirable in the conduct of the business of the Company. 15 Section 4.8 Default Notices and Compliance Certificates. ------------------------------------------- Contemporaneously with furnishing quarterly financial reports to the Trustee under Section 4.9(a) or mailing quarterly statements to the Trustee and Holders under Section 4.9(c), the Company shall furnish to the Trustee a Certifying Officer's Certificate to the effect that no Default or Event of Default has occurred or is continuing, or, if there is any such Default or Event of Default, describing it and the steps, if any, being taken to cure it. The Company shall deliver to the Trustee within one hundred twenty (120) days after the end of each fiscal year in which any of the Securities remain Outstanding (i) a certificate of the principal executive officer, principal financial officer or principal accounting officer of the Company (which need not comply with the provisions of Section 11.5) stating whether or not, to the knowledge of the signer, the Company is in compliance with all conditions and covenants under this Indenture and the Operative Documents (determined without regard to any period of grace or requirement of notice), and if the Company is not in compliance with all such conditions and covenants, describing each Default or Event of Default and its status, and (ii) a certificate of one of the foregoing officers or an Officers' Certificate stating whether or not, to the knowledge of the signer, the Company is in compliance with all conditions and covenants under each Senior Security Agreement, and if not, describing each default or event of default thereunder and its status. The first certificates to be delivered by the Company pursuant to this Section 4.8 shall be for the fiscal year ending December 31, 1997. Section 4.9 SEC Reports. ----------- (a) The Company shall deliver to the Trustee as soon as practicable after it files them with the SEC, copies of the annual reports and of the information, documents, and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Company is required to file with the SEC pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended. The Company also shall comply with the other provisions of TIA (S) 314(a). (b) So long as any of the Securities remain Outstanding, the Company shall cause its annual report to stockholders and any quarterly or other financial reports furnished by it to stockholders generally, to be mailed to the Holders of such Outstanding Securities at their addresses appearing in the Register. (c) At any time the Company does not have a class of securities registered, or is not otherwise required to file quarterly and other reports under the Securities Exchange Act of 1934, as amended, the Company will prepare or cause to be prepared, for each of the first three (3) quarters of each fiscal year, an unaudited balance sheet of the Company and its consolidated Subsidiaries as at the end of such quarter and related unaudited consolidated statements of income and retained earnings and cash flow of the Company and its consolidated Subsidiaries for such quarter and the portion of the fiscal year through such date, setting forth in each case in comparative form the figures for the corresponding year-to-date period in the previous year, certified by the principal 16 financial officer of the Company, and for each fiscal year, an audited balance sheet of the Company and its consolidated Subsidiaries as at the end of such year and related audited consolidated statements of income and retained earnings and cash flow of the Company and its consolidated Subsidiaries for such year, setting forth in comparative form the figures for the previous year, reported on without a qualification arising out of the scope of the audit, by the Company's independent public accountants. All financial statements will be prepared in accordance with generally accepted accounting principles, as in effect from time to time, consistently applied, except for changes with which the Company's independent public accountants concur and except that quarterly statements may be subject to year-end adjustments. The Company will cause a copy of the respective financial statements to be mailed to the Trustee and each of the Holders of the Securities within forty-five (45) days after the close of each of the first three (3) quarters of each fiscal year and within one hundred twenty (120) days after the close of each fiscal year, to the addresses set forth in Section 11.2 or, in the case of each of the Holders, to such Holder's address as set forth in the Register of the Securities. Section 4.10 Waiver of Stay, Extension or Usury Laws. --------------------------------------- The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of, interest on, or Liquidated Damages, if any, with respect to the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture and the Operative Documents; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power granted to the Trustee herein and in the Operative Documents, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 4.11 Amendment to Certain Agreements. ------------------------------- The Company shall not enter into or consent to any amendment, supplement or other modification of the Operative Documents except as permitted under Article 9 hereof. Section 4.12 Liens. ----- The Company represents and warrants that it has, and covenants that it shall continue to have, full power and lawful authority to grant, release, convey, assign, transfer, mortgage, pledge, hypothecate and otherwise create the security interests in the Collateral referred to in Article 10; the Company shall warrant, preserve and defend the interest and title of the Collateral Agent to the Collateral, and of the Pledged Subsidiaries to their respective Properties, against the claims of all persons and will maintain and preserve the security interests contemplated by Article 10; and the Company shall not, and not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien upon or with respect to the Collateral, except for Permitted Liens. 17 The Company shall cause the Operative Documents, including all necessary financing statements, notifications of secured transactions and other assurances or instruments to be properly recorded, registered and filed and to be kept, recorded, registered and filed in such manner and in such places as may be required by law and shall take all such other actions as may be required in order to make effective the security interests intended to be created in connection with this Indenture. The Company shall furnish to the Trustee the Opinions of Counsel required by Section 10.2 to confirm such action. Section 4.13 Books, Records, Access; Confidentiality. --------------------------------------- (a) The Company shall, and shall cause each of its Subsidiaries to, (i) maintain complete and accurate books and records in which full and correct entries in conformity with generally accepted accounting principles shall be made of all dealings and transactions in relation to its respective business and activities, (ii) permit authorized representatives of the Trustee, the Collateral Agent and/or the Slot Trustee to visit and inspect the Properties of the Company or its Subsidiaries, and any or all books, records and documents in the possession of the Company relating to the Collateral and the Acquired Slots, including the records, logs, and other materials referred to in Section 4.8 of the Pledge Agreement, and to make copies and take extracts therefrom and to visit and inspect the Collateral, all upon reasonable notice and at such reasonable times during normal business hours and as often as may be reasonably requested, and (iii) permit the authorized representatives of any Trustee Appraiser or Third-Party Appraiser to visit and inspect the Properties, books, records and documents described in clause (ii) and any Properties to be provided as Substitute Collateral (including comparable books, records and documents relating thereto), at such times and to such extent as may be necessary to allow timely completion of any Independent Appraiser's Certificate to be prepared by such Trustee Appraiser or Third Party Appraiser. (b) The Trustee, the Collateral Agent, the Slot Trustee and their respective authorized representatives referred to in clause (a) above agree not to use any information obtained pursuant to this Section 4.13 for any purpose other than as required in order to discharge their respective duties hereunder and under the Operative Documents and except as otherwise required for such purpose to keep confidential and not to disclose any such information to any person except that (i) the recipient of the information may disclose any information which becomes publicly available other than as a result of disclosure by such recipient, (ii) the recipient of the information may disclose any information which its counsel reasonably concludes is necessary to be disclosed by law, pursuant to any court or administrative order or ruling or in any pending legal or administrative proceeding or investigation after notice to the Company adequate, subject to applicable laws, to allow the Company to obtain a protective order or other appropriate remedy, provided that the recipient of the information will (if not otherwise required in order to discharge its duties as aforesaid) cooperate with the Company's efforts to obtain a protective order or other reliable assurance that confidential treatment will be accorded any such information required to be so disclosed, and (iii) the recipient of the information may disclose any information necessary to be disclosed pursuant to any provision of the TIA. 18 Section 4.14 Security Interests. ------------------ The Company and its Subsidiaries shall perform any and all acts and execute any and all documents (including, without limitation, the execution, amendment or supplementation of any financing statement and continuation statement or other statement) for filing under the provisions of the Federal Aviation Act and the applicable Uniform Commercial Code and the rules and regulations thereunder or any other statute, rule or regulation of any applicable federal, state or local jurisdiction, which are necessary or advisable, from time to time, in order to grant and maintain in favor of the Collateral Agent for the benefit of the Holders a valid, perfected Lien on the Collateral. The Company and its Subsidiaries shall deliver or cause to be delivered to the Collateral Agent from time to time such other documentation, consents, authorizations, approvals and orders in form and substance satisfactory to the Collateral Agent as it shall deem reasonably necessary or advisable to perfect or maintain the Liens for the benefit of the Holders. The Company will not nor permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer or permit to exist any Lien upon or with respect to any Property (other than the Pledged Stock of the Gate Companies) of the Company or any of its Subsidiaries that is, or is required to be, subject to any of the Operative Documents (pursuant to the terms hereof or thereof) except for Permitted Liens. Section 4.15 Change in Control. ----------------- (a) In the event that there shall occur a Change in Control (as defined below) of the Company, each Holder of a Security shall have the right (the "Repurchase Right") upon receipt of a Repurchase Right Notice (as defined below), at such Holder's option, to require the Company to repurchase any Security of such Holder or any portion of the principal amount thereof which is $1,000 or an integral multiple of $1,000, on the date (the "Repurchase Date") that is 45 days after the date of the Repurchase Right Notice, or, if such 45th day is a Legal Holiday, the next subsequent day which is not a Legal Holiday, unless otherwise required by applicable law, at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to and including the Repurchase Date (the "Repurchase Price"). The right to require the repurchase of Securities shall not continue after a discharge of the Company from its obligations with respect to the Securities in accordance with Article 8. (b) Within thirty (30) days after the occurrence of a Change in Control, the Company, or, at the request of the Company and at the Company's expense, the Trustee, shall give notice of the occurrence of the Change in Control and of the Repurchase Right set forth herein (the "Repurchase Right Notice") by first-class mail, postage prepaid, to each Holder of the Securities at such Holder's address appearing in the registry books of the Company kept by the registrar. The Company shall deliver a copy of the Repurchase Right Notice to the Trustee. The Company shall also place such notice in a financial newspaper of general circulation in New York City. No failure of the Company to give the foregoing notice shall limit any such Holder's rights to exercise a Repurchase Right. Any such notice shall state that a Change in Control has occurred and that such 19 Holder has the right to require the Company to repurchase such Holder's Securities and shall contain all instructions and materials necessary to enable such Holders to deliver Securities pursuant to the Repurchase Right including, without limitation, the following: (1) the Repurchase Date; (2) the date by which the Repurchase Right must be exercised; (3) the Repurchase Price; (4) that Securities are to be surrendered for payment of the Repurchase Price; (5) that the exercise of the Repurchase Right is irrevocable on and after the fifth Business Day prior to the Repurchase Date, unless (i) the Company shall default in making the repurchase payment when due, in which case Holders who elect to exercise the Repurchase Right will retain the right to tender Securities submitted for repurchase in payment of the Exercise Price of the Warrants until the close of business on the date such default is cured and such Security is repurchased; or (ii) the Company shall otherwise, in its sole discretion, consent thereto; and (6) the then existing Exercise Price for exercise of the Warrants, the date on which the right to tender the principal of the Securities to be repurchased in payment of the Exercise Price of the Warrants will terminate and the place or places where such Securities may be tendered in payment of the Exercise Price of the Warrants. (c) To exercise a Repurchase Right, a Holder shall deliver to the Company (if it is acting as its own Paying Agent) or to a Paying Agent designated by the Company for such purpose in the notice referred to above on or before the 30th day after the date of the Repurchase Right Notice, or, if such day is a Legal Holiday, the next subsequent day which is not a Legal Holiday, (i) written notice (which notice shall be deemed to be delivered when received) of the Holder's exercise of such right, which notice shall set forth the name of the Holder, the principal amount of Securities (or portions thereof) to be repurchased, a statement that an election to exercise the Repurchase Right is being made thereby, and (ii) the Securities with respect to which the Repurchase Right is being exercised, duly endorsed for transfer to the Company, and the Holder of such Securities shall be entitled to receive from the Company (if it is acting as its own Paying Agent) or such Paying Agent a non-transferable receipt of deposit evidencing such deposit. Such written notice shall be irrevocable, except as provided in Section 4.15(b) above. Interest on any Securities or portion thereof tendered for repurchase pursuant to a Repurchase Right will cease to accrue on and after the Repurchase Date. (d) In the event a Repurchase Right shall be exercised in accordance with the terms hereof, the Company shall pay or cause to be paid the applicable Repurchase Price with respect to 20 the Securities as to which the Repurchase Right shall have been exercised to the Holder on the Repurchase Date. (e) Prior to a Repurchase Date, the Company shall deposit with the Trustee or with a Paying Agent (or if the Company is acting as its own Paying Agent, segregate and hold in trust in accordance with Section 2.4) an amount of money sufficient to pay the Repurchase Price payable in respect of all of the Securities which are to be repurchased on that date. If any Security submitted for repurchase is converted prior to the repurchase thereof, any money deposited with the Trustee or with the Paying Agent or so segregated and held in trust for the redemption of such Security shall be paid to the Company upon its request, or, if then held by the Company, shall be discharged from such trust. (f) Both the notice of the Company and the notice of the Holder having been given as specified in this Section 4.15, the Securities so to be repurchased shall, on the Repurchase Date become due and payable at the Repurchase Price applicable thereto and from and after such date (unless the Company shall default in the payment of the Repurchase Price) such Securities shall cease to bear interest. Upon surrender of any such Security for repurchase in accordance with said notice, such Security shall be paid by the Company at the Repurchase Price. If any Security shall not be paid upon surrender thereof for repurchase, the principal shall, until paid, bear interest from the Repurchase Date at the rate borne by such Security. (g) Any Security which is to be submitted for repurchase only in part shall be delivered pursuant to this Section 4.15 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing) and the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Security without any service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, of the same tenor and in aggregate principal amount equal to and in exchange for the portion of the principal of such Security not submitted for repurchase. (h) If any repurchase pursuant to the foregoing provisions constitutes an "issuer tender offer" as defined in Rule 13e-4 under the Exchange Act, the Company will comply with the requirements of Rule 13e-4, Rule 14e-1 and any other tender offer rules under the Exchange Act which then may be applicable, including the filing of an issuer tender offer statement on Schedule 13E-4 with the SEC and the furnishing of certain information contained therein to the Holders. (i) As used in this Section 4.15: A "Change in Control" means the occurrence of any of the following events: (i) any person (including any entity or group deemed to be a "person" under Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) is or becomes the direct or indirect beneficial owner (as determined in accordance with Rule 13d-3 under the Exchange Act) of shares of the Company's capital stock representing greater than 50% of the total voting power of all shares of capital stock of the Company entitled to vote in the election of Directors under ordinary circumstances or to elect a majority of 21 the Board of Directors of the Company, (ii) the Person then constituting the "Company" hereunder sells, transfers or otherwise disposes of all or substantially all of its assets (regardless of whether such Person thereupon ceases to constitute the "Company" hereunder pursuant to Section 5.2 hereof), (iii) when, during any period of 12 consecutive months after the date of original issuance of the Securities, individuals who at the beginning of any such 12-month period constituted the Board of Directors of the Company (together with any new directors whose election by such Board or whose nomination for election by the stockholders of the Company was approved by a vote of a majority of the directors still in office entitled to vote with respect to such nomination who were either directors at the beginning of such period or whose election or nomination for election was previously so approved, but excluding any of the individuals who at the beginning of such 12-month period constituted such Board but who ceased to be a member of the Board pursuant to the Company's mandatory retirement policy as in effect as of the date of this Indenture), cease for any reason to constitute a majority of the Board of Directors of the Company then in office or (iv) the date of the consummation of the merger or consolidation of the Person then constituting the "Company" hereunder with another corporation where the stockholders of such Person, immediately prior to the merger or consolidation, would not beneficially own, immediately after the merger or consolidation, shares entitling such stockholders to 50% or more of all votes (without consideration of the rights of any class of stock to elect directors by a separate class vote) to which all stockholders of the corporation issuing cash or securities in the merger or consolidation would be entitled in the election of directors or where members of the Board of Directors of the Person then constituting the "Company" hereunder, immediately prior to the merger or consolidation, would not, immediately after the merger or consolidation, constitute a majority of the board of directors of the corporation issuing cash or securities in the merger or consolidation. Section 4.16 Restrictions on Becoming an Investment Company. The Company ---------------------------------------------- shall not become an investment company within the meaning of the Investment Company Act of 1940 as such statute and the regulations thereunder and any successor statute or regulations thereto may from time to time be in effect. ARTICLE 5. SUCCESSOR CORPORATION Section 5.1 Covenant Not to Consolidate, Merge, Convey or Transfer Except ------------------------------------------------------------- Under Certain Conditions. ------------------------ The Company shall not consolidate with, or merge with or into, or convey or transfer (excluding by way of lease) all or substantially all of its Properties (as determined at the time of such transfer without regard to any prior conveyance or transfer or series of conveyances or transfers made on unrelated transactions) to any other Person, or permit any Person to convey, lease or transfer all or substantially all of its Properties to the Company, unless: 22 (a) The Company shall be the continuing Person or the Person (if other than the Company) formed by such consolidation or into which the Company is merged or to which all or substantially all of the Properties of the Company are conveyed or transferred (the "surviving Person"): (i) shall be a corporation organized and existing under the laws of the United States of America or any state thereof or the District of Columbia; (ii) shall expressly assume, by an indenture and other agreements supplemental hereto and to the Operative Documents, executed and delivered to the Trustee in form reasonably satisfactory to the Trustee, the due and punctual payment of the principal of, interest on and Liquidated Damages with respect to all the Securities and the observance and performance of every covenant, condition and obligation of this Indenture, the Securities and the Operative Documents on the part of the Company to be observed or performed; (b) Immediately before and immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing hereunder; (c) In the case of any such conveyance or transfer, such conveyance or transfer includes, without limitation, all of the Collateral and in any event such consolidation, merger, conveyance or transfer shall be on such terms as shall fully preserve the Lien and security of each of the Operative Documents, the priority thereof purported to be established thereby and the rights and powers of the Trustee, the Collateral Agent, the Slot Trustee and the Holders of the Securities under each of the Operative Documents; and (d) The Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that such merger, consolidation, transfer, conveyance, or acquisition of assets and such supplemental indenture comply with the Indenture. Section 5.2 Successor Person Substituted. ---------------------------- Upon any consolidation or merger, or any conveyance or transfer (excluding by way of lease) of all or substantially all of the Properties of the Company in accordance with Section 5.1, the surviving entity formed by such consolidation or into which the Company is merged or the surviving entity to which such conveyance or transfer is made shall succeed to, and be substituted for, and be bound by and obligated to pay the obligations of, and may exercise every right and power of, the Company under this Indenture, the Securities and the Operative Documents with the same effect as if such successor had been named as the Company herein and therein; and in the event of any such conveyance or transfer, the Person that immediately prior to such conveyance or transfer constituted the "Company" shall be discharged from all obligations and covenants under the Indenture, the Securities and the Operative Documents and may be dissolved and liquidated. Such surviving entity may cause to be signed, and may issue either in its own name or in the name of the Company prior to such succession any or all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such surviving entity, instead of the Company, and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Securities which previously shall have been signed and delivered by the officers of the Company 23 to the Trustee for authentication, and any Securities which such surviving entity thereafter shall cause to be signed and delivered to the Trustee for that purpose. All of the Securities so issued shall in all respects have the same legal rank and benefit under this Indenture as the Securities theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Securities had been issued at the date of the execution hereof. In case of any such consolidation, merger, sale, transfer or conveyance such changes in phraseology and form (but not in substance) may be made in the Securities thereafter to be issued as may be appropriate. Section 5.3 Limitation on Lease of Properties. Without limitation of the --------------------------------- prohibitions set forth in the other Operative Documents, the Company shall not lease all or substantially all of its Properties to any Person. ARTICLE 6. DEFAULT AND REMEDIES Section 6.1 Events of Default. ----------------- An "Event of Default" occurs if: (a) the Company defaults in the payment of interest on, or Liquidated Damages, if any, with respect to, any Security when the same becomes due and payable and the default continues for thirty (30) days; (b) the Company defaults in the payment of the principal amount of any Securities when the same becomes due and payable at maturity, upon acceleration or tender for repurchase, or otherwise; (c) the Company fails to comply with the covenants contained in Sections 4.3 or 4.12 hereof, takes any action prohibited by Section 5.1 hereof, discontinues substantially all of its commercial airlines operations, fails to comply with the covenants contained in Sections 4.4(a), 4.4(c), or 4.9 of the Pledge Agreement or Section 5.1(e) of the Master Sub-License Agreement within the time periods provided therein, or fails to pay over amounts required under Section 4.11(c) of the Pledge Agreement; (d) (i) the Company fails in any material respect to comply with any of its other agreements contained in the Securities, this Indenture or the Operative Documents or (ii) any representation or warranty made by the Company in this Indenture, the Operative Documents, any Subsequent Deed of Conveyance or any Supplemental Pledge Agreement or in any certificate of the Company delivered hereunder or under any such document shall prove to have been untrue in any 24 material respect when made, and in any such case such default continues for the period and after the notice specified below; (e) there shall be a default or an event under or with respect to (i) any Indebtedness of the Company or any Significant Subsidiary in excess of $15,000,000 in principal amount, (ii) any Senior Obligation or related Senior Security Agreement, whether such Indebtedness or Senior Obligation now exists or shall hereafter be created, and the effect of any such default or event is to cause the principal amount of any such Indebtedness or Senior Obligation to become due, to have the date of payment thereof fixed prior to its stated maturity or the date it would otherwise become due and while any Securities are Outstanding, or to be unpaid at maturity while any Securities are Outstanding, but only if such redemption or payment thereupon or thereafter occurs; (f) the Company or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law (as hereinafter defined): (i) commences a voluntary case or proceeding, (ii) consents to the entry of an order for relief against it in an involuntary case or proceeding, (iii) consents to the appointment of a Custodian (as hereinafter defined) of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) generally is unable to pay its debts as the same become due; (g) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company or any Significant Subsidiary in an involuntary case or proceeding, (ii) appoints a Custodian of the Company or any Significant Subsidiary for all or substantially all of its properties, or (iii) orders the liquidation of the Company or any Significant Subsidiary, and in each case the order and decree remains unstayed and in effect for sixty (60) consecutive days; (h) final, non-appealable judgments for the payment of money which judgments in the aggregate exceed $15,000,000 shall be rendered against the Company or any Significant Subsidiary or by a court of competent jurisdiction remain undischarged, unstayed and unsatisfied for the period and after the notice specified below; or 25 (i) any of the Operative Documents ceases, without the consent of the Trustee, to be in full force and effect, provided, however, that if an Operative -------- ------- Document ceases to be in full force and effect by virtue of, or arising out of, any action by the Federal Aviation Administration terminating proprietary rights to airport takeoff and landing access or otherwise eliminating Slots that such occurrence shall not give rise to a Default or Event of Default. The term "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. A Default under clause (d), (e) or (h) of this Section 6.1 is not an Event of Default until the Trustee notifies the Company, or the Holders of at least twenty-five percent (25%) in aggregate principal amount of the Securities Outstanding notify the Company and the Trustee, of the Default and the Company does not cure the Default within sixty (60) days with respect to clauses (d) and (h), or within thirty (30) days with respect to clause (e), after receipt of the notice; provided, however, that the Company shall be permitted such longer period of time, if any, as may be provided for under the Operative Documents in respect of any particular Default. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." When a Default is cured, it ceases. Section 6.2 Acceleration. ------------ If an Event of Default (other than an Event of Default specified in Section 6.1(f) or (g)) occurs, and is continuing, the Trustee may, by notice to the Company, or the Holders of at least twenty-five percent (25%) in aggregate principal amount of the Securities Outstanding may, by notice to the Company and the Trustee, and the Trustee shall, upon the request of such Holders, declare all unpaid principal of, accrued interest and Liquidated Damages, if any, to the date of acceleration on the Securities Outstanding (if not then due and payable) to be due and payable and upon any such declaration, the same shall become and be immediately due and payable. If an Event of Default specified in Section 6.1(f) or (g) occurs, all unpaid principal of, accrued interest on and Liquidated Damages, if any, with respect to, the Securities Outstanding shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholder. Upon payment of such principal amount, interest, and Liquidated Damages, if any, all of the Company's obligations under the Securities and this Indenture, other than obligations under Sections 7.7 and 8.4, shall terminate. The Holders of a majority in principal amount of the Securities then Outstanding by notice to the Trustee may rescind an acceleration and its consequences if (a) all existing Events of Default, other than the non-payment as to the Securities of the principal, interest or Liquidated Damages, if any, which has become due solely by such declaration of acceleration, have been cured or waived, (b) to the extent the payment of such interest is permitted by law, interest on overdue installments of interest and on overdue principal which has become due otherwise than by such declaration of acceleration, has been paid, (c) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction, and (d) all payments due to the Trustee and any predecessor Trustee under Section 7.07 have been made. 26 Section 6.3 Other Remedies. -------------- If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of, interest on or Liquidated Damages, if any, with respect to the Securities or to enforce the performance of any provision of the Securities or this Indenture including, without limitation, instituting proceedings and exercising and enforcing, or directing exercise and enforcement of, all rights and remedies of the Trustee, the Collateral Agent and the Slot Trustee under the Operative Documents (provided that the Collateral Agent shall only be permitted to become the record Holder of the Beneficial Interest and the Beneficial Interest Certificate as and when described in Section 6.1 of the Pledge Agreement) and directing the Collateral Agent to deposit with the Trustee all cash and/or Investment Securities held by the Collateral Agent. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. Section 6.4 Waiver of Past Defaults. ----------------------- Subject to Sections 6.7, 9.2 and 9.6, the Holders of a majority in principal amount of the Securities Outstanding by notice to the Trustee may authorize the Trustee to waive an existing Default or Event of Default and its consequences, except a Default (a) in the payment of principal of or interest on or Liquidated Damages with respect to any Security as specified in clauses (a) and (b) of Section 6.1 or (b) in respect of a covenant or provision hereof which cannot be modified or amended without the consent of the Holder of each Security affected. When a Default or Event of Default is waived, it is cured and ceases, and the Company, the Holders and the Trustee shall be restored to their former positions and rights hereunder respectively; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. Section 6.5 Control by Majority. ------------------- The Holders of a majority in principal amount of the Securities Outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee (as Trustee, Collateral Agent or Slot Trustee, subject, in the case of any actions based on the status of the Trustee as Collateral Agent or Slot Trustee, to any limitations otherwise expressly provided for in the Operative Documents) or exercising any trust or power conferred on it; provided that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. The Trustee may refuse to follow any direction hereunder or authorization under Section 6.4 that conflicts with law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of another Securityholder, or that the Trustee determines may subject the Trustee to personal liability. However, the Trustee shall have no liability for any actions or omissions to act which are in accordance with any such direction or authorization. 27 Section 6.6 Limitation on Suits. ------------------- A Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless: (a) the Holder gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least twenty-five percent (25%) in principal amount of the Securities Outstanding make a written request to the Trustee to pursue the remedy; (c) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within sixty (60) days after receipt of the request and the offer of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the Securities Outstanding do not give the Trustee a direction which, in the opinion of the Trustee, is inconsistent with such request. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over such other Securityholder. Section 6.7 Rights of Holders to Receive Payment. ------------------------------------ Notwithstanding any other provision of this Indenture, the right of any Holder of a Security to receive payment of principal of, interest on, and Liquidated Damages, if any, with respect to, the Security in cash, on or after the respective due dates expressed in the Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. It is hereby expressly understood, intended and agreed that any and all actions which a Holder of the Securities may take to enforce the provisions of this Indenture and/or collect Payments due hereunder or under the Securities, except to the extent that such action is determined to be on behalf of all Holders of the Securities, shall be in addition to and shall not in any way change, adversely affect or impair the rights and remedies of the Trustee or any other Holder of the Securities thereunder or under this Indenture and the Operative Documents, including the right to foreclose upon and sell the Collateral or any part thereof and to apply any proceeds realized in accordance with the provisions of this Indenture. Section 6.8 Collection Suit by Trustee. -------------------------- If an Event of Default in payment of interest or principal specified in clause (a) or (b) of Section 6.1 occurs and is continuing, the Trustee may recover judgment in its own name and as 28 trustee of an express trust against the Company or any other obligor on the Securities for the whole amount of principal, accrued interest and Liquidated Damages, if any, remaining unpaid, together with interest on overdue principal and on overdue installments of interest to the extent that payment of such interest is permitted by law, in each case at the rate per annum provided for by the Securities, and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.9 Trustee May File Proofs of Claim. -------------------------------- The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Securityholders allowed in any judicial proceedings relative to the Company (or any other obligor upon the Securities), its creditors or its property and shall be entitled and empowered to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceedings is hereby authorized by each Securityholder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee under Section 7.7, and unless prohibited by law or applicable regulations to vote on behalf of the Holders of Securities for the election of a trustee in bankruptcy or other person performing similar functions. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding except, as aforesaid, for the election of a trustee in bankruptcy or person performing similar functions. Section 6.10 Application of Proceeds. ----------------------- Any moneys collected by the Trustee pursuant to this Article shall be applied in the following order at the date or dates fixed by the Trustee and, in case of the distribution of such moneys on account of principal, interest, or Liquidated Damages, if any, upon presentation of the several Securities and stamping (or otherwise noting) thereon the payment, or issuing Securities in reduced principal amounts in exchange for the presented Securities if only partially paid, or upon surrender thereof if fully paid: FIRST: To the payment of costs and expenses, including reasonable compensation to the Trustee, the Collateral Agent, the Slot Trustee, each of their predecessors and their respective agents and attorneys (including amounts due and unpaid under Section 7.7), and of all costs, fees, expenses and liabilities incurred, and all advances made, by any and all of the foregoing (including amounts due and unpaid under Section 7.7), except as a result of negligence or bad faith; 29 SECOND: In case the entire principal of the Securities shall not have become and be then due and payable, as to any Securities (a) first to the payment of interest and Liquidated Damages, if any, in default in the order of the maturity of the installments of such interest and Liquidated Damages, if any, with interest (to the extent that such interest has been collected by the Trustee) upon the overdue installments of interest or Liquidated Damages, if any, at the rate of interest specified in the Securities and (b) second to the payment of principal of the Securities as the same shall become due and payable, such payments to be made ratably to the Persons entitled thereto, without discrimination or preference; THIRD: In case the entire principal of the Securities shall have become and shall be then due and payable, as to any Securities, to the payment of the whole amount then owing and unpaid upon all the Securities for principal, interest and Liquidated Damages, with interest upon the overdue principal, and (to the extent that such interest has been collected by the Trustee) upon overdue installments of interest or Liquidated Damages, if any, at the same rate as the rate of interest specified in the Securities; and in case such moneys shall be insufficient to pay in full the whole amount so due and unpaid upon the Securities, then to the payment of such principal, interest and Liquidated Damages, if any, without preference or priority of any of principal, interest or Liquidated Damages, if any, over the other, or any installment of interest or Liquidated Damages, if any, over any other installment of interest or Liquidated Damages, if any, or of any Security over any other Security, ratably to the aggregate of such principal and accrued and unpaid interest and Liquidated Damages; and FOURTH: To the payment of the remainder, if any, after payment in full of the entire principal balance, if any, of the Securities and all interest, Liquidated Damages and other amounts due upon or in respect of such Securities, to the Company or any other Person lawfully entitled thereto. The Trustee, upon prior written notice to the Company, may fix a record date and payment date for any payment to Securityholders pursuant to this Section 6.10. Section 6.11 Undertaking for Costs. --------------------- All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court in its discretion may require in any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7, or a suit by Holders of more than ten percent (10%) in principal amount of the Securities Outstanding. 30 Section 6.12 Restoration of Rights on Abandonment of Proceedings. --------------------------------------------------- In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee, then and in every such case the Company, the Trustee and the Securityholders shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Company, the Trustee and the Securityholders shall continue as though no such proceedings had been taken. Section 6.13 Powers and Remedies Cumulative; Delay or Omission Not ----------------------------------------------------- Waiver of Default. ----------------- No right or remedy herein conferred upon or reserved to the Trustee or to the Securityholders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. No delay or omission of the Trustee or of any Holder of any of the Securities to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein; and, subject to the other applicable provisions of this Indenture, every power and remedy given by this Indenture or by law to the Trustee or to the Securityholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Securityholders. Any right or remedy herein conferred upon or reserved to the Trustee may be exercised by it in its capacity as Trustee, as Collateral Agent and/or as Slot Trustee, as it may deem most efficacious, if it is then acting in such capacity. ARTICLE 7. TRUSTEE Section 7.1 Duties of Trustee. ----------------- (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. 31 (b) Except during the continuance of an Event of Default: (i) The Trustee need perform only those duties as are specifically set forth in this Indenture and the Operative Documents and no others. (ii) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) This paragraph (c) does not limit the effect of paragraph (b) of this Section 7.1 or of Section 7.2. (ii) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (iii) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5. (d) The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense. (e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.1. (f) Funds held in trust for the benefit of the Holders of the Securities by the Trustee or any Paying Agent on deposit with itself or elsewhere, and Investment Securities held in trust for the benefit of the Holders of the Securities by the Trustee, shall be held in distinct, identifiable accounts, and other funds or investments of any nature or from any source whatsoever may be held in such accounts, except, in each case, to the extent required by law. The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree with the Company. Section 7.2 Rights of Trustee. ----------------- (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. 32 (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel, which shall conform to Section 11.5. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. (c) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its attorneys and agents and the Trustee shall not be responsible for the misconduct or negligence of any agent or attorney appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it reasonably believes to be authorized or within its rights or powers. Section 7.3 Individual Rights of Trustee. ---------------------------- The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or Affiliates of the Company with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 7.10 and 7.11. Section 7.4 Trustee's Disclaimer. -------------------- The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement in the Securities or in this Indenture other than its certificate of authentication. Section 7.5 Notice of Defaults. ------------------ If a Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Securityholder notice of the Default within ninety (90) days after the occurrence thereof except as otherwise permitted by the TIA. Except in the case of a Default in payment of principal of, or interest on, or Liquidated Damages, if any, with respect to, any Security, the Trustee may withhold the notice if and so long as it, in good faith, determines that withholding the notice is in the interests of the Securityholders. Section 7.6 Reports by Trustee to Holders. ----------------------------- If circumstances require any report to Holders under TIA (S) 313(a), it shall be mailed to Securityholders within sixty (60) days after each May 15 (beginning with the May 15 following the date of this Indenture) as of which such circumstances exist. The Trustee also shall comply with the remainder of TIA (S) 313. The Company shall notify the Trustee if the Securities become listed on any stock exchange or other recognized trading market. 33 The Trustee shall, upon the written request of any Holder of Securities but subject to applicable laws and contractual limitations, provide to such Holder copies of any reports, certificates, opinions or other materials of any kind or nature required to be delivered to the Trustee (including in its capacity as Collateral Agent and Slot Trustee) under this Indenture or any of the Operative Documents or otherwise delivered by or on behalf of the Company to the Trustee (including in its capacity as Collateral Agent and Slot Trustee). Section 7.7 Compensation and Indemnity. -------------------------- The Company shall pay to the Trustee from time to time reasonable compensation, as agreed upon from time to time, for its services, including as Collateral Agent and as Slot Trustee. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances incurred or made by it in any such capacities. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel and all agents and other persons not regularly in its employ. The Company shall indemnify the Trustee (in its capacities as Trustee, Collateral Agent and Slot Trustee) and each predecessor Trustee for, and hold each of them harmless against, any loss or liability incurred by each of them in connection with the administration of this trust and its duties hereunder. In connection with any defense of such a claim, the Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee or any predecessor Trustee through the negligence or bad faith of such Trustee or each such predecessor Trustee. To secure the Company's payment obligations in this Section 7.7, the Trustee shall have a Lien (legal and equitable) prior to the Securities on all money or property held or collected by the Trustee, in its capacity as Trustee, or otherwise distributable to Securityholders, except money, securities or property held in trust to pay principal of or interest on particular Securities (including, without limitation, pursuant to Section 8.1(b) hereof). When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(f) or (g) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. Section 7.8 Replacement of Trustee. ---------------------- The Trustee (in its capacities as Trustee, Collateral Agent and Slot Trustee) may resign by so notifying the Company in writing. The Holders of a majority in principal amount of the Securities Outstanding may remove the Trustee (in its capacities as Trustee, Collateral Agent and Slot Trustee) by so notifying the Trustee in writing and may appoint a successor Trustee with the Company's consent, which consent shall not be unreasonably refused or delayed. The Company may remove the Trustee (in its capacities as Trustee, Collateral Agent and Slot Trustee) if: 34 (a) the Trustee fails to comply with Section 7.10; (b) the Trustee is adjudged a bankrupt or an insolvent; (c) a receiver or other public officer takes charge of the Trustee or its property; (d) the Trustee becomes incapable of acting; or (e) no Default or Event of Default has occurred and is continuing and the Company determines in good faith to remove the Trustee. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Securities Outstanding may appoint a successor Trustee to replace the successor Trustee appointed by the Company. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, subject to the Lien provided in Section 7.7, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Securityholder. No resignation or removal of the Trustee and no appointment of a successor Trustee, pursuant to this Article, shall become effective until the acceptance of appointment by the successor Trustee under this Section 7.8. If a successor Trustee does not take office within sixty (60) days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least ten percent (10%) in principal amount of the Securities Outstanding may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Holder of Securities may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 shall continue for the benefit of the retiring Trustee which shall retain its claim pursuant to Section 7.7. 35 Section 7.9 Successor Trustee by Merger, etc. -------------------------------- If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. Section 7.10 Eligibility; Disqualification. ----------------------------- This Indenture shall always have a Trustee who satisfies the requirements of TIA (S) 310(a)(1). The Trustee shall have a combined capital and surplus of at least $50,000,000 as set forth in its most recent, published annual report of condition. The Trustee shall comply with TIA (S) 310(b); provided, however, that there shall be excluded from the operation of TIA (S) 310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding, if the requirements for such exclusion set forth in TIA (S) 310(b)(1) are met. Section 7.11 Preferential Collection of Claims Against Company. ------------------------------------------------- The Trustee shall comply with TIA (S) 311(a), excluding any creditor relationship listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be subject to TIA (S) 311(a) to the extent indicated. Section 7.12 Other Capacities. ---------------- At all times during which any Securities are Outstanding, unless otherwise permitted under the Operative Documents, the Trustee shall serve as the Collateral Agent and (unless otherwise required under or for the purposes of the Slot Trust) as the Slot Trustee, and any resignation, removal or disqualification from any one such office (except as aforesaid as Slot Trustee) shall, without action on the part of any Person, result in the resignation, removal, or disqualification from all such offices. Any Person serving in such capacities shall have and may effectively exercise all the rights, remedies and powers, and be entitled to all protections and indemnifications, provided to such Person in whatever capacities such Person then serves under any and all of the Indenture and the Operative Documents, regardless of the capacity or capacities in which such Person may purport to take or omit any action. The Trustee agrees to and shall have the benefit of all provisions of the Operative Documents stated therein to be applicable to the Trustee. 36 ARTICLE 8. DISCHARGE OF INDENTURE Section 8.1 Termination of Company's Obligations. ------------------------------------ (a) The Company may terminate its obligations under this Indenture, except those obligations referred to in the second succeeding paragraph, if all Securities previously authenticated and delivered (other than destroyed, lost or stolen Securities which have been replaced or paid or Securities for whose payment Payments have theretofore been held in trust and thereafter repaid to the Company, as provided in Section 8.3) have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder. (b) The Company may terminate all its obligations under the Indenture except those obligations referred to in the immediately succeeding paragraph if (1) the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee or a Paying Agent, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee and any such Paying Agent, as trust funds in trust solely for the benefit of the Holders for that purpose, cash or U.S. Government Obligations maturing as to principal and interest, in such amounts and at such times as are sufficient without consideration of any reinvestment of any such interest to pay principal of, interest on, and the then maximum possible Liquidated Damages, if any, with respect to the Securities Outstanding to maturity provided that the Trustee or such Paying Agent shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to the payment of said principal, interest and Liquidated Damages, if any, with respect to the Securities. (2) No Default or Event of Default with respect to the Securities shall have occurred and be continuing (A) on the date of such deposit described in clause (1), or (B) insofar as paragraph (f) of Section 6.1 is concerned, at any time during the period ending on the 91st day after the date of such deposit or, if longer, ending on the day following the expiration of the longest preference period applicable to the Company in respect of such deposit (it being understood that the condition in this clause (B) is a condition subsequent and shall not be deemed satisfied until the expiration of such period); (3) Such termination and deposit described in clause (1) shall not (A) cause the Trustee to have a conflicting interest as defined in TIA Section 310(b) or otherwise for purposes of the Trust Indenture Act with respect to any securities of the Company, or (B) result in the trust arising from such deposit to constitute, unless it is qualified as, a regulated investment company under the Investment Company Act of 1940, as amended; 37 (4) Such termination and deposit described in clause (1) shall not result in a breach or violation of or constitute a default under, this Indenture or any other material agreement or instrument to which the Company is a party or by which it is bound; (5) The Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Securities will not recognize income, gain or loss for federal income tax purposes as a result of such termination and deposit described in clause (1) and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such termination and deposit had not occurred; and (6) The Company shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent and subsequent provided for above in this Section 8.1(b) have been complied with. The Company may make an irrevocable deposit pursuant to this Section 8.1 only if at such time the Company shall have delivered to the Trustee and any such Paying Agent an Officers' Certificate to that effect. Notwithstanding the foregoing paragraph, the Company's obligations in Sections 2.3, 2.4, 2.5, 2.6, 2.7, 4.1, 4.2, 4.8, 7.7, 7.8, 8.2, 8.3, 8.4 and 10.4 shall survive until the Securities are no longer Outstanding. Thereafter, the Company's obligations in Sections 7.7 and 8.3 shall survive. (c) After the effectiveness of any termination of its obligations (except, in the case of Section 8.1(b), as set forth in the second paragraph thereof), under this Indenture in accordance with Section 8.1(a) or (b) above (such effective date, the "Indenture Discharge Date") and payment of all obligations of the Company accrued under Section 7.7, the Trustee upon Request shall acknowledge in writing the discharge of the Company's obligations under this Indenture except for those surviving obligations specified above. Section 8.2 Application of Trust Money. -------------------------- The Trustee or Paying Agent shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 8.1, and shall apply the deposited money and the money from U.S. Government Obligations in accordance with this Indenture to the payment of principal, interest and Liquidated Damages, if any, on the Securities. The obligations of the Trustee and Paying Agent under this Section 8.2 shall survive, notwithstanding any termination or discharge of the Company's obligations pursuant to Section 8.1, until all Securities are paid in full. The Company shall pay and indemnify the Trustee or Paying Agent, as the case may be, against any tax, fee or other charge imposed on or assessed against the money or U.S. Government Obligations deposited pursuant to Section 8.1(c) or the principal and interest received in respect thereof. Section 8.3 Repayment to Company. -------------------- 38 Anything in Section 8.1(b) to the contrary notwithstanding, the Trustee or Paying Agent, as the case may be, shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations (or other property and any proceeds therefrom) held by it as provided in Section 8.1(b) which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee and to the Paying Agent, if applicable, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent termination under said Section 8.1(b). The Trustee and the Paying Agent shall Pay to the Company any Payments held by them for the payment of principal, interest and Liquidated Damages, if any, that remains unclaimed for two (2) years after the Stated Maturity of such payment of principal, interest or Liquidated Damages, as the case may be; provided, however, that the Trustee or such Paying Agent before making any Payment shall at the expense of the Company cause to be published once in a newspaper of general circulation in the City of New York or mail to each Holder entitled to such money, notice that such Payments remain unclaimed and that, after a date specified therein which shall be at least thirty (30) days from the date of such publication or mailing, any unclaimed balance of such Payments then remaining will be repaid to the Company. After payment to the Company, Securityholders entitled to Payments must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person. Section 8.4 Reinstatement. ------------- Anything herein to the contrary notwithstanding, (i) if the Trustee or Paying Agent, as the case may be, is unable to apply any money or U.S. Government Obligations in accordance with Section 8.1 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, or (ii) the deposited money or U.S. Government Obligations (or the proceeds thereof) are, for any reason, insufficient in amount, then the Company's obligations under this Indenture shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.1 until such time as the Trustee, or Paying Agent, as the case may be, is permitted to apply all such money or U.S. Government Obligations and the proceeds of the investment thereof in accordance with Section 8.1, or the deficiency is cured in the manner set forth in Section 8.1(b), as the case may be. In such event, the Trustee will invest all such money or the proceeds from U.S. Government Obligations at the Company's request in other U.S. Government Obligations and, upon written notice from the Company, so long as there exists no Event of Default, to the extent and only to the extent provided in the first sentence of Section 8.3 return to the Company any money or U.S. Government Obligations deposited with the Trustee pursuant to Section 8.1. If the Company has made any payment of interest on, principal of, or Liquidated Damages, if any, with respect to any Securities because of an event described in clause (i) of the first sentence of this Section 8.4, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent, as the case may be. 39 ARTICLE 9. AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 9.1 Without Consent of Holders. -------------------------- The Company and the Trustee, the Collateral Agent or the Slot Trustee, as the case may be, may amend or supplement this Indenture, the Securities or the Operative Documents without notice to or consent of any Securityholder: (a) to provide for uncertified Securities in addition to or in place of certificated Securities; (b) to provide for the assumption of the Company's obligations to the Holders of the Securities in the case of a merger or consolidation or transfer of all or substantially all of the assets of the Company or otherwise to comply with Article 5; (c) to comply with any requirements of the SEC in connection with the qualification of this Indenture under the TIA; or (d) to cure any ambiguity, defect or inconsistency or to make any other change, in each case, provided that such action does not materially adversely affect the interests of any Securityholder. Section 9.2 With Consent of Holders. ----------------------- Subject to Section 6.7, the Company (by resolution of its Board of Directors if required) and the Trustee, the Collateral Agent or the Slot Trustee, as the case may be, may amend or supplement this Indenture, the Securities or the Operative Documents without notice to any Securityholder but with the written consent of the Required Holders. Subject to Sections 6.4, 6.5 and 6.7, the Required Holders may authorize the Trustee to, and the Trustee, subject to Section 9.6, upon such authorization shall, waive compliance by the Company with any provision of this Indenture, the Securities or the Operative Documents. However, an amendment, supplement or waiver, including a waiver pursuant to any provision of Section 6.4, may not without the consent of each Securityholder affected: (a) reduce the amount of Securities whose Holders must consent to an amendment, supplement or waiver (or, without limiting the generality of the foregoing, consent to any Senior Security Interest); (b) reduce the rate or change the time for payment of interest on, or Liquidated Damages, if any, with respect to any Security; 40 (c) reduce the principal of, or the amount of Liquidated Damages, if any, with respect to, or change the fixed maturity of any Security; (d) change the place of payment where, or the coin or currency in which, any Security (or the Repurchase Price thereof) interest thereon, or Liquidated Damages, if any, with respect thereto is payable; (e) waive a default in the payment of the principal of, or interest on, or Liquidated Damages with respect to any Security; (f) make any changes in Sections 2.8, 6.4, 6.7 or 6.10 or the third sentence of this Section 9.2; or (g) reduce any amount payable upon exercise of the Repurchase Right thereof or otherwise change the Repurchase Right provision or impair the right to institute suit for the enforcement of any such payment on any Security when due or adversely effect any Repurchase Rights. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.2 becomes effective, the Company shall mail to the Holders affected thereby the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however in any way impair or affect the validity of any such amendment, supplement or waiver. Section 9.3 Compliance with Trust Indenture Act. ----------------------------------- Every amendment to or supplement of this Indenture or the Securities shall comply with the TIA as then in effect. Section 9.4 Revocation and Effect of Consents. --------------------------------- Until an amendment or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of a Security. Such revocation shall be effective only if the Trustee receives the notice of revocation before the date the amendment, supplement or waiver becomes effective. After an amendment, supplement or waiver becomes effective, it shall bind every Securityholder, unless it makes a change described in any of clauses (a) through (g) of Section 9.2. 41 In that case the amendment, supplement or waiver shall bind each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security; provided, however, that no amendment, supplement or waiver relating to any impairment of the right to receive principal and interest when due and payable consented to by a Holder shall be binding upon any subsequent Holder of a Security or a portion of a Security that evidences the same debt as the consenting Holder's Security unless notation with regard thereto is made upon such Security or the Security representing such portion. Section 9.5 Notation on or Exchange of Securities. ------------------------------------- If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Section 9.6 Trustee to Sign Amendments, etc. ------------------------------- The Trustee shall be entitled to receive and rely upon an Officers' Certificate and an Opinion of Counsel stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article 9 has been duly authorized by the Company and is authorized or permitted by this Indenture and the applicable Operative Documents. The Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Section 9.7 Effect of Supplement and/or Amendment. ------------------------------------- Upon the execution of any supplemental indenture and/or any such amendment or supplement to the Operative Documents pursuant to the provisions of this Article 9, this Indenture and the Operative Documents shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties and immunities under this Indenture and the Operative Documents of the Trustee, the Collateral Agent, the Slot Trustee, the Company and the Holders of Securities shall thereafter be determined, exercised and enforced hereunder and thereunder subject in all respects to such modifications and amendments, and all terms and conditions of any such supplemental indenture and/or any such amendment or supplement to the Operative Documents shall be and be deemed to be part of the terms and conditions of this Indenture and the Operative Documents for any and all purposes. 42 ARTICLE 10. SECURITY Section 10.1 Operative Documents. ------------------- To secure the due and punctual payment, performance and observance of the Obligations, the Company has simultaneously with the execution of this Indenture entered into or caused to be assigned to the Trustee, Collateral Agent and/or Slot Trustee the Operative Documents and has made an assignment and pledge of or otherwise transferred or caused to be transferred its right, title and interest in and to the Collateral and the Acquired Slots to the Trustee, Collateral Agent and/or Slot Trustee pursuant to the Operative Documents and in the manner and to the extent therein provided. Each Securityholder, by accepting a Security, agrees to all of the terms and provisions of each Operative Document (including, without limitation, the provisions providing for the release of Collateral and/or Slot Trust Assets), as the same may be in effect or may be amended from time to time pursuant to its terms and the terms hereof. The Company will execute, acknowledge and deliver to the Trustee, the Collateral Agent or the Slot Trustee such further assignments, transfers, assurances or other instruments as the Trustee may require or request, and will do or cause to be done all such acts and things as may be necessary or proper, or as may be reasonably required by the Trustee, the Collateral Agent or the Slot Trustee to assure and confirm to the Trustee, the Collateral Agent or the Slot Trustee the security interest in the Collateral and the ownership of the Acquired Slots contemplated hereby and by the Operative Documents or any part thereof, as from time to time constituted, so as to render the same available for the security and benefit of this Indenture and of the Securities secured hereby, according to the intent and purposes herein expressed. Section 10.2 Opinions, Certificates and Appraisals. ------------------------------------- (a) The Company shall furnish to the Trustee promptly after the execution and delivery of this Indenture but prior to authentication of any Securities an Opinion of Counsel (A) either (i) stating that in the opinion of such Counsel the actions necessary to be taken under the Federal Aviation Act, the Uniform Commercial Code of all applicable jurisdictions, or otherwise with respect to the recording, registering and filing of this Indenture, the Operative Documents, financing statements or other instruments to make effective and (subject to the Certificate of Title Exception) to perfect the Lien intended to be created by the Pledge Agreement have been taken and reciting with respect to the security interests in the Collateral, the details of such actions, or (ii) stating that, in the opinion of such Counsel, no such action is necessary to make such Lien effective and (subject to the Certificate of Title Exception) perfected, and (B) either (i) stating that, in the opinion of such Counsel, action has been taken with respect to the recordation of all instruments required to be executed or filed to establish and maintain the Slot Trust as the holder of record at the FAA of the Acquired Slots and reciting with respect to such recordation the details of such action, or (ii) stating that, in the opinion of such Counsel, no such action, execution or filing is necessary to establish and maintain the Slot Trust. 43 (b) The Company shall furnish to the Collateral Agent and the Trustee hundred and twenty (120) days after January 1 in each year beginning with January 1, 1998, an Opinion of Counsel, dated as of such date, either (a)(i) stating that, in the opinion of such Counsel, action has been taken with respect to the recording, registering, filing, rerecording, re-registering and refiling (in this section, "recordation") of all supplemental indentures, financing statements, continuation statements or other instruments of further assurance as is necessary to maintain the Lien intended to be created by the Pledge Agreement and (subject to the Certificate of Title Exception) the perfection thereof and reciting with respect to the security interests in the Collateral the details of such action or referring to prior Opinions of Counsel in which such details are given, and (ii) stating that all financing statements and continuation statements have been executed and filed that are necessary as of such date and during the succeeding seventeen (17) months fully to maintain the Lien of the Securityholders and the Collateral Agent and the Trustee intended to be created hereunder and under the Pledge Agreement with respect to the security interest in the Collateral and (subject to the Certificate of Title Exception) the perfection thereof, or (b) stating that, in the opinion of such Counsel, no such action is necessary to maintain such Lien and (subject to the Certificate of Title Exception) the perfection thereof. The Company shall also furnish to the Slot Trustee and the Trustee within one hundred and twenty (120) days after January 1 in each year beginning with January 1, 1998, an Opinion of Counsel, dated as of such date, either (a)(i) stating that, in the opinion of such Counsel, action has been taken with respect to the recordation of all instruments as are necessary to maintain the Slot Trust as the Holder of record at the FAA of the Acquired Slots and reciting with respect to the recordation of such Acquired Slots the details of such action or referring to prior Opinions of Counsel in which such details are given, and (ii) stating that all instruments have been executed and filed that are necessary as of such date and during the succeeding seventeen (17) months fully to continue in effect such recordation as will maintain the Slot Trust as such Holder of record for the benefit of the Securityholders, the Slot Trustee, the Holder of the Beneficial Interest and the Beneficial Interest Certificate and the Trustee as intended hereunder and under the Acquired Slot Trust Agreement and the Master Sub-License Agreement with respect to the Acquired Slots, or (b) stating that, in the opinion of such Counsel, no such action, execution or filing is necessary to maintain the necessary recordation. (c) The release of any Collateral from the terms of the Pledge Agreement or of Slot Trust Assets from the Slot Trust will not be deemed to impair the security under this Indenture in contravention of the provisions hereof if and to the extent the Collateral and the Slot Trust Assets are released pursuant to the Pledge Agreement, the Acquired Slot Trust Agreement or the Master Sub- License Agreement, as applicable. To the extent applicable, the Company shall cause TIA (S) 314(d) relating to the release of property or securities from the Lien of the Pledge Agreement or the possession of the Slot Trust pursuant to the Master Sub-License Agreement and relating to the substitution therefor of any property or securities to be subjected to the Lien of the Pledge Agreement to be complied with. With respect to any such substitution, the Company shall furnish to the Trustee an Independent Appraiser's Certificate if required by TIA (S) 314(d). Any certificate or opinion required by TIA (S) 314(d) may be made by an Officer of the Company, except in cases where TIA (S) 314(d) requires that such certificate or opinion be made by an independent person, 44 which person shall meet the requirements set forth in clauses (a) through (d) of the definition of the term "Independent Appraiser." Section 10.3 Authorization of Actions to be Taken by the Trustee Under the ------------------------------------------------------------- Operative Documents. ------------------- The Trustee (in its capacities as such and/or as Collateral Agent and/or Slot Trustee) may, in its sole discretion and without the consent of the Securityholders, take all actions it deems necessary or appropriate to (a) enforce any of the terms of the Operative Documents and (b) collect and receive any and all amounts payable in respect of the obligations of the Company hereunder. Subject to the provisions of this Indenture and the Operative Documents, the Trustee (in such capacities) shall have power to institute and to maintain such suits and proceedings as it may deem expedient to prevent any impairment of the Collateral and the Acquired Slots by any acts which may be unlawful or in violation of the Operative Documents or this Indenture, and such suits and proceedings as it may deem expedient to preserve or protect its interest and the interests of the Securityholders in the Collateral and the Acquired Slots (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the security interest hereunder or be prejudicial to the interests of the Securityholders or of the Trustee in any such capacity). Section 10.4 Payment of Expenses. ------------------- On demand of the Trustee, the Company forthwith shall pay or satisfactorily provide for all reasonable expenditures incurred by the Trustee under this Article 10, and all such sums shall be a Lien upon the Collateral and shall be secured thereby. Section 10.5 Authorization of Receipt of Funds by the Trustee Under the ---------------------------------------------------------- Operative Documents. ------------------- The Trustee is authorized to receive any funds for the benefit of Securityholders distributed under the Operative Documents, and to make further distributions of such funds to the Holders according to the provisions of this Indenture. Section 10.6 Agreement as to Appraised Value and Fair Market Value. ----------------------------------------------------- The Company and the Trustee acknowledge that the use of Appraised Value and Fair Market Value herein or in the Operative Documents is strictly and solely for convenience in establishing relative value equivalencies of Permitted Substitutes permitted to be substituted under limited circumstances for Collateral and/or Acquired Slots under the Operative Documents. Accordingly, the Appraised Value or Fair Market Value of any Collateral, Permitted Substitutes, Acquired Slots or Slots subjected to the Lien of the Pledge Agreement or conveyed to the Slot Trust is not an indication of and shall not be deemed an agreement by the parties as the basis for valuation of such 45 Collateral, Permitted Substitutes, Acquired Slots, or Slots for purposes of determining the value of the Trustee's secured claim against the Company, adequate protection of the Trustee's interest in the Collateral, Permitted Substitutes, Acquired Slots or Slots or for any other purpose in any bankruptcy, receivership or insolvency proceeding involving the Company or any remedial action brought by the Trustee, Collateral Agent or Slot Trustee, except to the extent such valuations are mandated by applicable law, or any court with jurisdiction over such proceedings, in either case without regard to the use of the concept of Appraised Value or Fair Market Value by the parties hereto. Section 10.7 Intercreditor Agreement. ----------------------- The Trustee or the Collateral Agent may enter into intercreditor agreements substantially in the form attached hereto as Exhibit E with the holders from time to time of Senior Security Interests in order to define the relative rights and priorities among the Holders of the Securities and the holders of the applicable Senior Obligations in respect of the Collateral. ARTICLE 11. MISCELLANEOUS Section 11.1 Trust Indenture Act Controls. ---------------------------- If and to the extent that any provision of this Indenture limits, qualifies, or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the TIA, such imposed duties shall control. Section 11.2 Notices. ------- Any notice or communication shall be sufficiently given (subject to the provisions of the third succeeding paragraph) if in writing and delivered in person or when mailed by first-class mail addressed as follows: 46 if to the Company: Trans World Airlines, Inc. One City Centre 515 N. 6th Street St. Louis, Missouri 63101 Attention: Richard P. Magurno, Senior Vice President and General Counsel if to the Trustee: First Security Bank, National Association, as Trustee 79 South Main Street Salt Lake City, Utah 84111 Attention: Corporate Trust Department ------------ The Company or the Trustee by notice to the others may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Securityholder shall be mailed to him by first-class mail, postage prepaid, at his address as it appears on the Register and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. Except for a notice to the Trustee or to the Company, which is deemed given only when received, if a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. Section 11.3 Communications By Holders With Other Holders. -------------------------------------------- Securityholders may communicate pursuant to TIA (S) 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and any other person shall have the protection of TIA (S) 312(c). Section 11.4 Certificate and Opinion as to Conditions Precedent. -------------------------------------------------- Upon any Request or application by the Company to the Trustee to take any action under this Indenture or the Operative Documents, the Company shall furnish to the Trustee:(a) an Officers' Certificate, and (b) an Opinion of Counsel, each stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, provided, that in the case of any such application or Request as to which the furnishing of an Officers' Certificate or Opinion of Counsel is specifically required by any provision 47 of this Indenture or the Operative Documents relating to such particular application or Request, no additional certificate or opinion, as the case may be, need be furnished. Section 11.5 Statements Required In Certificate or Opinion. --------------------------------------------- Each certificate or opinion provided for and delivered to the Trustee, the Collateral Agent or the Slot Trustee with respect to compliance with a condition or covenant provided for in this Indenture or the Operative Documents shall include: (a) a statement that the Person signing such certificate or opinion has read such condition or covenant and the definitions herein or therein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such condition or covenant has been complied with; and (d) a statement as to whether or not in the opinion of such Person, such condition or covenant has been complied with. Any certificate or opinion of an Officer or an engineer, insurance broker, accountant or other expert may be based, insofar as it relates to legal matters, upon a certificate or opinion of or upon representations by counsel, unless such officer, engineer, insurance broker, accountant or other expert knows that the certificate or opinion or representations with respect to the matters upon which his opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should have known that the same were erroneous. Any certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon the certificate or opinion of or representations by an officer or officers of the Company stating that the information with respect to such factual matters is in possession of the Company, unless such counsel knows that the certificate or opinion or representations with respect to the matters upon which his opinion may be based as aforesaid are erroneous and insofar as it relates to legal matters in a jurisdiction or area of law beyond the expertise of such counsel, such counsel may rely upon the opinion of counsel qualified in such other jurisdiction or area of law. Wherever in this Indenture or the Operative Documents in connection with any application, certificate or report to the Trustee, the Collateral Agent or the Slot Trustee it is provided that the Company shall deliver any document as a condition of the granting of such application or as evidence of the Company's compliance with any term hereof, it is intended that the truth and accuracy at the time of the granting of such application or at the effective date of such certificate or report, as the case may be, of the facts and opinions stated in such document shall in each such case be a condition precedent to the right of the Company to have such application granted or to the sufficiency of such certificate or report. Nevertheless, in the case of any such application, certificate or report, any document required by any provision of this Indenture or the Operative Documents to be delivered to the Trustee, the Collateral Agent or the Slot Trustee as a condition of the granting of such application or as evidence of such compliance may be received by the Trustee, the Collateral Agent or the Slot Trustee as conclusive evidence of any statement therein contained and shall be full 48 warrant, authority and protection to the Trustee, the Collateral Agent or the Slot Trustee acting on the faith thereof. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Whenever any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements or opinions or other instruments under this Indenture or any Operative Document he may, but need not, consolidate such instruments into one. Section 11.6 Liens. Rules By Trustee, Paying Agent, Registrar. ------------------------------------------------ The Trustee may make reasonable rules for action by or at a meeting of Securityholders. The Registrar, Paying Agent or Tender Agent may make reasonable rules for their respective functions. Section 11.7 Payment Dates. ------------- If a payment date is not a Business Day, payment may be made at the designated place on the next succeeding day that is a Business Day with the same effect as if such payment was made on the original payment date, and no interest or Liquidated Damages, if any, shall accrue on that payment for the intervening period. Section 11.8 Governing Law. ------------- The laws of the State of New York shall govern this Indenture and the Securities without regard to principles of conflict of laws. Section 11.9 No Adverse Interpretation of Other Agreements. --------------------------------------------- This Indenture may not be used to interpret any indenture, loan or debt agreement of the Company or any of its Subsidiaries which is unrelated to the Indenture, the Securities or the Operative Documents. Any such indenture, loan or debt agreement may not be used to interpret this Indenture or the Operative Documents. Section 11.10 No Recourse Against Others. -------------------------- A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Securityholder by accepting a Security waives and releases all such liability. 49 Section 11.11 Provisions of Indenture for the Sole Benefit of Parties and ----------------------------------------------------------- Securityholders. --------------- Nothing in this Indenture or the Securities, expressed or implied, shall give or be construed to give to any Person, firm or corporation, other than the parties hereto and their successors and the Holders of the Securities, any legal or equitable right, remedy or claim under this Indenture or under any covenant or provision herein contained, all such covenants and provisions being for the sole benefit of the parties hereto and their successors and of the Holders of the Securities. Section 11.12 Successors. ---------- All agreements of the Company in this Indenture and the Securities shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor. Section 11.13 Duplicate Originals. ------------------- The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 11.14 Severability. ------------ In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby, and a Holder shall have no claim therefor against any party hereto. Section 11.15 Rating Agencies. --------------- Any reference in this Indenture or in the Operative Documents to Moody's Investors Service, Standard & Poor's Corporation or Duff & Phelps (each a "rating agency" or an "agency") shall include its successors or successor publishers of its financial ratings, and references to the ratings of any such rating agency shall include comparable ratings in the event of one or more reclassifications of such ratings by such rating agency after the date hereof. In the event that any of such rating agencies shall cease to publish applicable ratings, any provision herein requiring ratings of all of such agencies shall be deemed to require ratings of only the agency or agencies continuing to publish applicable ratings. If all of such agencies cease to publish applicable ratings, any provision herein requiring ratings of any of such agencies shall be deemed to require ratings that are both (a) certified by the Company in an Officers' Certificate to be equivalent to the ratings of such agency or agencies and (b) reasonably satisfactory to the Trustee or the Collateral Agent. Section 11.16 Effect of Headings. ------------------ The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. 50 ARTICLE 12. RELEASE OF COLLATERAL Section 12.1 Release of Collateral. --------------------- The Collateral securing the obligations evidenced by the Securities shall be subject to release from the Lien of this Indenture and the Operative Documents from and to the extent provided by the Operative Documents. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above. TRANS WORLD AIRLINES, INC, By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- FIRST SECURITY BANK, NATIONAL ASSOCIATION as Trustee By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 51 EXHIBIT A TO INDENTURE =============================================================================== 12% SENIOR SECURED NOTES ISSUED UNDER INDENTURE FROM TRANS WORLD AIRLINES, INC. TO FIRST SECURITY BANK, NATIONAL ASSOCIATION AS TRUSTEE Dated as of March 31, 1997 ============================================================================== Form of 12% Senior Secured Note due 2002 ---------------------------------------- No. PS______ $_______ THIS NOTE WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT. SOLELY FOR FEDERAL INCOME TAX PURPOSES, (I) ISSUE PRICE IS $_____ PER $1,000 PRINCIPAL AMOUNT, (II) THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $_____ PER $1,000 PRINCIPAL AMOUNT, (III) THE ISSUE DATE WAS MARCH 31, 1997, AND (IV) YIELD TO MATURITY IS ______. THE NOTES REPRESENTED BY THIS CERTIFICATE WERE INITIALLY ISSUED AS PART OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF $1,000 PRINCIPAL AMOUNT AT MATURITY OF 12% SENIOR SECURED NOTES DUE 2002 OF TRANS WORLD AIRLINES, INC (THE "NOTES") AND ONE WARRANT. PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EARLIEST OF (i) JUNE 29, 1997, (ii) THE DATE ON WHICH AN EXCHANGE OFFER REGISTRATION STATEMENT OR A SHELF REGISTRATION STATEMENT FOR THE NOTES IS DECLARED EFFECTIVE BY THE SECURITIES AND EXCHANGE COMMISSION OR (iii) SUCH EARLIER DATE AS PAINEWEBBER INCORPORATED MAY, IN ITS DISCRETION, DEEM APPROPRIATE, THE NOTES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, THE WARRANTS. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT, OR ANY STATE SECURITIES LAWS. NEITHER THESE SECURITIES NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THESE SECURITIES BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL, OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE RESALE RESTRICTION TERMINATION DATE WHICH IS THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE DATE OF ORIGINAL ISSUANCE AND THE LAST DATE ON WHICH THE CORPORATION OR ANY AFFILIATE OF THE CORPORATION WAS THE OWNER OF THESE SECURITIES (OR ANY PREDECESSOR OF THESE SECURITIES) ONLY (A) TO THE CORPORATION, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A TO A PERSON IT REASONABLY BELIEVES IS AS "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO A-1 WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1),(2) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE CORPORATION'S AND THE TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE, OR TRANSFER (i) PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES ,TO REQUIRE A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THESE SECURITIES IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OR TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS. TRANS WORLD AIRLINES, INC. 12% SENIOR SECURED NOTE DUE 2002 CUSIP ________ Trans World Airlines, Inc., a Delaware corporation (hereinafter sometimes called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), promises to pay to _________________________ A-2 ______, or registered assigns, the principal sum of ___________________ Dollars on April 1, 2002 and to pay interest thereon as provided on the reverse hereof, until the principal hereof is duly paid or provided for. Interest Payment Dates: April 1 and October 1 and the date of maturity. Record Dates: March 15 and September 15. Other provisions of this Note set forth on the reverse hereof or elsewhere herein shall have the same effect as if set forth at this place. Executed as a sealed instrument under the corporate seal or a facsimile thereof. ATTEST: TRANS WORLD AIRLINES, INC. Corporate Secretary ________________________________ By:____________________________________ Vice President, Corporate Finance Dated: __________________________ Certificate of Authentication ----------------------------- This is one of the Securities referred to in the within-mentioned Indenture. FIRST SECURITY BANK, NATIONAL ASSOCIATION, as Trustee By:____________________________________ Authorized Signature A-3 (Back of Security) TRANS WORLD AIRLINES, INC. "THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (ii) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (iii) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (iv) TO THE COMPANY OR (v) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (i) THROUGH (v) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE." BY ITS ACQUISITION HEREOF, THE HOLDER REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR") AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S. "IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS." 12% Senior Secured Notes Due 2002 The Security is one of a duly authorized issue of securities of the Company designated as its 12% Senior Secured Notes due 2002 (hereinafter called the Securities"), limited in aggregate principal amount Outstanding to $50,000,000, (subject to increase up to $57,500,000 aggregate principal amount Outstanding, as provided in the Indenture) issued or to be issued pursuant to an Indenture, dated as of March 31, 1997 (hereinafter called the "Indenture") between the Company and First Security Bank, National Association, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture). A-4 1. Interest; Liquidated Damages. The Company promises to pay interest on ---------------------------- the principal amount of this Security at the rate of twelve percent (12%) per --- annum. To the extent permitted by law, interest on any overdue interest or - ------ Liquidated Damages, if any, will accrue and be paid at the rate then borne by the principal amount hereof. Overdue principal shall bear interest at the rate shown above. The Company will pay interest and Liquidated Damages, if any, semi-annually on April 1 and October 1 of each year, commencing October 1, 1997. Interest on the Securities will accrue from March 31, 1997 or the most recent Interest Payment Date to which interest and Liquidated Damages, if any, have been paid. Interest and Liquidated Damages, if any, will be payable to the Holders of record as they appear on the register of the Company kept by the Registrar on such record dates, provided that Holders of Securities tendered for repurchase on a Repurchase Date falling between an interest payment record date and the Interest Payment Date shall, in lieu of receiving such interest and Liquidated Damages, if any, on the Interest Payment Date fixed therefor, receive such interest payment together with all other accrued and unpaid interest and Liquidated Damages, if any, on the date fixed for repurchase (unless such Holders tender such Securities in payment of the Exercise Price of the Warrants in accordance with the Indenture, in which case such holders will receive such payment on the corresponding Interest Payment Date, but will be required to accompany such tender with funds equal to the interest and Liquidated Damages, if any, payable on such succeeding Interest Payment Date on the principal amount of Securities tendered in payment of the Exercise Price of the Warrants). Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment. Unless the Securities are tendered in payment of ----------------- the Exercise Price of the Warrants, the Company will pay interest on and Liquidated Damages, if any, with respect to, the Securities (except defaulted interest) to the persons who are registered Holders of Securities at the close of business on the record date set forth on the face of this Security next preceding the applicable Interest Payment Date. Holders must surrender Securities to a Paying Agent to collect principal payments and must surrender Securities to a Tender Agent to utilize the principal amount of such Securities to pay the Exercise Price of the Warrants. The Company will pay principal, interest and Liquidated Damages, if any, at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York and at any other office or agency maintained by the Company for such purpose in money of the United States that at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company, payment of interest on and Liquidated Damages, if any, with respect to, the Securities may be by check payable in such money and mailed to a Holder's registered address. If a payment date is a legal holiday at a place of payment, payment may be made at that place on the next succeeding Business Day, and no interest shall accrue for the intervening period. 3. Registrar, Paying Agent and Tender Agent. Initially, First Security ---------------------------------------- Bank, National Association (the "Trustee") will act as Registrar, Paying Agent and Tender Agent. The Company may change any Paying Agent, Tender Agent, Registrar or co-registrar without prior notice to any Securityholder. The Company may act in any such capacity, except in certain circumstances. A-5 4. Indenture. The Company issued the Securities under an Indenture dated --------- as of March 31, 1997 (as amended, amended and restated or supplemented, the "Indenture") between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made applicable to the Indenture by the Trust Indenture Act of 1939 (15 U.S.C. (S) (S) 77aaa-77bbbb) as in effect on the date of the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and such Act for a statement of such terms. The Securities are secured obligations of the Company limited to $50,000,000 aggregate principal amount (subject to increase up to $57,500,000 aggregate principal amount), except as otherwise provided in the Indenture. Capitalized terms used in this Security and not defined in this Security shall have the meaning set forth in the Indenture, including the Definitions Appendix to the Indenture. 5. Security. The Securities are secured by Liens on certain Properties -------- of the Company pursuant to the Operative Documents described in the Indenture. 6. Change in Control. In the event of a Change in Control (as ----------------- hereinafter defined) with respect to the Company, then each Holder of the Securities shall have the right, at the Holder's option, to require the Company to repurchase such Holder's Securities including any portion thereof which is $1,000 or any integral multiple thereof on the date (the "Repurchase Date") that is 45 days after the date of the Repurchase Right Notice at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to and including the Repurchase Date (the "Repurchase Price"). Within 30 days after the occurrence of a Change in Control, the Company is obligated to give notice of the occurrence of such Change in Control, and the procedure which such Holder must follow to exercise such right. To exercise the repurchase option, the Holder of a Security must deliver on or before the 30th day after the date of the Repurchase Right Notice, written notice to the Company of the Holder's exercise of such option together with the Security or Securities with respect to which the option is being exercised, duly endorsed for transfer. Exercise of the Repurchase Right by the Holder of a Security will be irrevocable on and after five (5) Business Days prior to the Repurchase Date, unless (i) the Company shall default in making the repurchase payment when due, in which case a Holder who elects to exercise the Repurchase Right will retain the right to tender such Security in payment of the then current Exercise Price of the Warrants (as defined in the Warrant Agreement dated as of March 31, 1997 between the Company and American Stock Transfer & Trust Company) until the close of business on the date such default is cured and such Security is repurchased, or (ii) the Company shall otherwise, in its sole discretion, consent thereto. If any repurchase pursuant to the foregoing provisions constitutes an "issuer tender offer" as defined in Rule 13e-4 under the Exchange Act, the Company will comply with the requirements of Rule 13e-4, Rule 14e-1 and any other tender offer rules under the Exchange Act which then may be applicable, including the filing of an issuer tender offer statement on Schedule 13E-4 with the SEC and the furnishing of certain information contained therein to the Holders. A-6 A "Change in Control" means the occurrence of any of the following events: (i) any person (including any entity or group deemed to be a "person" under Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) is or becomes the direct or indirect beneficial owner (as determined in accordance with Rule 13d-3 under the Exchange Act) of shares of the Company's capital stock representing greater than 50% of the total voting power of all shares of capital stock of the Company entitled to vote in the election of Directors under ordinary circumstances or to elect a majority of the Board of Directors of the Company, (ii) the Person then constituting the "Company" under the Indenture sells, transfers or otherwise disposes of all or substantially all of its assets (regardless of whether such Person thereupon ceases to constitute the "Company" under the Indenture pursuant to Section 5.2 of the Indenture), (iii) when, during any period of 12 consecutive months after the date of original issuance of the Securities, individuals who at the beginning of any such 12-month period constituted the Board of Directors of the Company (together with any new directors whose election by such Board or whose nomination for election by the stockholders of the Company was approved by a vote of a majority of the directors still in office entitled to vote with respect to such nomination who were either directors at the beginning such period or whose election or nomination for election was previously so approved, but excluding any of the individuals who at the beginning of such 12-month period constituted such Board but who ceased to be a member of the Board pursuant to the Company's mandatory retirement policy as in effect as of the date of the Indenture), cease for any reason to constitute a majority of the Board of Directors of the Company then in office or (iv) the date of the consummation of the merger or consolidation of the Person then constituting the "Company" under the Indenture with another corporation where the stockholders of such Person, immediately prior to the merger or consolidation, would not beneficially own, immediately after the merger or consolidation, shares entitling such stockholders to 50% or more of all votes (without consideration of the rights of any class of stock to elect directors by a separate class vote) to which all stockholders of the corporation issuing cash or securities in the merger or consolidation would be entitled in the election of directors or where members of the Board of Directors of the Person then constituting the "Company" under the Indenture, immediately prior to the merger or consolidation, would not, immediately after the merger or consolidation, constitute a majority of the board of directors of the corporation issuing cash or securities in the merger or consolidation. 7. Tender in Payment of Exercise Price of Warrants. A Holder of a ----------------------------------------------- Security may tender such Security in payment of the Exercise Price of the Warrants at any time prior to maturity. The initial Exercise Price is $7.92 per share, subject to adjustment under certain circumstances as set forth in the Warrant Agreement. No payment or adjustment will be made for accrued interest or Liquidated Damages, if any, on a Security tendered in payment of the Exercise Price or for dividends or distributions on shares of Common Stock issued upon exercise of the Warrant except as provided in Section 1 of the Security. No Securities will be issued in denominations of less than $1000 upon tender of the Securities nor shall any cash be paid by the Company in connection with a tender of the Securities in payment of the Exercise Price of the Warrants. To tender a Security in payment of the Exercise Price of the Warrants, a Holder must (a) complete and manually sign the tender notice set forth below and deliver such notice to the Tender Agent, (b) surrender the Security to the Tender Agent, (c) furnish appropriate endorsements and transfer documents, if required by the Registrar or the Tender Agent, and (d) pay a transfer or similar A-7 tax, if required. If a Holder surrenders a Security for tender after the close of business on a record date, then, notwithstanding such tender, the interest and Liquidated Damages, if any, payable on the related Interest Payment Date shall be paid to the Holder of such Security on such record date. In such event, the Security must be accompanied by payment of any amount equal to the interest and Liquidated Damages, if any, payable on such Interest Payment Date on the principal amount of the Security or portion thereof then tendered. A Holder may tender in payment of the Exercise Price of the Warrants a portion of a Security equal to $1,000 or any integral multiple thereof other than for payment of fractional shares issuable upon the exercise of such Warrants. 8. Denominations, Transfer, Exchange. The Securities shall be issuable --------------------------------- only in registered form without coupons and in denominations of $1,000 and integral multiples thereof. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes required by law or permitted by the Indenture. 9. Persons Deemed Owners. The Company, the Trustee and any agent of the --------------------- Company or the Trustee may treat the person in whose name the Security is registered with the Registrar as the owner for all purposes. 10. Amendments and Waivers. Subject to certain exceptions, the Indenture, ---------------------- the Securities, or the Operative Documents may be amended with the consent of the Holders of at least a majority in principal amount of the then Outstanding Securities, and any existing Default, Event of Default or acceleration may be waived with the consent of the Holders of a majority in principal amount of the then Securities Outstanding. Without the consent of any Holder, the Indenture, the Securities or any of the Operative Documents may be amended to, among other things, cure any ambiguity, defect or inconsistency. 11. Defaults and Remedies. Events of Default under the Indenture include --------------------- the following: default for the period specified in the Indenture in payment of interest on, or Liquidated Damages, if any, with respect to the Securities; default in payment of principal when due on the Securities (upon maturity, tender for repurchase or otherwise); failure by the Company to comply with specific covenants or discontinuance by the Company of substantially all of its airline operations; failure by the Company for sixty (60) days after notice to it to comply in any material respect with any of its other covenants, conditions or agreements in the Indenture or the Securities, unless otherwise specified; the occurrence of certain defaults under any Indebtedness of the Company or any Significant Subsidiary in excess of $15,000,000 in principal amount or under Senior Obligations which continues for thirty (30) days after notice to the Company; the rendering or domestication of final judgments by a court of competent jurisdiction against the Company or any Significant Subsidiary in an aggregate amount of $15,000,000 or more which remain undischarged for a period (during which execution is not stayed) of sixty (60) days after the date on which the right to appeal has expired; cessation of effectiveness of Operative Documents without the consent of the Trustee; and certain events of bankruptcy, insolvency or reorganization. Subject to certain limitations in the Indenture, if an Event of Default occurs and is continuing, the Trustee or the Holders of twenty-five A-8 percent (25%) in principal amount of the then Securities Outstanding may declare all the Securities to be due and payable immediately, except that in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all Securities Outstanding become due and payable immediately without further action or notice. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in principal amount of the then Outstanding Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing default (except a default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company must furnish compliance certificates to the Trustee. The above description of Events of Default and remedies is qualified by reference, and subject in its entirety to the more complete description thereof contained in the Indenture. 12. Trustee Dealings with Company. The Trustee under the Indenture, in ----------------------------- its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 13. No Recourse Against Others. A director, officer, employee or -------------------------- stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Securityholder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 14. Authentication. This Security shall not be valid until authenticated -------------- by the manual signature of the Trustee or an authenticating agent. 15. Unclaimed Money. If money for the payment of principal of, interest --------------- on, or Liquidated Damages, with respect to, or the Repurchase Price for the Securities remains unclaimed for two (2) years, the Trustee or Paying Agent will pay the money back to the Company at its request. After such payment, Holders entitled to any portion of such money must look to the Company for payment unless an applicable law designates another person. 16. Abbreviations. Customary abbreviations may be used in the name of a ------------- Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). The Company will furnish to any Holder of this Security, upon written request and without charge, a copy of the Indenture. Request may be made to: Trans World Airlines, Inc., One City Centre, 515 N. 6th Street, St. Louis, Missouri 63101, Attention: Corporate Secretary. Dated: ---------------------- ---------------------------------------------- NOTICE: To be executed by an executive officer A-9 ASSIGNMENT FORM ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to: - ----------------------------------------------------------------------- (Insert Assignee's Soc. Sec. or Tax I.D. No.) - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint ---------------------------------------------------- agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. TENDER NOTICE To tender this Security in payment of the Exercise Price of the Warrants, check the box: [_] To tender only part of this Security in payment of the Exercise Price of the Warrants, state the amount to be tendered (must be in multiples of $1,000) $ ----------------------------------------------------------------------------- If you want the stock certificate issuable upon exercise of the Warrants made out in another person's name, fill in the form below: - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- (Print or type other person's name, address and zip code and Social Security number or Tax Identification Number) ============================================================================== Date: -------------------------------------------------------------------------- Signature(s) guaranteed by: Signature(s): ----------------------------------------------------------------- - ------------------------------------------------------------------------------ (Sign exactly as your name(s) appear(s) on the other side of this Security) (All signatures must be guaranteed by a member of a national securities exchange or of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company located in the United States) A-10 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security repurchased by the Company pursuant to Section 4.15 of the Indenture, check the box: [_] If you want to elect to have only part of this Security repurchased by the Company pursuant to Section 4.15 of the Indenture, state the amount to be repurchased: $ - -------------------------------------------- (in an integral multiple of $1,000) Date: Signature: ------------------------------- ------------------------------ ------------------------------------------ (Sign exactly as your name(s) appear(s) on the other side of this Security) Signature(s) guaranteed by: ------------------------------------------- (All signatures must be guaranteed by a member of a national securities exchange or of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company located in the United States) A-11 EXHIBIT B Form of Legend for Global Securities Every Global Security authenticated and delivered hereunder shall bear a legend in substantially the following form: Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to Issuer or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity, as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co. has an interest herein. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFER MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO HEREIN. B-1 ACQUIRED SLOT TRUST AGREEMENT DECLARATION OF TRUST DATED AS OF MARCH 31, 1997 DECLARATION OF TRUST (together with all amendments and supplements hereto, this "Agreement"), made as of March 31, 1997, executed by TRANS WORLD AIRLINES, INC., a Delaware corporation, having an office at 515 N. 6th Street, St. Louis, Missouri 63101 (herein, together with its successors and assigns, "TWA"), and FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association organized under the laws of the United States, having an office at 79 South Main Street, Salt Lake City, Utah 84111, as trustee (or its successor in interest or any successor trustee appointed as hereinafter provided and its assigns, the "Slot Trustee"); R E C I T A L S: WHEREAS, TWA has duly authorized the issuance of $50,000,000 (plus up to an additional $7,500,000 if an over-allotment option is exercised) aggregate principal amount outstanding of its 12% Senior Secured Notes pursuant to an Indenture (together with all amendments, modifications and supplements thereto, the "Indenture") dated as of March 31, 1997 between TWA and First Security Bank, National Association (the "Trustee"); and WHEREAS, the Indenture requires TWA to establish the Slot Trust for the purpose of holding the Acquired Slots described in Schedule I for the benefit of the Holders of the Securities; and WHEREAS, this Agreement establishes the Slot Trust for the purpose of holding the Acquired Slots for the benefit of Holders of the Securities (as defined in the Definitions Appendix described below); and WHEREAS, as a result of the foregoing, pursuant to the terms of the Indenture and in order to secure the due and punctual payment, performance and observance in full of the Obligations (as defined in the Definitions Appendix described below), the Beneficial Interest and the Beneficial Interest Certificate, among other things, will be pledged to the Collateral Agent pursuant to the Pledge Agreement for the equal and ratable benefit of the Holders of the Securities; and WHEREAS, TWA has duly authorized the execution and delivery of this Agreement. NOW, THEREFORE, both parties agree as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Securities. ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1. Definitions. Capitalized terms used and not otherwise defined ----------- herein shall have the meanings ascribed to such terms in Section 1 of the Definitions Appendix attached to the Indenture as Appendix I, which shall be a part of this Acquired Slot Trust Agreement as if fully set forth in this place. Section 1.2. Rules of Construction. The rules of construction for this --------------------- Acquired Slot Trust Agreement are set forth in Section 2 of the Definitions Appendix. ARTICLE 2. NAME Section 2.1. Name. The Slot Trust established by this Agreement shall be ---- known as the ACQUIRED SLOT TRUST (together with all amendments and supplements hereto, the "Slot Trust"). ARTICLE 3. PURPOSE OF SLOT TRUST Section 3.1. Purpose. The purpose for which the Slot Trust has been formed ------- is (i) to acquire and hold, for the benefit of the holder of the Beneficial Interest and the Beneficial Interest Certificate, the Acquired Slots assigned, transferred and conveyed to the Slot Trust pursuant to the Deed of Conveyance and subsequent deeds of conveyance similar in form and substance to the Deed of Conveyance pursuant to which TWA has transferred and may transfer Slots to the Slot Trust, the pledge of the Beneficial Interest therein to serve as security for the payment and performance of the Obligations, and (ii) to transfer such Acquired Slots, all in accordance with the terms and conditions set forth in this Agreement, the Master Sub-License Agreement and the Indenture. ARTICLE 4. CONVEYANCE OF SLOTS, ORIGINAL ISSUANCE OF CERTIFICATE Section 4.1. Holding and Conveyance of Slots. TWA by the execution and ------------------------------- delivery hereof, confirms that pursuant to the Deed of Conveyance, it is assigning, transferring and conveying to the Slot Trust the Acquired Slots described in Schedule I, in each case free and clear of liens, encumbrances and rights of others (except for certain of the Acquired Slots which are subject to the Prior Third Party Licenses listed in Schedule II hereto and Acquired Slots subject to Slot Trades) and without recourse (such Acquired Slots, together with all other Slots which may, from time to time, be assigned, transferred and conveyed to the Slot Trust from TWA pursuant to the Master Sub-License Agreement or otherwise, but excluding any Acquired Slots which have been released and assigned, transferred and reconveyed to TWA from the Slot Trust (unless later reassigned, retransferred and reconveyed to the Slot Trust) pursuant to the 2 Master Sub-License Agreement, herein being collectively referred to as the "Acquired Slots" or the "Slot Trust Assets"), subject to the terms hereof. Section 4.2. Acceptance by Slot Trustee. The Slot Trustee acknowledges the -------------------------- prior or concurrent assignment, transfer and conveyance to it of the Acquired Slots referred to in Section 4.1 hereof and declares that it holds and will hold all Slot Trust Assets received by it hereunder in trust, in accordance with, and subject to, the terms herein set forth. Section 4.3. Execution of Beneficial Interest Certificate. The Slot Trustee -------------------------------------------- shall execute and record the ownership of the Beneficial Interest Certificate in accordance with Section 6.1 and deliver it to the Collateral Agent, whereafter the Beneficial Interest shall be represented by the Beneficial Interest Certificate, subject to all the terms hereof. ARTICLE 5. OWNERSHIP AND TRANSFER OF SLOT TRUST ASSETS Section 5.1. Ownership of Slot Trust Assets. The Slot Trust Assets shall be ------------------------------ held separate and apart from any assets now or hereafter held in any capacity other than as trustee hereunder by the Slot Trustee. All the assets of the Slot Trust shall at all times be considered as vested in the Slot Trustee. For so long as the Slot Trust Assets are held by the Slot Trust, TWA shall not, and shall not be deemed to, have ownership in, or any rights of the holder of record at the FAA with respect to, any Slot Trust Asset or any right of partition or possession thereof, but TWA or its permitted assignee shall have an undivided beneficial ownership interest in the entire Slot Trust. It is the intent hereof that by the Deed of Conveyance, any Subsequent Deed of Conveyance, this Agreement and the Master Sub-License Agreement, TWA (for all purposes other than tax purposes) has assigned, transferred and conveyed (or in the case of any Subsequent Deed of Conveyance, will have assigned, transferred and conveyed) its entire interest in the Acquired Slots to the Slot Trust subject to no Liens except Permitted Liens, and that TWA can only acquire an interest therein upon satisfaction of all the Obligations or under the limited circumstances set forth in Article 6 of the Master Sub-License Agreement. If, notwithstanding TWA's failure to satisfy all the Obligations or comply with said Article 6, it is held or determined that any present or future right or interest in any Acquired Slot does so exist in TWA by contingent right of reverter, expectancy or otherwise, TWA agrees that such holding or determination is contrary to the intent hereof and that it has no right to, and shall not, transfer or otherwise place any Lien upon such interest or make any agreement or understanding to do so unless and until all the Obligations have been satisfied or such Acquired Slot shall have ceased to be an Acquired Slot for all purposes hereof and of the Master Sub- License Agreement. Section 5.2. Transfer of Slot Trust Assets. Except as provided in the ----------------------------- Master Sub-License Agreement including Section 6.2(a) thereof, until such time as the Slot Trust receives notice from the Indenture Trustee that (i) TWA has satisfied all of its Obligations or (ii) acceleration of TWA's obligations under the Securities has occurred, the Slot Trust shall not transfer any of the Slot Trust Assets. Upon receipt of notice from the Indenture Trustee that no Event of Default exists and TWA has satisfied all of the Obligations, the Slot Trustee shall, 3 subject to the provisions of Section 9.2 of the Master Sub-License Agreement, and except as otherwise provided in Section 9.2 thereof, reassign, retransfer and reconvey to TWA or its designee by deed of conveyance, without recourse, representation or warranty, all of the Acquired Slots then held as Slot Trust Assets. Upon receipt of notice from the Indenture Trustee that acceleration of TWA's obligations under the Securities has occurred, the Slot Trust, upon direction from the Indenture Trustee, shall take all such actions as are appropriate and necessary, in the exercise of its sole and exclusive discretion, to protect the interests of the Holders of the Securities, including without limitation, to deny TWA use of the Acquired Slots (the Master Sub-License Agreement having terminated), to cause or allow the termination of, enforce attornment obligations under or otherwise deal with Third-Party Licenses and to transfer by deed of conveyance without recourse, representation or warranty any or all of the Acquired Slots. Notwithstanding the foregoing, if the Slot Trust or the Slot Trustee (in its capacity as Slot Trustee) receives any property other than Slot Trust Assets (including, without limitation, cash and/or Investment Securities) such property shall be immediately delivered to the Collateral Agent. ARTICLE 6. BENEFICIAL INTEREST IN THE SLOT TRUST Section 6.1. Ownership of Beneficial Interest. TWA shall be the holder of -------------------------------- record of the Beneficial Interest Certificate; provided however that upon acceleration of the Securities in accordance with the Indenture, the Collateral Agent may at any time in its discretion and without notice to TWA request that the Slot Trustee transfer to or register in its name the Beneficial Interest Certificate, and thereupon shall become holder of record of such certificate. The ownership of the Beneficial Interest and the Beneficial Interest Certificate shall be recorded by the Slot Trustee on the books of the Slot Trust. The record books of the Slot Trust shall be conclusive as to who is the holder of record of the Beneficial Interest and the Beneficial Interest Certificate. Section 6.2. Transfer of Beneficial Interest. So long as TWA is recorded on ------------------------------- the books of the Slot Trust as the holder of record of the Beneficial Interest and the Beneficial Interest Certificate, TWA shall not transfer or assign the Beneficial Interest and/or the Beneficial Interest Certificate to any Person, except that TWA may pledge, transfer or assign the Beneficial Interest and the Beneficial Interest Certificate to the Collateral Agent under the Pledge Agreement and to no other Person. At such time as the Collateral Agent becomes the holder of record of the Beneficial Interest and the Beneficial Interest Certificate, the Beneficial Interest and the Beneficial Interest Certificate shall be fully transferable and assignable. 4 ARTICLE 7. THE SLOT TRUSTEE Section 7.1. Management of the Slot Trust. The business and affairs of the ---------------------------- Slot Trust shall be managed by the Slot Trustee, and the Trustee shall have all powers granted to it pursuant to applicable law and under this Agreement. Section 7.2. Powers. The Slot Trustee in all instances shall carry out its ------ duties under this Agreement without interference by TWA. The Slot Trustee shall have full power and authority to do any and all acts and to make and execute any and all contracts and instruments necessary in connection with its duties under this Agreement. In addition to the powers granted to the Slot Trustee pursuant to applicable law and subject to any applicable limitation in this Agreement, the Slot Trustee shall have power and authority: (a) To enter into and perform on behalf of the Slot Trust the Master Sub-License Agreement, under substantially the terms and conditions set forth in the form of such agreement attached as Exhibit C hereto; (b) To hold on behalf of the Slot Trust the Acquired Slots assigned, transferred and conveyed to the Slot Trust from TWA pursuant to the Deed of Conveyance or any subsequent deed of conveyance from TWA; (c) To cancel, terminate and declare null and void the Master Sub-License Agreement pursuant to the terms of such agreement; (d) After acceleration of TWA's obligations under the Securities in accordance with the Indenture (i) to take such actions as are appropriate and necessary in the exercise of its sole and exclusive discretion, to enter into, cause or allow the termination of, enforce attornment obligations under or otherwise deal with sublicenses and Third-Party Licenses and (ii) to assign, transfer and convey by deed of conveyance, without recourse, representation or warranty, any or all of the Acquired Slots, upon direction of the Indenture Trustee; (e) To transfer to the Collateral Agent any property other than Slot Trust Assets (including, without limitation, cash and/or Investment Securities) delivered to it; and (f) To reassign, retransfer and reconvey by deed of conveyance without recourse, representation or warranty (except as otherwise provided in Section 9.2 of the Master Sub-License Agreement) to TWA the Acquired Slots held as Slot Trust Assets, upon receipt of notice from the Indenture Trustee of satisfaction by TWA of all its Obligations or under certain circumstances with respect to certain Acquired Slots as set forth in the Master Sub-License Agreement. 5 Section 7.3. Principal Transactions. The Slot Trustee shall not on behalf of ---------------------- the Slot Trust, or otherwise, transfer any Slot Trust Assets or any other property delivered to the Slot Trustee or the Slot Trust from the Slot Trust or sell or lend any Slot Trust Assets or any other property delivered to the Slot Trustee or the Slot Trust to any person, except as set forth in Sections 5.2 and 7.2 hereof. Section 7.4. Service in Other Capacities. The Slot Trustee may serve in any --------------------------- other capacity on its own behalf or on behalf of others (and must serve as Indenture Trustee and as Collateral Agent), and may engage in such other business activities in addition to its services on behalf of the Slot Trust as may be desirable and permissible under any applicable law. The Slot Trustee agrees to, and shall have the benefit of, all provisions of the Indenture and the Operative Documents stated therein to be agreements of or applicable to the Slot Trustee. Section 7.5. Resignation and Removal of Slot Trustee. The Slot Trustee may --------------------------------------- resign or be removed and a successor Slot Trustee appointed in accordance with the terms of Section 7.8 of the Indenture; provided, however, that upon the occurrence of an Event of Default, the Slot Trustee shall, if required under applicable law to preserve the existence of the Slot Trust, resign and/or appoint a successor individual trustee who shall be an individual person and shall for all purposes be the Slot Trustee hereunder. Section 7.6. Successor Slot Trustee. Any successor Slot Trustee appointed ---------------------- as provided in Section 7.5 hereof or which became a successor Slot Trustee in accordance with Section 7.9 of the Indenture shall execute, acknowledge and deliver to TWA and to its predecessor Slot Trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor Slot Trustee shall become effective, and such successor Slot Trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as Slot Trustee herein. The predecessor Slot Trustee shall deliver to the successor Slot Trustee all documents and statements held by it hereunder, and TWA and the predecessor Slot Trustee shall execute and deliver such instruments and do such other things as may reasonably be required for more fully and certainty vesting and confirming in the successor Slot Trustee all such rights, powers, duties and obligations. ARTICLE 8. LIMITATION OF LIABILITY AND INDEMNIFICATION Section 8.1. Limitation of Slot Trustee Liability. Every act or thing done ------------------------------------ or omitted, and every power exercised or obligation incurred by the Slot Trustee in the administration of the Slot Trust or in connection with any business, property or concerns of the Slot Trust, whether ostensibly in its own name or in its capacity as Slot Trustee, shall be done, omitted, exercised or incurred by it as Slot Trustee; and every person contracting or dealing with the Slot Trustee or having any debt, claim or judgment against it shall look only to TWA for payment or satisfaction; and the Slot Trustee shall not be personally liable for or on account of any contract, 6 debt, tort, claim, damage, judgment or decree arising out of or connected with the administration or preservation of the Slot Trust Assets or the conduct of any business of the Slot Trust. Except as provided in Section 9.1 of the Master Sub-License Agreement, the Slot Trustee does not make and shall not be deemed to have made any representation or warranty, expressed or implied, as to the title, merchantability, compliance with specifications, condition, design, operation, fitness for use or for a particular purpose, or any other representation or warranty whatsoever, expressed or implied, with respect to the Slot Trust Assets. The Slot Trustee shall not be subject to any personal liability whatsoever to any person for any action or failure to act (including, without limitation, the failure to compel in any way any former or acting Slot Trustee to redress any breach of trust) and all Persons shall look solely to TWA for satisfaction of claims of any nature arising in connection with the affairs of the Slot Trust, except for the Slot Trustee's own bad faith or negligence. Section 8.2. Indemnification of Slot Trustee. TWA shall indemnify and hold ------------------------------- harmless the Slot Trustee to the same extent provided for the Indenture Trustee under Section 7.7 of the Indenture, and the Slot Trustee shall have those rights set forth in such Section 7.7 for the Indenture Trustee. Section 8.3. Duties of Slot Trustee. (a) If an Event of Default has ---------------------- occurred and is continuing, the Slot Trustee shall exercise such of the rights and powers vested in it by this Agreement and use the same degree of care and skill in such exercise as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) The Slot Trustee need perform only those duties as specifically set forth in this Agreement and no others. (ii) In the absence of bad faith on its part, the Slot Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Slot Trustee and conforming to the requirements of this Agreement. However, the Slot Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Agreement. (c) The Slot Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) This paragraph (c) does not limit the effect of paragraph (b) of this Section 8.3 or of Section 8.4 hereof. 7 (ii) The Slot Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Slot Trustee was negligent in ascertaining the pertinent facts. (iii) The Slot Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 5.2 hereof. (d) The Slot Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense. (e) Every provision of this Agreement that in any way relates to the Slot Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 8. 3. (f) Except as specifically set forth herein, in the Master Sub-License Agreement or in the Pledge Agreement, the Slot Trustee shall have no duty (i) to perform any recording or filing in connection with the Slot Trust Assets, (ii) to see to the payment or discharge of any tax, assessment or other governmental charge or any lien owing with respect to, or assessed or levied against, any part of the Slot Trust Assets, or (iii) to take any other actions in connection with the use, operation, management or maintenance of the Slot Trust Assets. Section 8.4. Rights of Slot Trustee. (a) The Slot Trustee may rely on any ---------------------- document believed by it to be genuine and to have been signed or presented by the proper person. The Slot Trustee need not investigate any fact or matter stated in any such document. (b) Before the Slot Trustee acts or refrains from acting, it may require an Opinion of Counsel, satisfactory to the Slot Trustee in its reasonable discretion, which shall conform to Section 11.5 of the Indenture. The Slot Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. (c) The Slot Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Slot Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. Slot Trustee shall have the right at any time to seek instruction concerning the administration of this Agreement or the trust created thereby from any court of competent jurisdiction. (e) The Slot Trustee may consult with counsel and the advice or opinion of such counsel as to matters of law shall be full and complete authorization and 8 protection in respect of any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. ARTICLE 9. VOTING POWERS OF HOLDER OF RECORD OF BENEFICIAL INTEREST Section 9.1. No Voting Power. So long as TWA is the holder of record of the --------------- Beneficial Interest and the Beneficial Interest Certificate, TWA shall have no voting power with respect to any matter relating to the Slot Trust, unless, and only to the extent, required by law, which vote shall be exercised by the Collateral Agent. At such time as the Collateral Agent becomes the holder of record of the Beneficial Interest and the Beneficial Interest Certificate, the Collateral Agent shall have all voting power with respect to any and all matters relating to the Slot Trust, including, without limitation, the dissolution of the Slot Trust, any direction to the Slot Trustee to make distributions, in kind or otherwise, or any direction to the Slot Trustee to sell, lease or otherwise dispose of the Slot Trust Assets; provided these powers are not in derogation of any powers or rights exercisable by the Slot Trustee under Section 7.2. ARTICLE 10. MISCELLANEOUS Section 10.1. Slot Trust Expenses, Etc. TWA shall pay all reasonable ------------------------ expenses and disbursements of the Slot Trust and the Slot Trustee, including, without limitation, taxes (to the extent provided in Section 4.2 of the Pledge Agreement), fees and commissions of every kind incurred in connection with the activities of the Slot Trust; expenses of registering and qualifying the Slot Trust and the Beneficial Interest under Federal and State laws and regulations, legal expenses, and such non-recurring items as may arise, including litigation to which the Slot Trust or the Slot Trustee is a party, and for all losses and liabilities incurred in administering the Slot Trust. Section 10.2. Term of Slot Trust; Filing of Copies. The term of the Slot ------------------------------------ Trust shall be from the date of this Agreement to and including such time as all of the Slot Trust Assets have been assigned, transferred and conveyed pursuant to the terms set forth herein. The original or a copy of this instrument and of each Declaration of Trust supplemental hereto shall be kept at the office of the Slot Trustee. Section 10.3. Discharge of Slot Trustee; Termination of Slot Trust. Upon ---------------------------------------------------- completion of the assignment, transfer and conveyance of the Slot Trust Assets pursuant to the terms set forth herein, the Slot Trustee shall be discharged of any and all further liabilities and duties hereunder and this Slot Trust and the right, title and interest of all parties hereto shall be canceled and discharged. Section 10.4. Amendment Procedure. (a) Except as provided in Section ------------------- 10.4(b) hereof and subject to Section 4.11 of the Indenture and Article 9 of the Indenture, this Agreement may 9 be amended by TWA and the Slot Trustee only with the affirmative vote of the Required Holders. (b) TWA and the Slot Trustee may also amend this Agreement without the vote of the Holders of the Securities if such parties each deem it necessary to cure any ambiguity, defect or inconsistency or conform the Slot Trust and/or this Agreement to the requirements of applicable laws, so long as such amendment or amendments do not have a material adverse effect on the interests of the Holders, but the Slot Trustee shall not be liable for failing so to do. (c) Notwithstanding the foregoing, nothing contained in this Agreement shall permit any amendment of this Agreement which would impair the exemption from personal liability of the Slot Trustee. Section 10.5. References to Slot Trust and Slot Trustee. All references in ----------------------------------------- this Agreement and all other Operative Documents to the Slot Trust or the Slot Trustee shall be to both the Slot Trust and the Slot Trustee unless such a reference would render the provision in which it is contained meaningless or ambiguous. Section 10.6. Notices; Waivers. Any request, demand, authorization, ---------------- direction, notice, consent, waiver or other document provided or permitted by this Agreement to be made upon, given or furnished to, or filed with (a) the Slot Trustee, by any Holder or by TWA shall be sufficient for every purpose hereunder if in writing and made, given, furnished or filed by personal delivery or registered or certified mail to or with the Slot Trustee at First Security Bank, National Association, 79 South Main Street, Salt Lake City, Utah 84111, Attention: Corporate Trust Services. (b) TWA, by any Holder or by the Slot Trustee shall be sufficient for every purpose hereunder if in writing and made, given, furnished or filed by personal delivery or mailed, first class postage prepaid, to TWA at 515 N. 6th Street, St. Louis. Missouri 63101, Attention: Richard P. Magurno, Senior Vice President and General Counsel, or to any of the above parties at any other address subsequently furnished in writing by it to each of the other parties listed above. An affidavit by any person representing or acting on behalf of TWA or the Slot Trustee as to such mailing, having any registry receipt required by this Section attached, shall be conclusive evidence of the giving of such demand, notice or Communication. Where this Agreement provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with 10 the Slot Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Section 10.7. Amendments, Etc. No amendment or waiver of any provision of --------------- this Agreement nor consent to any departure by TWA therefrom shall in any event be effective unless the same shall be in writing, approved by the Required Holders (to the extent required herein or by the Indenture) and signed by the Slot Trustee, and then any such waiver or consent shall only be effective in the specific instance and for the specific purpose for which given. Section 10.8. No Waiver; Remedies. (a) No failure on the part of the Slot ------------------- Trustee to exercise, and no delay in exercising any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right, or constitute an election precluding any other or further exercise of any alternative right, of the Slot Trustee, the Collateral Agent or the Indenture Trustee under the Indenture or any Operative Document. The remedies herein provided are cumulative, may be exercised singly or concurrently, and are not exclusive of any remedies provided by law or the Indenture, the Securities or any of the other Operative Documents. (b) Failure by the Slot Trustee at any time or times hereafter to require strict performance by TWA or any other Person of any of the provisions, warranties, terms or conditions contained herein or in any of the Indenture, the Securities or any other Operative Documents now or at any time or times hereafter executed by TWA or any such other Person and delivered to the Slot Trustee shall not waive, affect or diminish any right the Slot Trustee at any time or times hereafter to demand strict performance thereof, and such right shall not be deemed to have been modified or waived by any course of conduct or knowledge of the Slot Trustee or any agent, officer or employee of the Slot Trustee. Section 10.9. Conflict with Trust Indenture Act of 1939. If and to the ----------------------------------------- extent any provision of this Agreement limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the TIA, such imposed duties shall control. Section 10.10. Holidays. In the event that any date for the payment of any -------- amount due hereunder shall not be a Business Day, such payments (notwithstanding any other provision of this Agreement) need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the due date, and no interest shall accrue for the period from such due date to and including the next succeeding Business Day. Section 10.11. Successors and Assigns. This Agreement and all obligations ---------------------- of TWA hereunder shall be binding upon the successors and assigns of TWA and shall, together with the rights and remedies of the Slot Trustee hereunder, inure to the benefit of the Slot Trustee, the Holders, and their respective successors and assigns. 11 Section 10.12. Governing Law. The laws of the State of New York shall ------------- govern this Agreement without regard to principles of conflict of laws. Section 10.13. Indemnification. TWA agrees to pay, and to save the Slot --------------- Trustee harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all excise, sales or other similar taxes which may be payable or determined to be payable in connection with any of the transactions contemplated by this Agreement. Section 10.14. Effect of Headings. The Article and Section headings and the ------------------ Table of Contents contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of this Agreement. Section 10.15. No Adverse Interpretation of Other Agreement. This Agreement -------------------------------------------- may not be used to interpret any security agreement of TWA or any of its Subsidiaries which is unrelated to the Indenture, the Securities or the Operative Documents. Any such security agreement may not be used to interpret this Agreement. Section 10.16. No Recourse Against Others. A director, officer, employee or -------------------------- stockholder, as such, of TWA shall not have any liability for any obligations of TWA under this Agreement or for any claim based on, in respect of or by reason of such obligations or its creation. Section 10.17. Duplicate Originals. The parties may sign any number of ------------------- copies of this Agreement. Each signed copy shall be an original, but all of them together represent the same agreement. Section 10.18. Severability. In case any provision in this Agreement shall ------------ be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby, and a Holder shall have no claim therefor against the Slot Trustee. 12 IN WITNESS WHEREOF, the parties have caused this Acquired Slot Trust Agreement to be duly executed, all as of the date first above written. TRANS WORLD AIRLINES, INC. By: /s/ Michael J. Lichty ------------------------------------------ Name: Michael J. Lichty Title: Vice President, Corporate Finance FIRST SECURITY BANK, NATIONAL ASSOCIATION, as Slot Trustee By: /s/ C. Scott Nielsen ------------------------------------------ Name: C. Scott Nielsen Title: Vice President 13 SCHEDULE I TO ACQUIRED SLOT TRUST AGREEMENT ACQUIRED SLOTS -------------- The Acquired Slots consist of fifty-two (52) slots at LaGuardia Airport; one hundred sixty-six (166) slots (81 summer; 85 winter) at John F. Kennedy International Airport, and; two (2) slots at O'Hare Airport more particularly identified by number, time and frequency as follows: Slot Number Slot Time A/D Frequency JFK S 5130 1500 A DLY JFK S 5142 1500 A DLY JFK S 5155 1500 A DLY JFK S 5191 1500 A DLY JFK S 5224 1500 D DLY JFK S 5073 1530 D DLY JFK S 5121 1530 A DLY JFK S 5261 1530 A DLY JFK S 5275 1530 A DLY JFK S 5276 1530 A DLY JFK S 5006 1600 A DLY JFK S 5064 1600 A DLY JFK S 5065 1600 A DLY JFK S 5092 1600 D DLY JFK S 5104 1600 D DLY JFK S 5109 1600 D DLY JFK S 5128 1600 D DLY JFK S 5138 1600 D DLY JFK S 5150 1600 D DLY JFK S 5151 1600 D DLY JFK S 5418 1600 A DLY JFK S 5419 1600 A DLY SLOT NUMBER SLOT TIME A/D FREQUENCY JFK S 5420 1600 A DLY JFK S 5421 1600 A DLY JFK S 5178 1630 A DLY JFK S 5182 1630 A DLY JFK S 5196 1630 D DLY JFK S 5208 1630 A DLY JFK S 5212 1630 A DLY JFK S 5231 1630 A DLY JFK S 5233 1630 A DLY JFK S 5253 1630 A DLY JFK S 5279 1630 A DLY JFK S 5286 1630 A DLY JFK S 5306 1630 D DLY JFK S 5311 1630 D DLY JFK S 5314 1630 A DLY JFK S 5318 1630 A DLY JFK S 5359 1630 D DLY JFK S 5404 1630 D DLY JFK S 5039 1700 A DLY JFK S 5084 1700 A DLY JFK S 5185 1700 A DLY JFK S 5405 1700 A DLY JFK S 5247 1730 D DLY JFK S 5256 1730 D DLY JFK S 5315 1730 D DLY JFK S 5320 1730 D DLY JFK S 5331 1730 D DLY JFK S 5349 1730 D DLY JFK S 5005 1800 D DLY JFK S 5012 1800 D DLY JFK S 5022 1800 D DLY JFK S 5085 1800 D DLY JFK S 5099 1800 D DLY JFK S 5152 1800 A DLY JFK S 5240 1800 D DLY JFK S 5340 1800 A DLY JFK S 5348 1800 A DLY JFK S 5442 1800 D DLY JFK S 5161 1830 A DLY JFK S 5250 1830 D DLY JFK S 5267 1830 D DLY JFK S 5380 1830 D DLY JFK S 5383 1830 D DLY JFK S 5126 1900 D DLY JFK S 5141 1900 D DLY JFK S 5143 1900 D DLY JFK S 5160 1900 D DLY JFK S 5168 1900 D DLY JFK S 5186 1900 D DLY JFK S 5393 1900 D DLY JFK S 5038 1930 D DLY JFK S 5433 1930 D DLY JFK S 5434 1930 D DLY JFK W 5030 1500 N DLY JFK W 5031 1500 N DLY JFK W 5053 1500 N DLY JFK W 5073 1500 N DLY JFK W 5101 1500 N DLY
Slot Number Slot Time A/D Frequency JFK W 5121 1500 N DLY JFK W 5130 1500 N DLY JFK W 5142 1500 N DLY JFK W 5155 1500 N DLY JFK W 5191 1500 N DLY JFK W 5224 1500 N DLY JFK W 5261 1500 N DLY JFK W 5275 1500 N DLY JFK W 5276 1500 N DLY JFK W 5287 1500 N DLY JFK W 5064 1600 N DLY JFK W 5065 1600 N DLY JFK W 5092 1600 N DLY JFK W 5104 1600 N DLY JFK W 5109 1600 N DLY JFK W 5128 1600 N DLY JFK W 5138 1600 N DLY JFK W 5150 1600 N DLY JFK W 5151 1600 N DLY JFK W 5156 1600 N DLY JFK W 5157 1600 N DLY JFK W 5158 1600 N DLY JFK W 5171 1600 N DLY JFK W 5178 1600 N DLY JFK W 5182 1600 N DLY JFK W 5208 1600 N DLY JFK W 5212 1600 N DLY JFK W 5231 1600 N DLY JFK W 5233 1600 N DLY
Slot Number Slot Time A/D Frequency JFK W 5253 1600 N DLY JFK W 5279 1600 N DLY JFK W 5286 1600 N DLY JFK W 5306 1600 N DLY JFK W 5311 1600 N DLY JFK W 5312 1600 N DLY JFK W 5314 1600 N DLY JFK W 5007 1700 N DLY JFK W 5051 1700 N DLY JFK W 5074 1700 N DLY JFK W 5083 1700 N DLY JFK W 5084 1700 N DLY JFK W 5137 1700 N DLY JFK W 5235 1700 N DLY JFK W 5238 1700 N DLY JFK W 5247 1700 N DLY JFK W 5256 1700 N DLY JFK W 5315 1700 N DLY JFK W 5320 1700 N DLY JFK W 5331 1700 N DLY JFK W 5349 1700 N DLY JFK W 5350 1700 N DLY JFK W 5005 1800 N DLY JFK W 5012 1800 N DLY JFK W 5022 1800 N DLY JFK W 5085 1800 N DLY JFK W 5099 1800 N DLY JFK W 5110 1800 N DLY JFK W 5122 1800 N DLY
Slot Number Slot Time A/D Frequency JFK W 5152 1800 N DLY JFK W 5161 1800 N DLY JFK W 5237 1800 N DLY JFK W 5239 1800 N DLY JFK W 5250 1800 N DLY JFK W 5267 1800 N DLY JFK W 5117 1900 N DLY JFK W 5120 1900 N DLY JFK W 5124 1900 N DLY JFK W 5126 1900 N DLY JFK W 5141 1900 N DLY JFK W 5143 1900 N DLY JFK W 5160 1900 N DLY JFK W 5168 1900 N DLY JFK W 5186 1900 N DLY JFK W 5260 1900 N DLY JFK S 5021 1600 A DLY JFK S 5043 1730 A DLY JFK S 5248 1800 A DLY JFK S 5027 1600 D DLY JFK S 5070 1830 D DLY JFK S 5055 1930 D DLY JFK W 5021 1600 N DLY JFK W 5043 1700 N DLY JFK W 5248 1800 N DLY JFK W 5027 1600 N DLY JFK W 5070 1800 N DLY JFK W 5055 1900 N DLY LGA A 3544 0630 D DLY
Slot Number Slot Time A/D Frequency LGA A 3399 0730 D DLY LGA A 3049 0800 D DLY LGA A 3499 0800 A DLY LGA A 3615 0800 D DLY LGA A 3809 0830 D DLY LGA A 3138 0900 A DLY LGA A 3465 0900 D DLY LGA A 3222 0930 D DLY LGA A 3625 0930 D DLY LGA A 3267 1000 D DLY LGA A 3540 1000 A DLY LGA A 3166 1100 D DLY LGA A 3674 1200 A DLY LGA A 3310 1230 D DLY LGA A 3338 1230 D DLY LGA A 3824 1330 A DLY LGA A 3215 1400 A DLY LGA A 3543 1400 D DLY LGA A 3761 1500 A DLY LGA A 3523 1530 A DLY LGA A 3261 1600 D DLY LGA A 3665 1630 A DLY LGA A 3170 1700 A DLY LGA A 3552 1700 D DLY LGA A 3580 1700 A DLY LGA A 3159 1730 D DLY LGA A 3457 1800 D DLY LGA A 3013 1830 A DLY LGA A 3481 1830 A DLY
Slot Number Slot Time A/D Frequency LGA A 3470 1930 A DLY LGA A 3525 1930 D DLY LGA A 3099 2000 D 6 ONLY LGA A 3125 2000 A DLY LGA A 3393 2000 D X 6 LGA A 3561 2000 A DLY LGA A 3196 2030 D DLY LGA A 3312 2030 A DLY LGA A 3483 2030 A DLY LGA A 3842 2200 A DLY LGA A 3443 2230 A DLY LGA A 3373 2300 A DLY LGA C 2185 0730 A X6 LGA C 2184 0800 D X7 LGA C 2036 1030 A X6,7 LGA C 2164 1100 D X6,7 LGA C 2234 1200 A DLY LGA C 2101 1200 D DLY LGA C 2242 1600 A X6 LGA C 2100 1630 D X6 LGA C 2134 1800 A X6 LGA C 2209 1830 D X6 ORD 7644 1715 A/D DLY ORD 7334 1515 A/D DLY
SCHEDULE II TO ACQUIRED SLOT TRUST AGREEMENT PRIOR THIRD PARTY LICENSES --------------------------
END OF SLOT REMAINING SLOT NUMBER TIME A/D FREQUENCY CARRIER TERM - ----------- ---- --- --------- ------- ---- LGA A 3481 1830 A DLY Midwest Express October 1999 LGA A 3465 0900 D DLY Delta June 1998 LGA A 3013 1830 A DLY Delta June 1998 LGA A 3483 2030 A DLY Delta June 1998
EXHIBIT A TO ACQUIRED SLOT TRUST AGREEMENT FORM OF SUBSEQUENT DEED OF CONVEYANCE AND ASSIGNMENT OF SLOTS FROM TRANS WORLD AIRLINES, INC. TO FIRST SECURITY BANK, NATIONAL ASSOCIATION AS SLOT TRUSTEE OF THE ACQUIRED SLOT TRUST 12% SENIOR SECURED NOTES EXHIBIT A FORM OF SUBSEQUENT DEED OF CONVEYANCE AND ASSIGNMENT OF SLOTS FOR VALUE RECEIVED the undersigned TRANS WORLD AIRLINES, INC. ("TWA") on behalf of itself and for its successors and assigns does hereby assign, transfer and convey to a trust created by that certain Declaration of Trust dated as of March 31, 1997, (as the same may be further amended and supplemented, the "Acquired Slot Trust" and terms not otherwise defined herein being used as defined therein), with First Security Bank, National Association, a national banking association, as trustee (together with its successors in trust and assigns the "Slot Trustee") all of the rights, titles, interests and privileges of TWA in and to the primary operating authority granted by the Federal Aviation Administration (the "FAA") pursuant to Title 14 of the Code of Federal Regulations, Part 93, Subparts K & S, as amended from time to time, or any recodification thereof in any regulation ("Title 14"), to conduct certain Instrument Flight Rule (as defined under the Federal Aviation Act of 1958, as amended) take-offs or landings in specified one-hour or half-hour periods (the "Slots," each of which is set forth on Schedule I.). This Conveyance is an absolute and complete conveyance of all of the Slots. TWA shall have the exclusive temporary leasehold or sub-license for the use of the Slots during the period set forth in that certain Master Sub-License Agreement between the Slot Trustee and TWA, dated as of March 31, 1997 (together with all amendments and supplements thereto, the "Master Sub-License Agreement"), subject to the terms thereof. The Slot Trustee, as trustee of the Acquired Slot Trust, shall continue to be the holder of record at the FAA with respect to the Slots, subject to the regulations adopted by the FAA pursuant to authorization of the Secretary of Transportation of the United States. TWA does hereby warrant and represent to the Acquired Slot Trust that it has been granted the Slots by the FAA pursuant to Title 14, subject only to regulation by the FAA, that TWA holds the Slots free and clear of any liens or other encumbrances or rights of others. TWA further warrants and represents that it has, at all times since obtaining each Slot, complied in all material respects with all of the terms, conditions and regulations set forth in Title 14. With specificity, TWA warrants and represents that there are existing at this time no violations of the terms, conditions and regulations of the aforesaid regulatory enactments adopted by the FAA, the result of which would give the FAA in the exercise of its powers the right to terminate, cancel, withdraw or revoke any of the Slots. TWA further warrants and represents that it has used all of the Slots in accordance with Section 93.227 of Title 14 since the date that it obtained each of the Slots. TWA further warrants and represents that the Slots are not Slots which have been categorized as "essential air service Slots," "international Slots" or "temporary Slots" by the FAA. TWA further warrants and represents that the execution and delivery of this DEED OF CONVEYANCE and the execution of the related documents shall not and does not create a default or an event of default under any existing loan agreement, mortgage, deed of trust, indenture, contract or other material agreement to which TWA is a party, and does not violate any term, covenant and condition of any other material agreement with any regulatory authority or any of the provisions of the Articles of Incorporation or By-Laws of TWA as in effect on the date hereof. IN WITNESS WHEREOF, the undersigned, TWA, by and through its duly undersigned authorized officer does hereby execute this DEED OF CONVEYANCE as of this ____ day of _____, ____. TRANS WORLD AIRLINES, INC. By:____________________________________ Name: Its: By:____________________________________ Name: Its: Before me personally appeared this 31st day March, 1997 ___________, as ___________________________ of TRANS WORLD AIRLINES, INC., a Delaware corporation and ____________, as _____________ of TRANS WORLD AIRLINES, INC., a Delaware corporation, who in my presence did execute this Agreement and acknowledged that they executed this Agreement for the purpose stated herein as an act and deed of said corporation. __________________________ Name: __________________________ Name: Notarial Seal __________________ Acknowledged and Agreed to as of this___ day of _____, ____. ACQUIRED SLOT TRUST FIRST SECURITY BANK, NATIONAL ASSOCIATION as Slot Trustee on behalf of the Acquired Slot Trust By:___________________________________________ Name: Title: After recording and confirmation please return to First Security Bank, National Association, 79 South Main Street, Salt Lake City, Utah 84111, Attention: Corporate Trust Department EXHIBIT B TO ACQUIRED SLOT TRUST AGREEMENT BENEFICIAL INTEREST CERTIFICATE UNDER ACQUIRED SLOT TRUST AGREEMENT BETWEEN TRANS WORLD AIRLINES, INC. AND FIRST SECURITY BANK, NATIONAL ASSOCIATION AS SLOT TRUSTEE 12% SENIOR SECURED NOTES TRANSFER OF THIS CERTIFICATE IS SUBJECT TO CERTAIN RESTRICTIONS AND LIMITATIONS SET FORTH IN SECTIONS 5.2 AND 6.2 OF THE ACQUIRED SLOT TRUST AGREEMENT REFERRED TO BELOW FIRST SECURITY BANK, NATIONAL ASSOCIATION AS SLOT TRUSTEE UNDER THE ACQUIRED SLOT TRUST AGREEMENT DATED MARCH 31, 1997 BENEFICIAL INTEREST CERTIFICATE No. 1 March 31, 1997 First Security Bank, National Association, as Slot Trustee (the "Slot Trustee") under the Acquired Slot Trust Agreement (as the same may be amended, modified or supplemented, from time to time, in accordance with the terms thereof, the "Acquired Slot Trust Agreement") dated as of March 31, 1997 between TRANS WORLD AIRLINES, INC. ("TWA") and the Slot Trustee (capitalized terms used herein without definition shall have the meanings specified in the Acquired Slot Trust Agreement or incorporated in such Acquired Slot Trust Agreement by reference), hereby certifies as follows: (i) this Beneficial Interest Certificate is the Beneficial Interest Certificate referred to in the Acquired Slot Trust Agreement, which Beneficial Interest Certificate has been executed by the Slot Trustee; and (ii) TWA, as the holder of record of this Beneficial Interest Certificate (the "Holder"), has an undivided beneficial ownership interest in the entire Slot Trust; however, all the assets of the Slot Trust shall at all times be considered as vested in the Slot Trustee. The ownership of this Beneficial Interest Certificate shall be recorded by the Slot Trustee on the books of the Slot Trust, at the corporate trust office of the Slot Trustee at 79 South Main Street, Salt Lake City, Utah 84111, Attention: Corporate Trust Department or at the office of any successor Slot Trustee, in accordance with Section 6.1 of the Acquired Slot Trust Agreement. Reference is hereby made to the Acquired Slot Trust Agreement, the Pledge and Security Agreement dated as of March 31, 1997 between TWA and the collateral agent thereunder, the Indenture dated as of March 31, 1997 between TWA and the Trustee (as defined therein) and the Master Sub-License Agreement dated as of March 31, 1997 between TWA and the Slot Trustee for a statement of the rights of the Holder of this Beneficial Interest Certificate, as well as for a statement of the terms and conditions of the trust created by the Acquired Slot Trust Agreement, to all of which terms and conditions the Holder hereof agrees by its acceptance of this Beneficial Interest Certificate. THIS BENEFICIAL INTEREST CERTIFICATE MAY BE TRANSFERRED, SOLD, ASSIGNED OR OTHERWISE DISPOSED OF BY THE HOLDER HEREOF ONLY IN ACCORDANCE WITH THE PROVISIONS OF SECTIONS 5.2 AND 6.2 OF THE ACQUIRED SLOT TRUST AGREEMENT. The Holder hereof, by its acceptance of this Beneficial Interest Certificate, agrees not to transfer, sell, assign or otherwise dispose of this Beneficial Interest Certificate except in accordance with the terms of Sections 5.2 and 6.2 of the Acquired Slot Trust Agreement. Upon surrender of this Beneficial Interest Certificate for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed by the registered Holder hereof or his attorney duly authorized in writing, and after compliance with the provisions of Sections 5.2 and 6.2 of the Acquired Slot Trust Agreement, a new Beneficial Interest Certificate representing the undivided beneficial interest in the entire Slot Trust will be executed and delivered to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Slot Trustee may treat the Person in whose name this Beneficial Interest Certificate is registered as the owner hereof for all purposes set forth in the Acquired Slot Trust Agreement. IN WITNESS WHEREOF, the Slot Trustee has caused this Beneficial Interest Certificate to be duly executed by an authorized officer of the Slot Trustee as of the date first above written. FIRST SECURITY BANK, NATIONAL ASSOCIATION as Slot Trustee By: /s/ C. Scott Nielsen ------------------------------------- Name: C. Scott Nielsen Title: Vice President EXHIBIT C TO ACQUIRED SLOT TRUST AGREEMENT MASTER SUB-LICENSE AGREEMENT BETWEEN TRANS WORLD AIRLINES, INC. ("TWA") AND FIRST SECURITY BANK, NATIONAL ASSOCIATION PURSUANT TO THE ACQUIRED SLOT TRUST AGREEMENT DATED AS OF MARCH 31, 1997 12% SENIOR SECURED NOTES TABLE OF CONTENTS R E C I T A L S......................................................... C-1 ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE.................. C-2 Section 1.1. Definitions............................................ C-2 Section 1.2. Rules of Construction.................................. C-2 ARTICLE 2. SUB-LICENSE................................................. C-2 Section 2.1. Grant of Sub-License................................... C-2 ARTICLE 3. NATURE OF SUB-LICENSE....................................... C-2 Section 3.1. Non-Proprietary Nature................................. C-2 ARTICLE 4. REPRESENTATION AND WARRANTY................................. C-2 Section 4.1. Representation and Warranty............................ C-2 ARTICLE 5. COVENANTS................................................... C-2 Section 5.1. Covenants.............................................. C-2 ARTICLE 6. EVENT OF LOSS; RELEASE OF ACQUIRED SLOTS.................... C-4 Section 6.1. Event of Loss.......................................... C-4 Section 6.2. Release of Acquired Slots.............................. C-4 ARTICLE 7. SUBSEQUENT DEEDS OF CONVEYANCE.............................. C-5 Section 7.1. Subsequent Deeds of Conveyance......................... C-5 ARTICLE 8. REMEDIES UPON DEFAULT AND FAA ACTION........................ C-6 Section 8.1. Remedies Upon Default and FAA Action................... C-6 ARTICLE 9. TERMINATION AND RECONVEYANCE OF ALL ACQUIRED SLOTS................................................... C-9 Section 9.1. Reconveyance of Acquired Slots to TWA.................. C-9 Section 9.2. Continued Effectiveness of Agreement................... C-9 ARTICLE 10. INDEMNIFICATION............................................ C-9 Section 10.1. Indemnification by TWA................................ C-9 ARTICLE 11. AMENDMENTS................................................. C-9 Section 11.1. Amendments............................................ C-10 ARTICLE 12. ASSIGNMENTS................................................ C-10 Section 12.1. Rights of Assignment by TWA........................... C-10
ARTICLE 13. INDEPENDENT APPRAISALS..................................... C-10 Section 13.1. Independent Appraisal Required Under Certain Circumstances......................................... C-10 ARTICLE 14. RECEIPT OF CASH AND/OR INVESTMENT SECURITIES BY THE SLOT TRUST OR THE SLOT TRUSTEE...................... C-10 Section 14.1. Receipt of Cash and/or Investment Securities.......... C-10 ARTICLE 15. SLOT TRUSTEE............................................... C-11 Section 15.1. Rights and Duties of Slot Trustee..................... C-11 Section 15.2. References to Slot Trust and Slot Trustee............. C-11 ARTICLE 16. MISCELLANEOUS.............................................. C-11 Section 16.1. Notices; Waivers...................................... C-11 Section 16.2. Amendments, Etc....................................... C-12 Section 16.3. No Waiver; Remedies................................... C-12 Section 16.4. Conflict with Trust Indenture Act of 1939............. C-12 Section 16.5. Holidays.............................................. C-12 Section 16.6. Successors and Assigns................................ C-12 Section 16.7. Governing Law......................................... C-13 Section 16.8. Indemnification....................................... C-13 Section 16.9. Effect of Headings.................................... C-13 Section 16.10. No Adverse Interpretation of Other Agreement......... C-13 Section 16.11. No Recourse Against Others........................... C-13 Section 16.12. Duplicate Originals.................................. C-13 Section 16.13. Severability......................................... C-13 SIGNATURE PAGE.......................................................... C-14 Exhibit 1 - Form of Monthly Report to Slot Trustee.............. C-15 Schedule 1 - Slot Release Schedule............................. C-16
MASTER SUB-LICENSE AGREEMENT THIS MASTER SUB-LICENSE AGREEMENT dated as of March 31, 1997 (herein, together with all supplements and amendments hereto, this "Agreement"), made by TRANS WORLD AIRLINES, INC. (herein, together with its successors and assigns, "TWA") and the trust existing under the Acquired Slot Trust Agreement dated as of March 31, 1997 (the "Slot Trust"), with FIRST SECURITY BANK, NATIONAL ASSOCIATION, a banking association organized under the laws of the United States, having an office at 79 South Main Street, Salt Lake City, Utah 84111 (herein, together with its successors in trust and assigns, the "Slot Trustee"). R E C I T A L S: WHEREAS, TWA and First Security Bank, National Association, as Trustee, have contemporaneously herewith entered into that certain Indenture dated March 31, 1997 (the "Indenture") providing for the issuance of $50,000,000 (plus up to an additional $7,500,000 if an over-allotment option is exercised) aggregate principal amount outstanding of 12% Senior Secured Notes; and WHEREAS, TWA granted, assigned, transferred and conveyed to the Slot Trust by the Deed of Conveyance (as defined in the Definitions Appendix described below) all of the Acquired Slots set forth in Schedule I to the Acquired Slot Trust Agreement; and from time to time hereafter TWA may assign, transfer and convey to the Slot Trust other Slots pursuant to any subsequent deed of conveyance, which shall be in form and substance similar to the Form of Subsequent Deed of Conveyance in Exhibit A to the Acquired Slot Trust Agreement (the "Subsequent Deed of Conveyance"). All Slots so conveyed to the Slot Trust by the Deed of Conveyance and Subsequent Deeds of Conveyance together constitute the "Acquired Slots"; and WHEREAS, the Slot Trustee has agreed to grant to TWA an exclusive sub- license (the "Sub-License") to use the Acquired Slots in accordance with this Agreement; and WHEREAS, as security for the due and punctual payment, performance and observance in full of the Obligations (as defined in the Definitions Appendix described below), TWA pledged, among other things, the Beneficial Interest and the Beneficial Interest Certificate, to the Collateral Agent on behalf of the holders of the Securities; and WHEREAS, TWA has duly authorized the execution and delivery of this Agreement. NOW, THEREFORE, both parties agree as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Securities (the "Holders"). 33 ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.1. Definitions. Capitalized terms used and not otherwise ----------- defined herein shall have the meanings ascribed to such terms in Section 1 of the Definitions Appendix attached to the Indenture as Appendix I, which shall be a part of this Master Sub-License Agreement as if fully set forth in this place. Section 1.2. Rules of Construction. The rules of construction for this --------------------- Master Sub-License Agreement are set forth in Section 2 of the Definitions Appendix. ARTICLE 2. SUB-LICENSE Section 2.1. Grant of Sub-License. The Slot Trust does hereby grant unto -------------------- TWA an exclusive Sub-License to use the Acquired Slots, subject to the terms hereof and, except as otherwise provided herein, TWA shall not be required to pay any fee for such Sub-License. ARTICLE 3. NATURE OF SUB-LICENSE Section 3.1. Non-Proprietary Nature. The Sub-License shall be deemed to ---------------------- be in the nature of a usufruct and not a proprietary right, and the interest of TWA under this Agreement shall be terminable in accordance with the terms and conditions hereof. ARTICLE 4. REPRESENTATION AND WARRANTY Section 4.1. Representation and Warranty. TWA represents and warrants --------------------------- that it is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware with corporate power and authority under such laws to own, lease and operate its properties and conduct its business as conducted on the date hereof, and has all such power and authority as is necessary to enter into this Agreement. ARTICLE 5. COVENANTS Section 5.1. Covenants. TWA covenants and agrees that: --------- (a) It shall use the Acquired Slots, or cause the Acquired Slots to be used, in a manner consistent with Title 14 (including the percentage use requirement contained therein) or other regulations established by any lawful authority (unless noncompliance with such provision or regulations is otherwise waived or consented to by the FAA or such authority, as the case may be). TWA shall not use the Acquired Slots for international or essential air service operations as defined by the FAA. TWA shall file 34 all such reports as are required by the FAA or by any other lawful authority to protect each Acquired Slot in form and content in compliance with the provisions of Title 14 or other regulations established by any other lawful authority, which reports shall be delivered to the FAA or such other lawful authority on a timely basis. On or before the tenth Business Day of each month TWA shall furnish to the Slot Trustee a certificate as to its compliance with this Agreement for the immediately preceding three months in substantially the form of Exhibit 1 to this Agreement. (b) Except as expressly permitted in this Section 5.1(b), TWA shall not transfer, sub-license or otherwise grant to others rights with respect to the Acquired Slots, and any such non-permitted transfer, sub-license or other grant by TWA shall be void. TWA may, in the Ordinary Course Of Business, (i) enter into Slot Trades, and (ii) sub-license and agree to sub-license, directly or indirectly, to air carriers the right to use Acquired Slots (such licenses in this clause (ii) hereinafter referred to as the"Third Party Licenses"), provided that, (x) TWA shall not have -------- outstanding at any one time Third Party Licenses with a Remaining Term of longer than twenty-four (24) months with respect to more than forty percent (40%) of the number of Acquired Slots, and (y) in the case of an indirect Third Party License with respect to an Acquired Slot, the direct third party sublicensee shall contractually bind itself with TWA to promptly sub- license the right to use any such Acquired Slot to an air carrier; and provided further that (A) TWA shall not enter into or agree to enter into -------- -------- any Third Party License with a Remaining Term of longer than fifteen (15) months after its receipt of notice of a Default under Section 6.1(d) of the Indenture or after the occurrence of any other Default under the Indenture and so long as any such Default shall continue and (B) shall not accept prepayments of rentals in connection with such Third Party Licenses. (c) The rights of all sub-licensees claiming from or under TWA under any and all Third Party Licenses, except as otherwise provided with respect to Prior Third-Party Licenses, are subject and subordinate in all respects to the terms of this Master Sub-License Agreement and the Slot Trust. TWA shall use commercially reasonable efforts to obtain, as promptly as practicable, from each licensee under a Prior Third Party License an agreement (for the express benefit of the Slot Trustee) that, and as a condition to entering into any Third Party License, TWA will require each prospective sub-licensee to agree (for the express benefit of the Slot Trustee) that, upon receipt of notice from the Slot Trustee that this Master Sub-License Agreement has been terminated, it will promptly either (A)(i) attorn to the Slot Trustee for the then scheduled Remaining Term of the Third-Party License and acknowledge that, thereafter, its rights with respect to the relevant Acquired Slot have terminated, and (ii) agree that for the Remaining Term of such Third Party License it will make license payments directly to the Slot Trustee in an amount equal to the higher of (1) the payments that, from time to time, would have been due and payable under the terms of the Third-Party License, or (2) monthly fair market value license payments with respect to the relevant Acquired Slot, or (B) acknowledge that such Third Party License, and the Third-Party Licensee's rights with respect to the relevant Acquired Slot, shall terminate sixty (60) days after notice from the Slot Trustee 35 to such licensee of the Slot Trustee's election to terminate such license. TWA shall not extend and shall not, in any material respect, amend the Prior Third Party Licenses described in Schedule II to the Acquired Slot Trust Agreement, except on terms complying with this paragraph and Section 5.1(b). (d) TWA shall pay any reasonable fees or expenses incurred by the Slot Trust or Slot Trustee in connection with being the holder of record at the FAA of any Acquired Slot or the right to use any Acquired Slot. (e) TWA shall take any action necessary to maintain the Slot Trust as the holder of record at the FAA of the Acquired Slots. ARTICLE 6. EVENT OF LOSS; RELEASE OF ACQUIRED SLOTS Section 6.1. Event of Loss. (a) Upon the occurrence of an Event of Loss ------------- with respect to an Acquired Slot, TWA shall give the Slot Trust prompt notice thereof and shall satisfy the Substitution Requirements. (b) Upon compliance by TWA with its obligations above, with Article 7 hereof and with any applicable requirements of the TIA, and upon Request and payment by TWA of the Slot Trustee's costs (including reasonable legal fees and disbursements) incurred in connection with the foregoing, and provided that any Slot which may be assigned, transferred and conveyed to the Slot Trust as provided above shall immediately upon such assignment, transfer and conveyance for all purposes under the Indenture, the Pledge Agreement, the Declaration, any Subsequent Deed of Conveyance and this Agreement become and be an Acquired Slot, the Slot Trust shall execute and deliver the required documents, assigning, transferring and conveying the Acquired Slot which was the subject of the Event of Loss to TWA or its designee, without recourse, whereupon such Acquired Slot shall cease to be an Acquired Slot for all purposes of the Indenture and the Operative Documents, including this Agreement. Section 6.2. Release of Acquired Slots. Upon Request and payment by TWA ------------------------- of the Slot Trustee's costs (including reasonable legal fees and disbursements) incurred in complying with such Request: (a) Sale to Third Parties. So long as no Event of Default has --------------------- occurred and is continuing or would result therefrom, the Slot Trust shall assign, transfer and convey to TWA or its designee, without recourse, any Acquired Slot that is the subject of a contract of sale pursuant to which TWA has agreed to sell such Acquired Slot in the Ordinary Course, on an arm's-length basis to an unaffiliated third party within ninety (90) days after the date of such release, which contract contains only closing conditions that are customary to a sale of that kind at that time and which sale is not a 36 "sale/leaseback" or other similar transaction used by TWA as a financing vehicle, but only if TWA shall comply with the Substitution Requirements. (b) Release of Acquired Slots Upon Partial Prepayment. ------------------------------------------------- Simultaneously with or promptly following the cancellation of any Securities, whether pursuant to a partial repurchase of any Securities pursuant to Section 4.15 of the Indenture or otherwise, following a tender of Securities in connection with a tender offer therefor or otherwise, subject to the Preconditions, and provided that after giving effect to such -------- release of Acquired Slots, the Company will be in compliance with the Security Ratio requirements set forth in clause (b) of the definition thereof, the Slot Trustee shall assign, transfer and convey to TWA or its designee without recourse the Acquired Slots set forth in Schedule 1 hereto (the "Released Slots") based upon the reduction in the amount of Securities Outstanding to an amount equal to or less than the level specified for the release of particular Acquired Slots as set forth in said Schedule 1 (the "Release Trigger"). (c) Release of Acquired Slot. Subject to the conditions and upon ------------------------ compliance with all of the requirements of this Section 6.2 and Article 7 hereof and any applicable requirements of the TIA, and provided that any Slot which may be assigned, transferred and conveyed to the Slot Trust shall immediately upon such assignment, transfer and conveyance, for all purposes under the Indenture, the Pledge Agreement, the Declaration, any Subsequent Deed of Conveyance and this Agreement become and be an Acquired Slot, the Acquired Slot or Acquired Slots, as the case may be, released pursuant to Section 6.2(a) or (b), as the case may be, shall cease to be Acquired Slots for all purposes hereof and of the Indenture and the Operative Documents (unless later reassigned, retransferred and reconveyed to the Slot Trust). ARTICLE 7. SUBSEQUENT DEEDS OF CONVEYANCE Section 7.1. Subsequent Deeds of Conveyance. If and whenever TWA shall ------------------------------ be required to assign, transfer and convey Slots to the Slot Trust or if TWA shall at any time desire to assign, transfer and convey Slots to the Slot Trust, TWA will furnish to the Slot Trustee the following: (a) a Subsequent Deed of Conveyance duly executed by TWA, appropriately describing and identifying such Slots; and (b) an Opinion of Counsel, dated the date of execution of said Subsequent Deed of Conveyance, stating that: (i) all necessary filings have been made with the FAA to effect the transfer of such Slots from TWA to the Slot Trust pursuant to Title 14, Code of Federal Regulations, Part 93.221 (the "FAA Slot Regulations"), and TWA has received confirmation from the FAA of the transfer of such Slots to the Slot Trust and of the license- back to TWA pursuant to the Subsequent 37 Deed of Conveyance and this Agreement; the Slot Trust owns such Slots subject to the transfers permitted under the Subsequent Deed of Conveyance and this Agreement and owns such Slots free and clear of all liens and interests of others except as may be provided herein and the Slot Trust has been identified as the owner and holder of record of each such Slot pursuant to the FAA Slot Regulations; TWA has been identified as the operator of record of such Slots (subject to transfers permitted under the Subsequent Deed of Conveyance and this Agreement) and such right to use such Slots has been duly recorded in the name of TWA pursuant and subject to the FAA Slot Regulations; and (ii) except as described in subsection 7.1 (b)(i) above, no authorization, approval, consent or license of the FAA or the Department of Transportation of the United States is required for the execution, delivery, or performance of the Subsequent Deed of Conveyance by TWA; and (c) Such Officers' Certificates, Opinions of Counsel or other documents, if any, as the TIA may require or the Slot Trustee may reasonably require. ARTICLE 8. REMEDIES UPON DEFAULT AND FAA ACTION Section 8.1. Remedies Upon Default and FAA Action. (a) The parties ------------------------------------ acknowledge and agree that the primary operating authority represented by a Slot exists at the discretion of the FAA, acting pursuant to Title 14 and statutory authority, and that the FAA may terminate, cancel, withdraw or revoke a Slot or amend or revoke the regulation which permits Slots to be bought and sold and thereby gives them value (any of the foregoing, an "FAA Action"). The parties further acknowledge and agree that any of these actions by the FAA would substantially impair the rights of the Slot Trustee and the value of the Collateral. It is therefore understood and agreed between the parties that: (i) UPON THE OCCURRENCE OF AN EVENT OF DEFAULT UNDER THE INDENTURE OR AN FAA ACTION AND DURING THE CONTINUANCE THEREOF, TWA SHALL DELIVER TO THE COLLATERAL AGENT, ALL CONSIDERATION TO BE RECEIVED BY TWA AFTER SUCH EVENT OF DEFAULT OR FAA ACTION (OTHER THAN THE RIGHT TO USE A SLOT, AS TO WHICH A PERSON OTHER THAN TWA IS THE HOLDER OF RECORD AT THE FAA) IN CONNECTION WITH A THIRD PARTY LICENSE OR SLOT TRADE; PROVIDED THAT IF SUCH CONSIDERATION IS A SLOT, AS TO WHICH TWA BECAME THE HOLDER OF RECORD AT THE FAA, SUCH SLOT SHALL BE ASSIGNED, TRANSFERRED AND CONVEYED TO THE SLOT TRUST AND SHALL BE HELD BY THE SLOT TRUST AS A SLOT TRUST ASSET; 38 (ii) UPON THE ACCELERATION OF TWA'S OBLIGATIONS UNDER THE SECURITIES IN ACCORDANCE WITH THE INDENTURE, THIS AGREEMENT WILL, WITHOUT ANY ACTION BY ANY PARTY THERETO, TERMINATE AND TWA SHALL HAVE NO FURTHER RIGHT OR INTEREST IN THE ACQUIRED SLOTS AND THE SLOT TRUSTEE MAY TAKE SUCH ACTIONS AS NECESSARY TO CAUSE OR ALLOW THE TERMINATION OF OR ENFORCE ATTORNMENT OBLIGATIONS UNDER OR OTHERWISE DEAL WITH THIRD PARTY LICENSES AND SLOT TRADES, AND TO ASSIGN, TRANSFER AND CONVEY BY DEED OF CONVEYANCE, WITHOUT RECOURSE, WARRANTY OR REPRESENTATION THE ACQUIRED SLOTS; PROVIDED, THAT, IF SUCH ACCELERATION IS RESCINDED IN ACCORDANCE WITH SECTION 6.2 OF THE INDENTURE PRIOR TO THE SLOT TRUSTEE'S HAVING DISPOSED OF ANY OF THE ACQUIRED SLOTS, THIS AGREEMENT WILL, WITHOUT ANY ACTION BY ANY PARTY THERETO, BE REINSTATED WITH RESPECT TO THOSE SLOTS STILL HELD BY THE SLOT TRUSTEE AFTER TAKING ANY SUCH ACTION; AND (iii) IN FURTHERANCE OF THE FOREGOING, THE SLOT TRUSTEE IS HEREBY IRREVOCABLY APPOINTED THE TRUE AND LAWFUL ATTORNEY OF TWA, IN ITS NAME AND STEAD, TO THE EXTENT PERMITTED BY LAW, TO EXECUTE, FILE, REGISTER AND/OR RECORD ALL DOCUMENTS AND INSTRUMENTS OF ASSIGNMENT, TRANSFER AND SURRENDER OF THE ACQUIRED SLOTS, AND ALL OTHER DOCUMENTS AND INSTRUMENTS, NECESSARY, OR IN THE GOOD FAITH OPINION OF THE SLOT TRUSTEE DESIRABLE, IN ORDER TO (X) RECORD OF RECORD WITH THE FAA ANY TERMINATION OF TWA'S RIGHTS OR INTERESTS IN THE ACQUIRED SLOTS UPON THE ACCELERATION OF TWA'S OBLIGATIONS UNDER THE SECURITIES IN ACCORDANCE WITH THE INDENTURE, (Y) UPON OR AT ANY TIME AFTER SUCH ACCELERATION, TO EFFECT THE TRANSFER OF TWA'S OPERATOR STATUS WITH RESPECT TO ANY OR ALL OF THE ACQUIRED SLOTS TO THE SLOT TRUSTEE OR A THIRD PARTY DESIGNATED BY THE SLOT TRUSTEE AND/OR (Z) OTHERWISE TO EFFECT THE ACTIONS THAT THE SLOT TRUSTEE IS AUTHORIZED, OR INTENDED TO BE AUTHORIZED, TO TAKE PURSUANT TO THE FOREGOING CLAUSES (i) AND (ii) OF THIS SECTION 8.1, AND MAY SUBSTITUTE ONE OR MORE PERSONS, FIRMS OR CORPORATIONS WITH LIKE POWER, TWA HEREBY RATIFYING AND CONFIRMING ALL THAT ITS SAID ATTORNEY OR SUCH SUBSTITUTE OR SUBSTITUTES SHALL LAWFULLY DO BY VIRTUE HEREOF; BUT IF SO REQUESTED BY THE SLOT TRUSTEE, TWA SHALL RATIFY AND CONFIRM ANY SUCH ACTION TAKEN IN ACCORDANCE WITH THIS POWER OF ATTORNEY AS MAY BE DESIGNATED IN ANY SUCH REQUEST. THE FOREGOING POWER OF ATTORNEY IS COUPLED WITH AN INTEREST, IS IRREVOCABLE AND SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT, PROVIDED ONLY THAT THE FOREGOING POWER OF 39 ATTORNEY WILL TERMINATE UPON RECONVEYANCE OF THE ACQUIRED SLOTS TO TWA IN ACCORDANCE WITH SECTION 9.1 HEREOF. (b) In view of the nature of a Slot and the discretion given to the FAA with respect to Slots, the parties understand and agree that the termination, cancellation, withdrawal or revocation of the Acquired Slots or the amendment or revocation of the regulation which permits Slots to be bought and sold would cause a immediate and permanent detrimental effect upon the Slot Trust and the ability of the Holders to look to the pledge by TWA of the Beneficial Interest and the Beneficial Interest Certificate to secure TWA's obligations under the Securities and the Indenture. In accordance with the foregoing, upon the acceleration of TWA's obligations under the Securities in accordance with the Indenture, the Slot Trustee and TWA shall (unless such action on the part of the Slot Trustee is not consistent with action a prudent man would exercise or use under the circumstances in the conduct of his own affairs or is not required to authorize and permit the Slot Trustee to take the actions described in this sentence) apply for and use their best efforts to obtain a temporary restraining order and preliminary and final injunctive or other equitable relief authorizing and permitting the Slot Trustee to cancel this Agreement in accordance with Section 8.1(a)(ii) hereof, to sell, assign, transfer and convey the Acquired Slots for a price and under such terms and conditions as may be commercially reasonable and/or to preserve, to the maximum extent possible, the value of the Acquired Slots. (c) In accordance with the foregoing, TWA further recognizes, understands and agrees that in the event of either a filing by TWA or a entry of an order or decree against TWA of a petition under the Bankruptcy Law then, and in either such event, the Slot Trust will only be protected adequately with respect to the Acquired Slots upon the immediate entry of an order providing either (i) for immediate abandonment of the Acquired Slots to the Slot Trust and a grant of authority to the Slot Trust to assign, transfer and convey the Acquired Slots and have the Collateral Agent hold any proceeds thereof for the benefit of the Holders or (ii) permitting TWA, at the sole discretion of the Slot Trustee, which may be revoked at any time as to any one or more or all of the Acquired Slots, to continue to use all of the Acquired Slots on a daily basis so as to prohibit the FAA from immediately terminating, canceling, withdrawing or revoking the rights thereunder. It is the position of the Slot Trust and TWA that under the terms of the Deed of Conveyance, any Subsequent Deed of Conveyance and this Agreement, TWA (for all purposes other than tax purposes) has assigned, transferred and conveyed (or, in the case of any Subsequent Deed of Conveyance, will have assigned, transferred and conveyed) its entire property interest, if any, in the Acquired Slots and can only acquire an interest therein upon satisfaction of all of the Obligations or under limited circumstances set forth in Article 6 hereof. 40 In the event, however, that it is determined by a court of competent jurisdiction that a property interest in the Acquired Slots does so exist in TWA notwithstanding the failure of TWA to satisfy all of the Obligations or the existence of certain circumstances set forth in Article 6 hereof, then and in that event, the Slot Trustee and TWA agree that an order for adequate protection pertaining to the foregoing rights of the Slot Trust with respect to the Acquired Slots shall be immediately entered and TWA does hereby for itself and its successors and assigns, including without limitation a trustee in any proceeding instituted by or against TWA under the Bankruptcy Law, consent to the entry of a order providing for such adequate protection of the Slot Trust's interest in the Acquired Slots. ARTICLE 9. TERMINATION AND RECONVEYANCE OF ALL ACQUIRED SLOTS Section 9.1. Reconveyance of Acquired Slots to TWA. (a) In the event ------------------------------------- that no Default or Event of Default exists under the Indenture, and TWA satisfies all of the Obligations, then, and in that event, upon receipt by the Indenture Trustee of such satisfaction in immediately available funds, the Slot Trustee shall, without cost or charge to TWA (except as otherwise provided herein), reassign, retransfer and reconvey by deed of conveyance without recourse, representation or warranty to TWA, all of the Acquired Slots, except that the Slot Trustee shall represent and warrant that (except in accordance with Article 8 hereof), it has made no transfers of, or knowingly permitted any liens to be imposed upon, Acquired Slots other than the limited interest granted to TWA under this Agreement, and thereupon this Agreement (other than Article 10 hereof) shall terminate. Section 9.2. Continued Effectiveness of Agreement. If the reassignment, ------------------------------------ retransfer or reconveyance referred to in Section 9.1 hereof is prohibited by any then applicable law or regulation, this Agreement (including Section 5.1(e) but otherwise excluding Articles 5, 6, 7, 11, 12, 13 and 14 hereof) will continue in effect until such time as the reassignment, retransfer or reconveyance of the primary operating authority with respect to the Acquired Slots is permitted. ARTICLE 10. INDEMNIFICATION Section 10.1. Indemnification by TWA. TWA shall indemnify and hold ---------------------- harmless the Slot Trustee to the extent provided to the Indenture Trustee under Section 7.7 of the Indenture, and the Slot Trustee shall have those rights set forth in such Section 7.7 for the Indenture Trustee. 41 ARTICLE 11. AMENDMENTS Section 11.1. Amendments. (a) Except as provided in Section 11.1(b) ---------- hereof, and subject to Section 4.11 of the Indenture and Article 9 of the Indenture, this Agreement may be amended by TWA and the Slot Trustee only with the affirmative vote of the Required Holders. (b) TWA and the Slot Trustee may also amend this Agreement without the vote of the Holders if such parties each deem it necessary to cure any ambiguity, defect or inconsistency or conform this Agreement to the requirements of applicable laws so long as such amendment does not have a material adverse effect on the interests of the Holders. ARTICLE 12. ASSIGNMENTS Section 12.1. Rights of Assignment by TWA. TWA and the Slot Trustee --------------------------- understand and agree that the interest of TWA under this Agreement is not assignable and that any attempt to assign all or any portion of this Agreement by TWA shall be null and void except for an assignment in connection with a merger, consolidation or sale of substantially all TWA's assets permitted under the Indenture. ARTICLE 13. INDEPENDENT APPRAISALS Section 13.1. Independent Appraisal Required Under Certain Circumstances. ---------------------------------------------------------- Whenever a Permitted Substitute has been used or operated by a Person or Persons other than TWA, in a business similar to that in which it has been or is to be used or operated by TWA, within six (6) months prior to the date of its acquisition by TWA, or the fair value of any Acquired Slots or Collateral to be released, assigned or transferred by the Collateral Agent or the Slot Trust, together with all other property so released, assigned or transferred since the commencement of the then-current calendar year or in any twelve (12) month period, as set forth in the certificate or certificates required by this Agreement, is ten percent (10%) or more of the aggregate principal amount of Securities at the time Outstanding, TWA will provide to the Slot Trustee such certificates and opinions, if any, as the TIA may require. ARTICLE 14. RECEIPT OF CASH AND/OR INVESTMENT SECURITIES BY THE SLOT TRUST OR THE SLOT TRUSTEE Section 14.1. Receipt of Cash and/or Investment Securities. In the event -------------------------------------------- the Slot Trust or the Slot Trustee (in its capacity as Slot Trustee) receives any property (including, without limitation, cash and/or Investment Securities) other than Slots, such property shall immediately be delivered to the Collateral Agent (which shall be evidenced by a certificate of the Collateral Agent delivered to the Slot Trustee, acknowledging receipt of such property). 42 ARTICLE 15. SLOT TRUSTEE Section 15.1. Rights and Duties of Slot Trustee. Except as specifically --------------------------------- set forth herein, in the Pledge Agreement or in the Slot Trust Agreement, the Slot Trustee shall have no duty (i) to perform any recording or filing in connection with the Slot Trust Assets, (ii) to see to the payment or discharge of any tax, assessment or other governmental charge or any lien owing with respect to, or assessed or levied against, any part of the Slot Trust Assets, or (iii) to take any other actions in connection with the use, operation, management or maintenance of the Slot Trust Assets. Except as provided in Section 9.1 hereof, the Slot Trustee does not make and shall not be deemed to have made any representation or warranty, expressed or implied, as to the title, merchantability, compliance with specifications, condition, design, operation, fitness for use or for a particular purpose, or any other representation or warranty whatsoever, expressed or implied, with respect to the Slot Trust Assets. Section 15.2. References to Slot Trust and Slot Trustee. All references ----------------------------------------- in this Agreement and the other Operative Documents to the Slot Trust or the Slot Trustee shall be to both the Slot Trust and the Slot Trustee unless such a reference would render the provision in which it is contained meaningless or ambiguous. ARTICLE 16. MISCELLANEOUS Section 16.1. Notices; Waivers. Any request, demand, authorization, ---------------- direction, notice, consent, waiver or other document provided or permitted by this Agreement to be made upon, given or furnished to, or filed with (a) the Slot Trustee shall be sufficient for every purpose hereunder if in writing and made, given, furnished or filed by personal delivery or registered or certified mail to or with the Slot Trustee at First Security Bank, National Association, 79 South Main Street, Salt Lake City, Utah 84111, Attention: Corporate Trust Department. (b) TWA shall be sufficient for every purpose hereunder if in writing and made, given, furnished or filed by personal delivery or mailed, first class postage prepaid, to TWA at 515 N. 6th Street, St. Louis, Missouri 63101, Attention: Richard P. Magurno, Senior Vice President and General Counsel, or to any of the above parties at any other address subsequently furnished in writing by it to each of the other parties listed above. An affidavit by any person representing or acting on behalf of TWA or the Slot Trustee as to such mailing, having any registry receipt required by this Section attached, shall be conclusive evidence of the giving of such demand, notice or communication. 43 Where this Agreement provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by the Holders shall be filed with the Slot Trustee, but such filing shall not be condition precedent to the validity of any action taken in reliance upon such waiver. Section 16.2. Amendments, Etc. Subject to Section 11.1, no amendment or --------------- waiver of any provision of this Agreement nor consent to any departure by TWA therefrom shall in any event be effective unless the same shall be in writing, and signed by the Slot Trustee and approved by the Required Holders if required hereby or by the Indenture, and then any such waiver or consent shall only be effective in the specific instance and for the specific purpose for which given. Section 16.3. No Waiver; Remedies. (a) No failure on the part of the ------------------- Slot Trustee to exercise, and no delay in exercising any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative, may be exercised singly or concurrently, and are not exclusive of any remedies provided by law or the Indenture, the Securities or any of the other Operative Documents. (b) Failure by the Slot Trustee at any time or times hereafter to require strict performance by TWA or any other Person of any of the provisions, warranties, terms or conditions contained herein or in any of the Indenture, the Securities or any other Operative Documents now or at any time or times hereafter executed by TWA or any such other Person and delivered to the Slot Trustee shall not waive, affect or diminish any right of the Slot Trustee at any time or times hereafter to demand strict performance thereof, and such right shall not be deemed to have been modified or waived by any course of conduct or knowledge of the Slot Trustee or any agent, officer or employee of the Slot Trustee. Section 16.4. Conflict with Trust Indenture Act of 1939. If and to the ----------------------------------------- extent any provision of this Agreement limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive of the TIA, such imposed duties shall control. Section 16.5. Holidays. In the event that any date for the payment of -------- any amount due hereunder shall not be a Business Day, then (notwithstanding any other provision of this Agreement) such payment need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the due date, and no interest shall accrue on such payment for the period from such due date to and including the next succeeding Business Day. Section 16.6. Successors and Assigns. This Agreement and all obligations ---------------------- of TWA hereunder shall be binding upon the successors and if permitted assigns of TWA, and shall, together with the rights and remedies of the Slot Trustee hereunder, inure to the benefit of the Slot Trustee, the Holders, and their respective successors and assigns. 44 Section 16.7. Governing Law. The laws of the State of New York shall ------------- govern this Agreement without regard to principles of conflict of laws. Section 16.8. Indemnification. TWA agrees to pay, and to save the Slot --------------- Trustee harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all excise, sales or other similar taxes which may be payable or determined to be payable with respect to any of the Collateral or Slot Trust Assets or in connection with any of the transactions contemplated by this Agreement. Section 16.9. Effect of Headings. The Article and Section headings and ------------------ the Table of Contents contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of this Agreement. Section 16.10. No Adverse Interpretation of Other Agreement. This -------------------------------------------- Agreement may not be used to interpret any agreement of TWA or any of its Subsidiaries which is unrelated to the Indenture, the Securities or the Operative Documents. Any such other agreement may not be used to interpret this Agreement. Section 16.11. No Recourse Against Others. A director, officer, employee -------------------------- or stockholder, as such, of TWA shall not have any liability for any obligations of TWA under the Agreement or for any claim based on, in respect of or by reason of such obligations or its creation. Section 16.12. Duplicate Originals. The parties may sign any number of ------------------- copies of this Agreement. Each signed copy shall be an original, but all of them together represent the same agreement. Section 16.13. Severability. In case any provision in this Agreement ------------ shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby, and no Holder shall have any claim therefor against the Slot Trustee. 45 IN WITNESS WHEREOF, the parties have caused this Master Sub-License Agreement to be duly executed as of the date first written above. TRANS WORLD AIRLINES, INC. By: /s/ Michael J. Lichty ----------------------------------------- Name: Michael J. Lichty Title: Vice President, Corporate Finance FIRST SECURITY BANK, NATIONAL ASSOCIATION As Slot Trustee on behalf of the Slot Trust By: /s/ C. Scott Nielsen ----------------------------------------- Name: C. Scott Nielsen Title: Vice President 46 EXHIBIT 1 TO EXHIBIT C CERTIFICATE ----------- The undersigned, Manager of Current Schedules and Industry Affairs of Trans World Airlines, Inc. ("TWA"), DOES HEREBY CERTIFY THAT: 1. This Certificate is delivered to the Slot Trustee pursuant to Article 5, Section 5.1(a) of the Master Sub-License Agreement dated as of March 31, 1997 (the "Master Sub-License") between TWA and First Security Bank, National Association, as Slot Trustee Pursuant to the Acquired Slot Trust Agreement dated as of March 31, 1997. All capitalized terms used herein and not otherwise defined have the respective meanings ascribed to them in the Master Sub-License. 2. I am responsible for maintaining and managing the operation of slots (as such term is defined in 14 C.F.R. 93) for TWA. 3. Except as noted on Schedule A attached hereto, during each of the one- month, two-month and three-month periods ending the last day of the month preceding the date of this Certificate. (a) all the Acquired Slots were operated by TWA or other carriers or both; (b) (i) the Acquired Slots operated by TWA, and (ii) to the best of my knowledge based upon due inquiry the Acquired Slots operated by all other carriers, and (iii) accordingly, to the best of my knowledge, all the Acquired Slots were used in a manner consistent with the usage and other requirements of 14 C.F.R. 93 and Section 5.1(a) of the Master Sub-License; and (c) no notice of non-compliance with FAA Slot Regulations has been received from the FAA with respect to any Acquired Slot. DATED:_________________________ BY:_________________________________ NAME: Att: Schedule A (None - No Exceptions) 47 SCHEDULE 1 TO EXHIBIT C SLOT RELEASE SCHEDULE Released Slots Slot Release Trigger - -------------- -------------------- (Securities Outstanding in Millions of Dollars) (a) JFK - Jet An amount equal to (i) the sum of (x) $25,000,000, plus (y) 50% of any Securities issued pursuant to any exercise of the over-allotment option contained in the Purchase Agreement, less (ii) an amount equal to the Applied Amount (b) ORD - Jet An amount equal to (i) the sum of (x) $10,000,000, plus (y) 20% of any Securities issued pursuant to any exercise of the over-allotment option contained in the Purchase Agreement, less (ii) an amount equal to the Applied Amount Note: Slots referred to are as of the date of the Master Sub-License Agreement. If additional or substitute Slots are conveyed to the Slot Trust in satisfaction of the Substitution Requirements, such substitute Acquired Slots shall be subject to release at the same time and under the same circumstances (and only at the same time and under the same circumstances) as the Acquired Slots for which they were substituted could have been released under the Master Sub-License Agreement. 48 EXHIBIT D TO INDENTURE PLEDGE AND SECURITY AGREEMENT PLEDGE AND SECURITY AGREEMENT, dated as of March 31, 1997 (the "Pledge Agreement") by and between TRANS WORLD AIRLINES, INC., a Delaware Corporation (together with its successors and assigns, the "Company"), and FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association organized under the laws of the United States, having an office at 79 South Main Street, Salt Lake City, Utah 84111, as Collateral Agent (the "Collateral Agent"). RECITALS WHEREAS, the Company and the Trustee have entered into an Indenture dated as of the date hereof (as at any time amended or supplemented or otherwise modified, the "Indenture"), providing for the issuance of $50,000,000 (subject to increase to not more than $57,500,000 as set forth in the Indenture) aggregate principal amount outstanding of its 12% Senior Secured Notes; and WHEREAS, in order to secure the payment of the principal amount of and interest on the Securities and all other obligations of the Company in connection with the Securities under the Indenture, the Securities and the Operative Documents, the Company has agreed to pledge and grant a security interest in the Collateral, as provided for herein; and WHEREAS, the Company and the Collateral Agent wish to set forth herein their respective rights, liabilities and obligations with respect to the Collateral. NOW, THEREFORE, in consideration of the premises and other benefits to the Company, the receipt and sufficiency of which are hereby acknowledged, the Company hereby makes the following representations and warranties and hereby covenants and agrees as follows: ARTICLE 1. DEFINITIONS AND RULES OF CONSTRUCTION Section 1.1. Definitions. Capitalized terms used and not otherwise ----------- defined herein shall have the meanings ascribed to such terms in Section 1 of the Definitions Appendix attached hereto as Appendix I, which shall be part of this Pledge Agreement as if fully set forth in this place. Section 1.2. Rules of Construction. The rules of construction for this --------------------- Pledge Agreement are set forth in Section 2 of the Definitions Appendix. ARTICLE 2. COLLATERAL Section 2.1. Grant of Security Interest. To secure the due and punctual -------------------------- payment, performance and observance in full of any and all of the Company's indebtedness and obligations evidenced by or set forth in the Securities or the Indenture (including, without limitation, the principal of, interest on and Liquidated Damages (if any) payable with respect to, the Securities) and all of its obligations to perform acts or refrain from taking any action under the Indenture, the Securities, this Pledge Agreement and the other Operative Documents (all the foregoing hereinafter called the "Obligations"), the Company hereby pledges and assigns to the Collateral Agent, and grants to the Collateral Agent for the benefit of the Holders of the Securities a continuing general, valid, perfected security interest (senior in right and priority to all Liens except senior or parity Permitted Liens) in all right, title and interest of the Company in, to and under, the following, whether now owned or hereafter acquired (collectively, other than the Slot Trust Assets, the "Collateral"): (a) The Ground Equipment. (b) The Beneficial Interest and the Beneficial Interest Certificate. (c) The Slot Trust Assets, including without limitation any right, title or interest that the Company, notwithstanding the agreements of the Company set forth in Section 5.1 of the Declaration, may have in, to or under the Slot Trust Assets (it being acknowledged and understood by the parties hereto that pursuant to the Declaration and the Deed of Conveyance, the Company has agreed that all right, title and interest in and to the Slots specified in the Deed of Conveyance has been assigned, transferred and conveyed, and that all right, title and interest in and to any Slots that hereafter are the subject of any Subsequent Deed of Conveyance will be assigned, transferred and conveyed, to the Slot Trustee, and it being further acknowledged and agreed that the pledge, assignment and grant set forth in this Section 2.1(c) does not in any way limit the Deed of Conveyance or any Subsequent Deed of Conveyance). (d) The Pledged Stock. (e) All cash and/or Investment Securities deposited with the Collateral Agent to be held by the Collateral Agent as security for the Obligations as provided herein or in the Master Sub-License Agreement. (f) All other Property which may be granted, bargained, sold, conveyed, transferred, assigned or pledged pursuant to the terms of this Pledge Agreement by the Company to the Collateral Agent at any time and all proceeds (as such term is defined in Article 9 of the New York Uniform Commercial Code as in effect on the date hereof) of or to any of the Property in which a security interest is granted under this Section 2.1. (g) All repair, maintenance and inventory records, logs, manuals and all other documents and all other documents and materials similar thereto (including, without limitation, any such records, logs, manuals, documents and materials that are computer print-outs) at any time maintained, created or used by the Company, and all records, logs, manuals, documents and other materials required at any time to be maintained by the Company pursuant to the FAA or under the Federal Aviation Act, in each case with respect to any of the Ground Equipment. 2 (h) The tolls, rents, revenues, issues, income, distributions, products and profits, and all the estate, right, title, interest and claim whatsoever, at law, as well as in equity, which the Company has or possesses on the date of delivery of this Pledge Agreement or to which the Company may thereafter become legally or equitably entitled, from, in or to the Collateral or the Slot Trust Assets (excluding any cash on hand or in banks, instruments and accounts receivable arising from the conduct of the Company's business which do not arise either from the use, operation, storage, control or management of the Collateral or the Slot Trust Assets by the Collateral Agent pursuant to Article 6 hereof or through distributions, if any, made by the Slot Trust). It is the true, clear, and express intention of the Company that the continuing grant of the security interests provided for in this Pledge Agreement remain as security for payment and performance of the Obligations until such Obligations are satisfied and performed in full. The notice of the continuing grant of this security interest therefor shall not be required to be stated on the face of any Security, nor shall the Company otherwise be required to identify such Security as being secured hereby. Section 2.2. Substitution of Collateral. The Company may from time to -------------------------- time substitute any Property which is not then Collateral for some or all of the Non-Slot Collateral then subject to the Lien of this Pledge Agreement in accordance with this Section 2.2: (a) The Company may substitute Permitted Substitutes for any Non-Slot Collateral then subject to the Lien of this Pledge Agreement to the extent permitted by and in accordance with Section 4.4 and the Substitution Requirements and, upon the consummation of such substitution, the Collateral Agent, upon Request of the Company, shall release its Lien on the Collateral for which Permitted Substitutes are so substituted. (b) If the Permitted Substitutes are subject to a Lien securing indebtedness of the Company under a Qualified Senior Financing Agreement which is to remain outstanding after the substitution, the Lien of this Pledge Agreement shall be subordinated to such existing Lien as provided in Section 6.5. ARTICLE 3. REPRESENTATIONS AND WARRANTIES Section 3.1. Representations and Warranties of the Company. The Company --------------------------------------------- represents and warrants to the Collateral Agent as follows: (a) The Company is an air carrier certificated under Section 44705 of the Federal Aviation Act. (b) The Company owns, and has full right, title and interest in, the Collateral, free and clear of all Liens, except Permitted Liens. 3 (c) The Company maintains public liability, property damage and workers' compensation insurance and insurance on all its insurable property, including the Collateral, against fire and other hazards with responsible insurance carriers to the extent usually maintained by similarly situated companies. ARTICLE 4. COVENANTS Section 4.1. Further Assurances. From time to time, the Company shall ------------------ perform any and all acts and execute any and all additional instruments and documents as may be reasonably requested by the Collateral Agent, the Indenture Trustee or the Slot Trustee, to carry out the intention of or to facilitate the performance of the terms of this Pledge Agreement or to secure the rights and remedies hereunder or thereunder of the Holders of the Securities including, without limitation, the execution and delivery of instruments of title, any supplemental agreements and any financing statement or continuation of any financing statement or other appropriate instrument of recording under the Uniform Commercial Code as in effect in the jurisdictions in which the Collateral is located, under the Federal Aviation Act and the rules and regulations promulgated thereunder or under any other appropriate law or regulatory scheme applicable to the Collateral. Section 4.2. Taxes. The Company will, and will cause each Subsidiary ----- to, promptly pay and discharge, in each case before the same shall become delinquent, all taxes, assessments, fees, charges, fines and penalties of any kind which may be imposed (a) upon any of the Collateral, the Acquired Slots, the Slot Trust or any Property of any Pledged Subsidiary and (b) for the use or operation thereof by the Company or any of its Subsidiaries, and will at all times keep the Collateral, the Acquired Slots, and the Property of its Pledged Subsidiaries free and clear of all taxes, assessments, fees, charges, fines and penalties of any kind which might in any way affect the title thereto or result in a Lien which is not a Permitted Lien upon any part or the whole of the Collateral, the Acquired Slots or any Property of any Pledged Subsidiary; provided, however, that the Company shall not be required to pay or discharge - -------- ------- any taxes, assessments, fees, charges, fines or penalties of any kind (i) whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which adequate provision has been made if required in accordance with generally accepted accounting principles, as in effect from time to time, and (ii) if the Company delivers to the Collateral Agent an Officers' Certificate stating that such non-payment and non-discharge is in the interest of the Company, presents no material risk of sale, forfeiture or loss of any Collateral, and is not prejudicial in any material respect to the Holders, except that the Company will pay all such taxes, assessments, fees, charges, fines or penalties forthwith upon the commencement of proceedings to foreclose any Lien on any Collateral or Acquired Slot or any Property of any Pledged Subsidiary which may have attached as security therefor. If any expenses, taxes, assessments, fees, charges, fines or penalties which are payable by the Company hereunder shall have been charged or levied against the Collateral Agent, the Indenture Trustee or the Slot Trustee directly and, after notice to the Company and opportunity to contest as aforesaid, paid 4 by the Collateral Agent, the Indenture Trustee or the Slot Trustee, the Company shall reimburse the Collateral Agent, the Indenture Trustee or the Slot Trustee on presentation of an invoice therefor. For purposes of this Section 4.2 and notwithstanding any other provision of this Pledge Agreement, the Collateral Agent, the Indenture Trustee or the Slot Trustee are the sole parties to, from, or with whom the Company shall be obligated to communicate or receive any communication or notice, negotiate, settle, or enter into any stipulation, agree upon or make factual determinations, elections, or payments regarding any matter arising under this Section 4.2. Notice received or served by the Company from or upon the Collateral Agent, the Indenture Trustee or the Slot Trustee shall be deemed notice duly served from or upon the Company. The Company shall have no obligation to communicate or deal with any parties except the Collateral Agent, the Indenture Trustee or the Slot Trustee regarding any matter arising under this Section 4.2. The Company will pay, and save the Collateral Agent, the Indenture Trustee and the Slot Trustee and the Holders of Securities harmless from, any stamp taxes which shall be payable in connection with this Pledge Agreement, any supplement or amendment hereof or the original issuance of the Securities except as herein expressly indicated to the contrary. If a written claim is made against the Collateral Agent, the Indenture Trustee or the Slot Trustee or the Holders of Securities for any taxes, assessments, fees, charges, fines, or penalties which are subject to payment or indemnification by the Company under this Section 4.2, the Collateral Agent, the Indenture Trustee or the Slot Trustee shall promptly notify the Company thereof in writing. If requested by the Company in writing within thirty (30) days (but twenty (20) days if the Collateral Agent, the Indenture Trustee or the Slot Trustee received a 30-day statutory notice) of the notice to the Company, the Collateral Agent, the Indenture Trustee or the Slot Trustee shall, at the Company's expense and direction, for so long as the Collateral Agent, Indenture Trustee or the Slot Trustee reasonably believes that the Company is acting in good faith and the Collateral Agent, the Indenture Trustee or the Slot Trustee have received adequate indemnification therefor, contest such taxes, assessments, fees, charges, fines or penalties. The Company shall select the forum for such contest and shall determine whether such contest shall be by: (a) resisting or refusing payment of such taxes, assessments, fees, charges, fines or penalties; or (b) not paying such taxes, assessments, fees, charges, fines or penalties except under protest; or (c) paying such taxes, assessments, fees, charges, fines, or penalties and seeking a refund thereof. 5 If permissible under applicable law, the Collateral Agent, the Indenture Trustee or the Slot Trustee shall assign its right to contest the imposition or levy of any such tax, assessment, fees, charges, fines or penalties to the Company. Section 4.3. Maintenance. The Company, at its own cost or expense: ----------- (a) shall maintain, or cause to be maintained, at all times the Ground Equipment, the Gate Facilities and the LAX Co. Facilities in material compliance with all applicable laws, rules, regulations, orders, directives and instructions issued by the FAA or any other governmental authority having jurisdiction over the Company, the Ground Equipment, the Gate Facilities or the LAX Co. Facilities, including making any repairs, modifications, alterations, replacements and additions necessary therefor; (b) shall maintain, or cause to be maintained, all material records, logs and other materials required by the FAA or under the Federal Aviation Act to be maintained in respect of the Ground Equipment, Gate Facilities or the LAX Co. Facilities and shall retain complete copies thereof to the extent necessary to ensure that the value of such Ground Equipment, Gate Facilities and LAX Co. Facilities will not be materially diminished for lack of a full maintenance history; and (c) shall maintain, or shall cause to be maintained, the Ground Equipment in at least as good condition (taken as a whole) as at the Issue Date, subject to ordinary wear and tear, and shall perform all maintenance thereon necessary for that purpose. Section 4.4. Event of Loss; Use in the Ordinary Course Of Business; ------------------------------------------------------ Release; Thresholds; Effect of Release; Substitution. - ---------------------------------------------------- (a) Event of Loss. Upon the occurrence of an Event of Loss with respect to ------------- any Ground Equipment or Pledged Stock, the Company shall give the Collateral Agent prompt notice thereof and shall satisfy the applicable Substitution Requirements. Upon compliance by the Company with its obligations above and upon Request by the Company, payment by the Company of the Collateral Agent's costs (including reasonable legal fees and disbursements) in connection therewith and satisfaction of any applicable requirements of the TIA, the Collateral Agent shall execute and deliver the required documents releasing, assigning and transferring all of the right, title and interest of the Collateral Agent in and to the Collateral which is the subject of such Event of Loss to the Company or its designee, whereupon such Collateral shall cease to be Collateral for all purposes hereof. (b) Use in the Ordinary Course Of Business. So long as no Event of Default -------------------------------------- shall have occurred and be continuing, the Company shall have the right, at any time and from time to time at its own cost and expense, without any release from or consent by the Collateral Agent, to deal with (but not, except as expressly otherwise permitted hereunder, to sell, lease, transfer or otherwise dispose of, or relinquish possession of) the Ground Equipment in any 6 manner consistent with the Company's Ordinary Course Of Business, including, without limitation, with respect to the Ground Equipment, to dismantle any Ground Equipment that has become worn out or obsolete or unfit for use, and in the Ordinary Course to sell or dispose of other parts thereof not reasonably repairable or usable or any salvage resulting from such dismantling, free from the Lien of this Pledge Agreement. The Company shall not permit any Ground Equipment to be moved to a location where it would cease to constitute "Ground Equipment" except that the Company may, so long as no Event of Default shall have occurred and be continuing, do so in the Ordinary Course. (c) Release of Non-Slot Collateral. The Company shall comply with this ------------------------------ Section 4.4(c) and the Substitution Requirements in connection with and (except as provided in Section 4.5(a)(v)) at or prior to the completion of any sale or deemed sale of Ground Equipment or Pledged Stock under this Pledge Agreement. Upon Request by the Company, payment by the Company of the Collateral Agent's costs (including reasonable legal fees and disbursements) incurred in complying with such Request and satisfaction of the applicable Substitution Requirements, and so long as no Event of Default has occurred and is continuing or would result therefrom, the Collateral Agent shall release from the Lien of this Pledge Agreement, assign and transfer to the Company or its designee at any time, all the right, title and interest of the Collateral Agent in and to any Ground Equipment or in and to all but not less than all the Pledged Stock of LAX Co., that is the subject of (i) a contract of sale pursuant to which the Company in the Ordinary Course has agreed to sell such Ground Equipment or Pledged Stock on an arm's-length basis to an unaffiliated third party within ninety (90) days after the date of such release, which contract contains only closing conditions that are customary to a sale of that kind at that time and which sale is not a "sale/leaseback" or other similar transaction used by the Company as a financing vehicle, or (ii) a deemed sale under this Section or Section 4.5(a)(v) or 4.5(d) hereof; provided, however, that, so long as no Event of Default shall have occurred and be continuing, (x) the Company shall not be so required to satisfy the Substitution Requirements with respect to Ground Equipment sold in the Ordinary Course, (y) the lien hereof shall automatically be released concurrently with such disposition described in clause (x) and without any further action, and such disposition shall be free and clear of any lien or security interest created hereby. If Ground Equipment cannot conveniently be disposed of in the Ordinary Course because the Company has not maintained the Ground Equipment Threshold or if the Company otherwise elects to reduce the Ground Equipment Threshold, the Company may reduce the Ground Equipment Threshold upon satisfying the applicable Substitution Requirements. If the holder of any Senior Security Interest shall commence proceedings or taken other action to foreclose upon or take possession of any Collateral, any such foreclosure or taking of possession shall be deemed a sale of such Collateral which the Company shall not permit to occur without first complying with this Section. (d) Effect of Release. No purchaser in good faith of property purporting to ----------------- be released, assigned and transferred pursuant hereto shall be bound to ascertain the authority of the Collateral Agent to execute the release, assignment and transfer or to inquire as to the existence of any conditions herein prescribed for the exercise of such authority; nor shall any purchaser or grantee of any property or rights permitted by this Article 4 to be sold, granted or 7 otherwise disposed of by the Company be under any obligation to ascertain or inquire into the authority of the Company to make any such sale, grant or other disposition. Any release, assignment and transfer executed by the Collateral Agent under this Section 4.4 shall be sufficient for the purposes of this Pledge Agreement and shall constitute a good and valid release, assignment and transfer of the Property therein described from ownership of the Collateral Agent and the Lien of this Pledge Agreement. (e) Substitution. If and whenever the Company shall be required or ------------ permitted to subject any Property to the Lien of this Pledge Agreement pursuant to any provision of this Pledge Agreement or pursuant to the terms of the Master Sub-License Agreement or the Indenture, the Company will furnish to the Collateral Agent the following: (i) a Supplemental Pledge Agreement duly executed by the Company, appropriately describing, identifying and locating such Property and specifically subjecting the same to the Lien of this Pledge Agreement; and (ii) in the case of (a) Ground Equipment, cash, Investment Securities or Property being subjected to the Lien of this Pledge Agreement, an Opinion of Counsel, dated the date of execution of said Supplemental Pledge Agreement, stating that: (1) said Supplemental Pledge Agreement: (a) has been duly authorized, executed and delivered by the Company, and (b) validly subjects to the Lien of this Pledge Agreement (subject only to Permitted Liens) under applicable Federal and State laws all the right, title and interest of the Company in and to the Property specifically described in said Supplemental Pledge Agreement; (2) said Supplemental Pledge Agreement (a) is not required to be filed or recorded in any place within the United States in order to perfect and preserve the Lien of this Pledge Agreement under Federal or state laws on the Property specifically described in said Supplemental Pledge Agreement; or (b) if any such filing or recording shall be required, that said filing or recording has been accomplished in such manner and places, which shall be specified in such Opinion of Counsel, as is necessary in order so to perfect and preserve the Lien of this Pledge Agreement; and (c) in rendering such Opinion, such counsel may assume that there are no documents with respect to such Property that have been filed for recording under such recording system but have not yet been listed in the available records of such system as having been so filed and may state that no opinion is expressed as to liens that are 8 perfected without the filing of notice thereof or by operation of law, such as federal tax liens and liens arising under Section 1368(a) of Title 29 of the United States Code, and that the examination of said counsel was limited to the records of such recording systems and subject to the accuracy of the personnel administering such system in the filing, indexing and recording of instruments filed with such entity; and (B) Permitted Substitutes subject to a Senior Security Interest, an Opinion of Counsel, dated the date of execution of such Supplemental Pledge Agreement, stating that the financing agreement pertaining thereto is a Qualified Senior Financing Agreement; and (iii) an Officer's Certificate stating that: (A) the Company is the legal and beneficial owner of the Property specifically described in said Supplemental Pledge Agreement, free and clear of all Liens, except Permitted Liens; and (B) in the opinion of the Officers executing the Officer's Certificate, all conditions precedent provided for in this Pledge Agreement relating to the subjection of such property to the Lien of this Pledge Agreement have been complied with. (f) Release of Collateral Upon Partial Prepayment. Simultaneously with or --------------------------------------------- promptly following the cancellation of any Securities, whether pursuant to a partial repurchase of any Securities pursuant to Section 4.15 of the Indenture or otherwise, following a tender of Securities in payment of the Exercise Price of the Warrants or in connection with a tender offer for the Securities or otherwise, if the Company has complied with the Preconditions, and provided that -------- after giving effect to the release of such Collateral the Company will be in compliance with the Security Ratio requirements set forth in clause (b) of the definition thereof, Collateral Agent shall release from the Lien of this Pledge Agreement and assign and transfer to the Company or its designee all of the right, title and interest of the Collateral Agent in designated Collateral as set forth in Schedule 2 hereto (the "Released Collateral") based upon the reduction in the amount of Securities Outstanding to an amount equal to the level specified for the release of particular Collateral as set forth in said Schedule 2 (the "Collateral Release Trigger"). The Collateral Agent shall execute and deliver to the Company the proper instrument or instruments (including, without limitation, a Supplemental Pledge Agreement in the form of Exhibit B and Uniform Commercial Code statements on form UCC-3) to evidence the release of the Lien on the Released Collateral and to assign, transfer and deliver to the Company against receipt but without recourse, warranty or representation the Released Collateral and any other Property or proceeds received in respect thereof and then in the possession of the Collateral Agent. 9 Section 4.5. Possession, Sublease and Assignment. ----------------------------------- (a) The Company shall have the right, in the Ordinary Course Of Business, to (i) sublease (which in this Section includes lease) any Ground Equipment to any "air carrier" (as defined in the Federal Aviation Act) or to any manufacturer of Ground Equipment, as the case may be, or any Affiliate thereof, provided, that the term of the lease does not exceed twelve (12) months; (ii) - -------- transfer possession of any Ground Equipment to the United States Government or any instrumentality or agency thereof including transfers pursuant to the Civilian Reserve Air Fleet Program administered pursuant to Executive Order 10999, as amended, or any similar or substitute program; (iii) sublease any Ground Equipment to any Person as permitted by Section 4.5(b) hereof; (iv) transfer possession of any Ground Equipment to the manufacturer thereof or any other organization for testing, overhaul, repairs, maintenance, alterations, modifications or promotional purposes; or (v) subject any Ground Equipment to an interchange or pooling, exchange, borrowing or maintenance servicing agreement arrangement customary in the airline industry and entered into in the Ordinary Course Of Business which does not contemplate or require the transfer of title to such Ground Equipment (provided, however, that if the Company's title to any such Ground Equipment shall be divested under any such agreement or arrangement, such divestiture shall be deemed to be a sale with respect to such Ground Equipment and the Company shall immediately comply with Section 4.4(c) hereof in respect thereof); provided, however, that the Company shall not have the right -------- ------- to enter into any sublease or other arrangement pursuant to this Section 4.5(a) if an Event of Default shall have occurred and be continuing. Without the prior written consent of the Collateral Agent, the Company will not otherwise sell, sublease, transfer or relinquish possession of Ground Equipment to anyone other than the Collateral Agent and will not assign any of its rights hereunder, except as permitted by the provisions of this Section 4.5 and Sections 4.3 and 4.4 hereof or as provided in the Indenture. (b) Any sublease of any Ground Equipment permitted hereunder (a "Sublease") shall be fully subject to the following conditions: (i) Each Sublease of any Ground Equipment shall contain an express agreement by the sublessee to the effect that: (A) such Sublease is fully subject and subordinate in all respects to this Pledge Agreement and to the Collateral Agent's rights and remedies with respect to such Ground Equipment, (B) upon notice of the occurrence of an Event of Default given by the Collateral Agent to such sublessee, the Collateral Agent may avoid such Sublease, and the sublessee shall forthwith deliver such Ground Equipment to the Collateral Agent and (C) the Ground Equipment shall be located in the United States (at other than an Excluded Location). (ii) All necessary action shall have been taken which is required to continue the perfection of the Collateral Agent's security interest in such Ground Equipment and the Collateral Agent's rights under this Pledge Agreement and the Sublease and all other necessary documents shall have been filed, registered or 10 recorded in such public offices as may be required to fully preserve the priority of the interest of the Collateral Agent in such Ground Equipment under the laws of the United States and any relevant state law; and the Company shall have furnished an Opinion of Counsel with respect to such matters satisfactory to the Collateral Agent. (iii) The Company shall deliver to the Collateral Agent, promptly after execution thereof, a duly executed copy of such Sublease. (iv) Each Sublease of Ground Equipment pursuant to Section 4.5(a) hereof shall be assigned by the Company to the Collateral Agent as security for the Company's obligations hereunder, and the sublessee shall be required upon the occurrence and during the continuance of an Event of Default to make all payments under such Sublease directly to the Collateral Agent; provided that if such Event of Default shall cease or shall be waived pursuant to the provision of the Indenture, the Collateral Agent shall immediately pay all funds so received and deliver all Investment Securities acquired with such funds to the Company. (c) Notwithstanding the foregoing, the Company may at its option, with respect to any Sublease, decline to comply with the requirements set forth in this Section 4.5 in which case the Sublease shall be deemed a sale with respect to the Ground Equipment covered thereunder and the Company shall first comply with Section 4.4(c) hereof in respect thereof. (d) No Sublease, interchange or pooling, exchange, borrowing or maintenance servicing arrangement or other transfer or relinquishment of the possession of any Ground Equipment or of any of the Company's rights hereunder shall in any way discharge or diminish any of the Company's obligations to the Collateral Agent hereunder, cause the sublessee, transferee, assignee or any other Person (other than the Company) to be deemed to be the "Company" or an obligor on the Securities for purposes of this Pledge Agreement, or constitute a waiver of any of the Collateral Agent's rights or remedies hereunder, except to the extent such obligations, rights or remedies may be inapplicable during the period of any Sublease as elsewhere herein provided. Section 4.6. Recording; Registration; Compliance with Laws and Rules. ------------------------------------------------------- The Company will cause this Pledge Agreement and all agreements supplemental hereto to be filed and recorded (and to the extent required by law, refiled and re-recorded) under the Federal Aviation Act, if applicable, and the Uniform Commercial Code as in effect in the jurisdictions in which the Collateral is located; and the Company will from time to time do and perform any other acts and execute, acknowledge, deliver, file and record any and all further instruments required under the laws of the United States or any other applicable jurisdiction for the purpose of proper perfection and protection (subject to the Certificate of Title Exception) of the Collateral Agent's and the Holders of the Securities rights under this Pledge Agreement or for the purpose of carrying out the intention of this Pledge Agreement; and the Company will promptly furnish to 11 the Collateral Agent certificates or other evidences of such filing, recording, refiling and re-recording satisfactory to the Collateral Agent. Section 4.7. Indemnities. The Company agrees to indemnify, and hold ----------- harmless the Collateral Agent to the same extent provided to the Indenture Trustee under Section 7.7 of the Indenture and the Collateral Agent shall have those rights set forth in such Section 7.7 for the Indenture Trustee. This covenant of indemnity shall continue in full force and effect notwithstanding the full payment of principal of and interest on the Securities or the termination of this Pledge Agreement in any manner whatsoever. In addition, the Company shall indemnify, protect and hold harmless the Collateral Agent from and against any and all liabilities, claims, demands, costs, charges and expenses, including royalty payments and reasonable counsel fees, in any manner imposed upon or accruing against the Collateral Agent because of any design, article or material in respect of the Collateral which infringes, or is claimed to infringe, any patent or other industrial property right. The Collateral Agent will give notice to the Company of any such claim known to the Collateral Agent in respect of which liability may be charged against the Company. Section 4.8. FAA Records. The Company will maintain or cause to be ----------- maintained all records, logs and other materials required by the FAA to be maintained in respect of Collateral, the Acquired Slots, any other Slot Trust Assets, the Gate Facilities and the LAX Co. Facilities regardless of whether such requirements are, by their terms, imposed upon the Company, any Pledged Subsidiary, the Indenture Trustee, the Collateral Agent or the Slot Trustee, and in the event that any Collateral is repossessed by the Collateral Agent pursuant to Article 6 hereof, will forthwith deliver, or cause to be delivered, to the Collateral Agent all such records, logs and other materials relating thereto. Section 4.9. Restrictions on Liens; Permitted Contests. ----------------------------------------- (a) Restrictions on Liens. The Company will not create, incur, assume or --------------------- suffer to exist or permit to be created or incurred or assumed or to exist any Lien upon or against the Collateral, the Acquired Slots, or any other Slot Trust Assets, the Gate Facilities or the LAX Co. Facilities except for the following (collectively, the "Permitted Liens"): (i) this Pledge Agreement and the other Operative Documents and the rights of the Collateral Agent, the Indenture Trustee, the Slot Trustee, the Holders of Securities and the Company hereunder and thereunder, (ii) in the case of Ground Equipment or the Beneficial Interest or Pledged Stock (to the extent the Beneficial Interest or Pledged Stock constitutes a general intangible under the New York Uniform Commercial Code as in effect from time to time), Liens for taxes or other governmental charges or levies not yet due, the payment of which shall not at the time be required to be made in accordance with Section 4.2 hereof, (iii) in the case of Ground Equipment, materialmen's, mechanics', workmen's, repairmen's, employees', other like Liens and other Liens arising in the Ordinary Course Of Business and which are not overdue for more than forty-five (45) days, except to the extent that any such Lien is being contested in good faith and by appropriate legal proceedings which, in the opinion of the Company, do not involve any 12 material danger of the sale, forfeiture or loss of any Collateral or any interest therein, (iv) in the case of Ground Equipment or the Beneficial Interest or Pledged Stock (to the extent the Beneficial Interest or Pledged Stock constitutes a general intangible under the New York Uniform Commercial Code as in effect from time to time) any judgment Lien, unless the judgment it secures shall not, within sixty (60) days after the entry thereof, have been discharged, vacated or reversed or the execution thereof stayed pending appeal, or shall not have been discharged, vacated or reversed within sixty (60) days after the expiration of any such stay, (v) in the case of Ground Equipment, Subleases and other transfers of possession permitted under Sections 4.3 and 4.5 hereof, (vi) in the case of Acquired Slots, the Prior Third Party Licenses, Third Party Licenses and Slot Trades, (vii) executory contracts for sale or lease by the Company of any Ground Equipment or Acquired Slots under which consummation of such sale or lease, or delivery of such Ground Equipment or Acquired Slots is conditioned on release of such Ground Equipment or Acquired Slots from this Pledge Agreement or the Slot Trust, (viii) in the case of Ground Equipment, the right of any Person other than the Company to claim a portion of the insurance proceeds received or receivable by the Collateral Agent as a result of an Event of Loss, (ix) in the case of Ground Equipment or the Beneficial Interest or Pledged Stock (to the extent the Beneficial Interest or Pledged Stock constitutes a general intangible under the New York Uniform Commercial Code as in effect from time to time), other non-consensual Liens that do not secure Indebtedness which in the aggregate exceeds one percent (1%) of the aggregate principal amount of the Securities at the time Outstanding, and (x) with respect to Ground Equipment, Senior Security Interests. (b) Permitted Contests. If no Event of Default shall be continuing, the ------------------ Company shall not be required, nor shall the Collateral Agent have the right, without prior agreement of the Company, to discharge or remove, as the case may be, any Lien on or against the whole or any part of any Collateral or the Acquired Slots, the discharge or removal of which would otherwise be required by the terms of this Pledge Agreement, the Slot Trust or the Master Sub-License Agreement, or to comply with any legal requirements, compliance with which would otherwise be required by this Pledge Agreement, or to pay any charge or other amount the Company may be obligated to pay to any Person pursuant to this Pledge Agreement other than an indemnification payment to a Person entitled to such indemnification pursuant to the terms of Section 4.7 hereof, so long as the Company shall at its own expense contest the existence, amount, applicability, extent or validity thereof in good faith by an appropriate proceeding timely instituted, which, in the case of any Lien so contested, shall operate to prevent the collection or satisfaction of such Lien, and, in all cases in which the sale or forfeiture of the whole or any part of such Collateral or the Acquired Slots shall be at issue, shall operate to prevent such sale or forfeiture; provided, however, that such proceeding presents no material danger -------- ------- of the sale, forfeiture or loss of any Collateral or Acquired Slot which has not been provided for by the Company giving such security as may be required in the proceeding; and, provided, further, that neither the Collateral Agent, the -------- ------- Indenture Trustee nor the Slot Trustee (as fiduciaries or in their individual capacities) nor any holder of Securities would be in any danger of criminal liability, or any other liability or obligation for which no indemnification is provided hereunder, by reason of such nonpayment or noncompliance. The Collateral Agent hereby agrees to execute and deliver at the Company's expense such documents, including 13 powers of attorney, as the Company may reasonably request in order that the Company shall be enabled effectively to conduct any such proceeding. Section 4.10. Warranty of Title. The Company warrants that as of the date ----------------- of delivery of this Pledge Agreement it is the legal and beneficial owner of the Collateral (excluding any Property which may become Collateral hereafter) and has good right to mortgage or transfer, as the case may be, the same. The Company will at the time it subjects any Property to the Lien of this Pledge Agreement by supplemental agreement be the legal and beneficial owner of such Property and will have good right to mortgage the same, subject to Permitted Liens. The Company warrants that all the Collateral (except Property which may become Collateral hereafter) is, and at the time the Company subjects any Property acquired hereafter to the Lien of this Pledge Agreement by supplemental agreement, the Property so subjected will be, free and clear of all Liens, except Permitted Liens. The Company will, at or before the time it subjects any Property to the Lien of this Pledge Agreement, cause evidence of its title to be duly recorded, filed, or filed for recording, to the extent required under any applicable law, by the Company as owner. The Company will at all times defend and protect its title to the Collateral, against the enforcement against such Collateral of all claims, Liens, penalties and rights asserted by any and all parties whatsoever other than holders of Senior Security Interests. Section 4.11. Actions Regarding the Beneficial Interest Certificates. ------------------------------------------------------ (a) The Collateral Agent shall be entitled to exercise any and all voting and consensual rights and powers relating or pertaining to the Beneficial Interest Certificate or any part thereof, subject to Section 9.1 of the Acquired Slot Trust Agreement. (b) All distributions with respect to the Beneficial Interest Certificate shall be paid directly to and shall be retained by the Collateral Agent subject to the Lien of this Pledge Agreement. (c) The Company will take all action necessary or appropriate to cause the Collateral Agent to obtain the benefit of the provisions in clauses (a) and (b) above and if any payments or distributions on the Beneficial Interest Certificate are made to the Company, the Company will immediately deliver the same to the Collateral Agent. (d) The Beneficial Interest Certificate delivered to the Collateral Agent on the date hereof shall be accompanied by an irrevocable stock power or powers (or trust equivalent) executed by the Company and the Company further agrees to execute any and all additional documents and instruments deemed necessary or appropriate by the Collateral Agent to facilitate the Collateral Agent's exercise of remedies pursuant to the terms of this Pledge Agreement; provided, however, that unless and until there shall occur an acceleration of the obligations of the Company under the Securities and the Indenture, the Company shall continue to be the 14 holder of record of the Beneficial Interest and the Beneficial Interest Certificate on the books of the Slot Trust. Section 4.12. Reports Regarding Collateral. ---------------------------- (a) The Company shall deliver to the Indenture Trustee and the Collateral Agent (a) on the Issue Date (as of the last day of the preceding month) and (b) as of the last day of each month thereafter (within 20 days of the end of each such month) (i) an inventory of Ground Equipment describing the Adjusted Cost thereof. The Company shall promptly respond to any request of the Collateral Agent for an explanation concerning any discrepancies or changes in values reflected in such reports. (b) If (i) within fifteen (15) days after the delivery of a Company Appraiser's Certificate for purposes of satisfying the Substitution Requirements, the Indenture Trustee gives notice that it desires to have a Trustee Appraiser redetermine the matters set forth in such Company Appraiser's Certificate, and (ii) a Trustee Appraiser delivers to the Company, the Indenture Trustee and the Collateral Agent an Independent Appraiser's Certificate as to such matters signed by such Trustee Appraiser within fifteen (15) days after the date of delivery of such Indenture Trustee's notice, the Appraised Values (or Fair Market Values) of the Collateral subject to such Event of Loss or Request for release and the Permitted Substitutes evidenced by such Independent Appraiser's Certificates shall be determined as provided in the definition of Appraised Value (or Fair Market Value). If (i) within thirty (30) days after the delivery of a Company Appraiser's Certificate for purposes of establishing the Security Ratio in connection with an Event of Loss, the Indenture Trustee gives notice that it desires to have a Trustee Appraiser redetermine the matters set forth in such Company Appraiser's Certificate, and (ii) a Trustee Appraiser delivers to the Company, the Indenture Trustee and the Collateral Agent an Independent Appraiser's Certificate as to such matters signed by the Trustee Appraiser within thirty (30) days after the delivery of such Indenture Trustee's notice, the Security Ratio shall be established as provided in paragraph (a) of the Substitution Requirements. The Company and the Indenture Trustee may but shall be under no obligation to join in the appointment of a single Independent Appraiser for purposes of making any determination of Liquidation Value, Appraised Value or Fair Market Value or establishing the Security Ratio, and if they do so, the resulting determination of the Independent Appraiser so selected shall be delivered to the Company, the Indenture Trustee and the Collateral Agent at such time as the Company, the Indenture Trustee and the Collateral Agent shall agree and shall be final and binding upon all parties. Section 4.13. Senior Security Agreements. The Company will at all times -------------------------- comply in all material respects with all covenants, conditions, warranties, representations, restrictions and requirements of all Senior Security Agreements. No waiver or amendment in respect of any material provision of or default under any Senior Security Agreement shall be permitted if the effect thereof is to create, or to continue in full force and effect without any default, remaining terms and provisions which, if they were the terms and provisions of a new agreement altering or replacing such Senior Security Agreement, would fail to satisfy the requirements of clause (e)(ii) (in all cases) 15 and of clause (c) or (e)(i) (whichever applies in the case of the applicable Senior Security Agreement) of the definition of Qualified Senior Financing Agreement for such agreement to become a Qualified Senior Financing Agreement replacing such Senior Security Agreement, or would otherwise cause such Senior Security Agreement to fail to comply with the requirements for Qualified Senior Financing Agreements. No provision of the Indenture, this Pledge Agreement or any of the other Operative Documents purporting to authorize or permit the Company to take or omit to take any action shall authorize or permit any action or omission which is not authorized or permitted by the Senior Security Agreements. The Indebtedness of the Company secured by each Senior Security Agreement shall be secured by a Lien on Collateral (including Property becoming a Permitted Substitute) exclusively, and at no time while any Collateral is subject thereto is or shall be secured by any Property which is not Collateral except (i) cash or investment securities, (ii) Property being contemporaneously subjected to the Lien of the Pledge Agreement as additional Collateral, or (iii) other Property if and to the extent that the Company, the Collateral Agent (with the approval of the Required Holders) and the holders of the applicable Senior Obligations shall agree to provisions giving the Collateral Agent appropriate rights to such other Property in the event the holder of such Senior Obligations shall realize upon the Collateral. Section 4.14. LAX Co. The Company represents and covenants as follows: ------ (a) LAX Co. is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with all necessary corporate power and authority to own, lease and operate its properties, and to conduct its business. The Company agrees that it will not authorize the amendment of the Articles of Incorporation or By-laws of LAX Co. without the written consent of the Collateral Agent. (b) All of the shares of capital stock of LAX Co. described in Schedule 1 hereto constituting the Pledged Stock are duly authorized and validly issued, fully paid and non-assessable. The Company is the sole legal and beneficial owner of the Pledged Stock of LAX Co., free and clear of all Liens or options except for the Liens granted pursuant to this Pledge Agreement. The Company will not permit LAX Co. to issue additional shares of capital stock unless the certificates representing such shares are simultaneously delivered to the Collateral Agent and shall constitute Pledged Stock hereunder. The certificates for the Pledged Stock of LAX Co. have been delivered to the Collateral Agent accompanied by undated stock powers duly endorsed in blank and a copy of a certificate of resolutions of the Company's Board of Directors authorizing transfer of the Pledged Stock of LAX Co. in accordance with such stock powers. (c) Simultaneously with the execution and delivery of this Pledge Agreement, the Company shall deliver to the Collateral Agent the following, in form and substance reasonably satisfactory to the Collateral Agent: 16 (i) a Secretary's Certificate, dated the date hereof, certifying that copies of LAX Co.'s Certificate of Incorporation and By-Laws attached thereto are true and complete and in full force and effect, without amendment, and that the Ground Lease, the Facilities Lease, the Facilities Sublease and the Company Subleases in the form attached thereto are true and complete and in full force and effect, with no event of default existing thereunder, and that LAX Co. has not theretofore sold, assigned, transferred or otherwise disposed of any right, title or interest in, to or under the Ground Lease, the Facilities Lease, the Facilities Sublease, or the Company Subleases; and (ii) an Officers' Certificate dated the date hereof certifying that the Ground Lease, the Facilities Sublease and the Company Subleases constitute the legal, valid and binding obligations of LAX Co., enforceable in accordance with their respective terms (subject to any applicable bankruptcy, reorganization, moratorium or other laws or principles of equity relating to the Company affecting the enforcement of creditor rights generally). (d) Upon the occurrence and during the continuance of an Event of Default, the Collateral Agent shall be entitled to receive, and the Company shall deliver, or shall require LAX Co. to deliver (properly endorsed where required hereby or requested by the Collateral Agent), to the Collateral Agent: (i) all dividends, distributions, interest and other cash payments in respect of the Pledged Stock of LAX Co., all of which shall be held by the Collateral Agent as additional Collateral; and (ii) promptly upon request of the Collateral Agent from time to time, such proxies and other documents as may be necessary to allow the Collateral Agent to exercise the voting power with respect to any or all shares of Pledged Stock of LAX Co.; provided, however, that unless an Event of Default occurs and is continuing, the - -------- ------- Company shall be entitled: (A) to exercise in its reasonable judgment, the voting power and all other incidental rights of ownership with respect to any shares of Pledged Stock of LAX Co. (subject to the Company's obligation to deliver to the Collateral Agent such Pledged Stock of LAX Co. hereunder and to the other provisions of this Pledge Agreement and the rights to the Collateral Agent hereunder), provided, further, however, that no vote shall be cast, or consent, waiver or ratification given, or action taken by the Company that would impair any of LAX Co.'s rights or the Company's rights under the Ground Lease or the Facilities Lease or be inconsistent with or violate any provision of this Pledge Agreement or any Inducement Agreement, and (B) to the prompt receipt of all dividends and other distributions with respect to the Pledged Stock of LAX Co. 17 (e) Previously, (i) the Company assigned to LAX Co. all of its rights under the Ground Lease pursuant to an Assumption and Assignment Agreement and subleased to LAX Co. the premises described in the Facilities Lease pursuant to a sublease (the "Facilities Sublease"), and (ii) LAX Co. subleased the premises described in the Ground Lease to the Company pursuant to a sublease (the "Ground Sublease"), and sub-subleased the premises described in the Facilities Lease to the Company pursuant to a Sub-Sublease (the "Facilities Sub-Sublease"). LAX Co. holds all rights under the Ground Lease, subject only to the rights of the City of Los Angeles under the Ground Lease and to the rights of the Company under the Ground Sublease. LAX Co. holds all rights as subtenant under the Facilities Sublease subject only to the rights of the RAIC and the RAIC Bond Trustee under the Facilities Lease and the RAIC Indenture and to the rights of the Company as sublandlord under the Facilities Sublease and as sub-subtenant under the Facilities Sub-Sublease. The Company will, or will cause LAX Co. to and LAX Co. will, or the Company and LAX Co. together will: (i) maintain the Ground Lease, the Facilities Lease and the Facilities Sublease in effect, (ii) not agree to any amendment, modification or termination of the Ground Lease, the Facilities Lease or the Facilities Sublease having any material adverse effect upon their value and benefit to LAX Co. or that otherwise is materially adverse to the interests of the Holders, so long as any Securities remain outstanding and (iii) comply with all covenants under the Ground Lease, the Facilities Lease and the Facilities Sublease, provided, however, that the Facilities Lease may be terminated in accordance with its terms upon the payment in full of the RAIC Bonds and the satisfaction of all other obligations under the RAIC Indenture. The Company shall and shall cause LAX Co. to send to the Collateral Agent copies of all notices of default received or sent by it in respect of defaults and events of default under the Ground Lease and the Facilities Lease and the Collateral Agent shall have the right to cure any such default or event of default, but shall be under no obligation to do so. (f) The Ground Sublease and the Facilities Sub-Sublease described in Section 4.13(e) (collectively the "Company Subleases") provide for the payment by the Company to LAX Co. of periodic cash rentals reflecting no less than the fair market rental value of the Ground Facilities subject thereto for the term of the Company Subleases, as confirmed by a Company Appraiser, but in no event less than amounts sufficient (after taking into account any revenues or other funds available to LAX Co., including, without limitation, rents and other amounts received under other subleases by LAX Co. of all or any part of the Ground Facilities) for LAX Co. to pay all of its obligations under the Ground Lease, the Facilities Sublease and any other obligations or indebtedness incurred by LAX Co., and further provide that, except to the extent otherwise required by the Ground Lease or the Facilities Lease, no rentals may be paid more than thirty (30) days in advance nor may any advance payment in lieu of rent be made and that rentals will be paid or payable in equal periodic installments and may further provide that as long as LAX Co. is wholly-owned by the Company, the Company shall not be required to pay as periodic rentals an amount in excess of the amounts sufficient (after taking into account any revenues or other funds available to LAX Co. as described above) for LAX Co. to pay all of its obligations under the Ground Lease, the Facilities Sublease and any other obligations or indebtedness incurred by LAX Co., and may further provide that at any time when LAX Co. is not wholly-owned by the Company the Company shall have the option to convert both 18 Company Subleases into month-to-month tenancies, terminable upon no more than one-month's notice, at a monthly rent equal to the fair market rental value of the Ground Facilities for such tenancies thereof, as confirmed by a Company Appraiser. Except as provided in this Section 4.13(f), the Company will, or will cause LAX Co. to and LAX Co. will, or the Company and LAX Co. together will, (i) keep the Company Subleases in effect, (ii) not amend, modify or terminate the Company Subleases in any manner having a material adverse effect upon their value and benefit to LAX Co. or that otherwise is materially adverse to the interests of the Holders, so long as any Securities remain outstanding and (iii) comply with all of its obligations thereunder, provided that nothing -------- herein limits the rights of the Collateral Agent pursuant to, or the exercise by any Gate Company of its right to terminate any Gate Sublease pursuant to any such exercise of rights by the Collateral Agent pursuant to, Section 6.1 hereof. (g) Other than pursuant to this Pledge Agreement or, to the extent incurred to date, under the Ground Lease or the Facilities Lease, the Company will not permit LAX Co. to incur, and LAX Co. will not incur, (i) any indebtedness for borrowed money except in the Ordinary Course Of Business for leasehold improvements or facility expansions (in each case for facilities leased to LAX Co. under the Ground Lease or subleased to LAX Co. under the Facilities Lease), and refinancings thereof, provided, however, that any such additional indebtedness shall not exceed the fair market value of improvements to the property of LAX Co. financed thereby, or (ii) any Liens on any of the assets of LAX Co. other than to secure the Obligations, the RAIC Bonds, or the indebtedness authorized to be incurred under the provisions of this section and other than Liens which if such assets were Ground Equipment, would be Permitted Liens other than Senior Security Interests. The Company shall cause LAX Co. to, and LAX Co. shall, maintain and retain sufficient funds to satisfy any ordinary course obligations which are not payable by the Company under the Company Subleases or by other sublessees and sufficient proceeds of insurance awards and condemnation awards to repair, rebuild or restore the Property subject to the Ground Lease and the Facilities Lease to its condition prior to any casualty or condemnation as required thereunder to prevent any termination thereof. (h) The Company will not authorize the filing of a petition in bankruptcy or reorganization under any Bankruptcy Law for or against LAX Co. nor will the Company permit LAX Co. to enter into any assignment for the benefit of creditors or receivership of all or a part of its assets. (i) LAX Co. will own no assets other than the rights under the Ground Lease and the Facilities Sublease, and assets incidental thereto, and will conduct no operations, enter into no contracts and incur no consensual obligations, other than directly relating thereto or as expressly otherwise permitted hereunder. (j) The Company will not permit LAX Co. to (i) declare or make any dividends other than (so long as no Event of Default shall have occurred and be continuing) cash dividends, or (ii) transfer or encumber any of its assets, except as provided in Section 4.13(f), provided, however, that LAX Co. (so long as no Event of Default shall have occurred or be continuing) may enter into subleases of all or a part of the Ground Facilities in the Ordinary Course Of 19 Business to entities which are not Affiliates on the following terms and conditions: (A) any such sublease shall be authorized by the Board of Directors of LAX Co. and the Company; (B) any such sublease shall require periodic cash rentals reflecting no less than the fair market rental value of the Ground Facilities subject thereto for the term of such sublease, as confirmed by an appraisal by a Company Appraiser; (C) the term of such sublease shall not exceed the term of the Ground Lease; (D) except to the extent otherwise required by the Ground Lease or the Facilities Lease, no rentals under such sublease may be paid more than thirty (30) days in advance nor may any advance payment in lieu of rent be made and all such sublease rentals will be paid or payable in equal periodic installments (subject to reasonable abatements, adjustments and credits customary in the then current rental market for such property; provided neither the Company nor LAX Co. receives any consideration for such abatements, adjustments and credits other than through payments of rentals thereunder and such abatements, adjustments or credits may not exceed 10% of the yearly net fair market rental for such property without the consent of the Collateral Agent); (E) the entry into such sublease and the terms of such sublease shall be permitted by the Ground Lease, the Facilities Lease and the Facilities Sublease and the terms of such sublease shall assure that such Ground Facilities are maintained in compliance with the Ground Lease, the Facilities Lease and the Facilities Sublease; and (F) such sublease shall neither reduce the obligations of the Company or LAX Co. under the Facilities Sublease or the Company Subleases (except to the extent the same are paid and performed by the sublessee) nor impair the ability of the Company or LAX Co. to perform its respective obligations thereunder or under this Pledge Agreement. Section 4.15. Gate Companies. The Company represents and covenants as -------------- follows: (a) Each of the Gate Companies is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with all necessary corporate power and authority to own, lease and operate its properties, and to conduct its business. The Company agrees that it will not authorize the amendment of the Articles of Incorporation or By-laws of any Gate Company without the written consent of the Collateral Agent. (b) All of the shares of capital stock of each Gate Company described in Schedule 1 hereto constituting the Pledged Stock are duly authorized and validly issued, fully paid and non-assessable. The Company is the sole legal and beneficial owner of the Pledged Stock of the Gate Companies, free and clear of all Liens or options, except for the Liens granted pursuant to this Pledge Agreement. The Company will not permit any Gate Company to issue additional shares of capital stock unless the certificates representing such shares are simultaneously delivered to the Collateral Agent and shall constitute Pledged Stock hereunder. The certificates for the Pledged Stock of the Gate Companies have been delivered to the Collateral Agent accompanied by undated stock powers duly endorsed in blank and a copy of a certificate of resolutions of the Company's Board of Directors authorizing transfer of the Pledged Stock of the Gate Companies in accordance with such stock powers. 20 (c) Simultaneously with the execution and delivery of this Pledge Agreement, the Company shall deliver to the Collateral Agent the following, in form and substance reasonably satisfactory to the Collateral Agent: (i) a Secretary's Certificate, dated the date hereof, certifying that copies of each Gate Company's Certificate of Incorporation and By-Laws attached thereto are true and complete and in full force and effect, without amendment, and that the Gate Leases, in the form attached thereto, are true and complete and in full force and effect, with no event of default existing thereunder; and (ii) an Officers' Certificate dated the date hereof certifying that the Gate Leases, constitute the legal, valid and binding obligations of the applicable Gate Company, enforceable in accordance with their respective terms (subject to any applicable bankruptcy, reorganization, moratorium or other laws or principles of equity relating to the Company affecting the enforcement of creditor rights generally), and that each Gate Company has not theretofore sold, assigned, transferred or otherwise disposed of any right, title or interest in, to or under any Gate Lease or any Gate Sublease. (d) Upon the occurrence and during the continuance of an Event of Default, the Collateral Agent shall be entitled to receive, and the Company shall deliver, or shall require each Gate Company to deliver (properly endorsed where required hereby or requested by the Collateral Agent), to the Collateral Agent: (i) all dividends, distributions, interest and other cash payments in respect of the Pledged Stock of the Gate Companies, all of which shall be held by the Collateral Agent as additional Collateral; and (ii) promptly upon request of the Collateral Agent from time to time, such proxies and other documents as may be necessary to allow the Collateral Agent to exercise the voting power with respect to any or all shares of Pledged Stock of the Gate Companies; provided, however, that unless an Event of Default occurs and is continuing, the - -------- ------- Company shall be entitled: (A) to exercise in its reasonable judgment, the voting power and all other incidental rights of ownership with respect to any shares of Pledged Stock of the Gate Companies (subject to the Company's obligation to deliver to the Collateral Agent such Pledged Stock of the Gate Companies hereunder and to the other provisions of this Pledge Agreement and the rights to the Collateral Agent hereunder), provided, further, however, that no vote shall be cast, or consent, waiver or ratification given, or action taken by the Company that would impair any of the Gate Companies' rights or the Company's rights under the Gate Leases or be inconsistent with or violate any provision of this Pledge Agreement or any Inducement Agreements, and (B) to the prompt receipt of all dividends and other distributions with respect to the Pledged Stock of the Gate Companies. 21 (e) Previously, the Company assigned to the Gate Companies all of its rights under the Gate Leases pursuant to several Assumption and Assignment Agreements and subleased the Gate Facilities back from the Gate Companies pursuant to several subleases (the "Gate Subleases"). The Company shall and shall cause each Gate Company to send to the Collateral Agent copies of all notices of default received or sent by it in respect of defaults and events of default under the Gate Leases and the Collateral Agent shall have the right to cure any such default or event of default, but shall be under no obligation to do so. The Company will, or will cause each Gate Company to, or the Company and the Gate Companies together will, (i) keep the Gate Leases and the Gate Subleases in effect (except that, with respect to any Gate Lease other than a Specified Gate Lease or any Gate Sublease other than one relating to a Specified Gate Lease, so long as no Event of Default shall have occurred and be continuing and in the Ordinary Course Of Business, the Company and/or the relevant Gate Company may fail to do so), (ii) not amend, modify or terminate any Gate Lease or Gate Sublease in any manner having a material adverse effect on their value and benefit to the Gate Companies or that is otherwise materially adverse to the interests of the holders of the Securities, so long as any Securities remain outstanding (except that, with respect to any Gate Lease other than a Specified Gate Lease or any Gate Sublease other than one relating to a Specified Gate Lease, so long as no Event of Default shall have occurred and be continuing and in the Ordinary Course Of Business, the Company and/or the relevant Gate Company may amend, modifiy or terminate said Gate Lease or Gate Sublease), and (iii) comply with all of its obligations under the Gate Leases and the Gate Subleases (provided that nothing in this Section 4.1(e) (x) limits the right of the Company to transfer or sublease any Gate Lease to the extent permitted by Section 4.15(i) or (y) limits the rights of the Collateral Agent pursuant to, or the exercise by any Gate Company of its rights to terminate any Gate Sublease pursuant to any such exercise of rights by the Collateral Agent pursuant to, Section 6.1 hereof). (f) Other than pursuant to this Pledge Agreement or, to the extent incurred to date, under the Gate Leases, the Company will not permit any Gate Company to incur, and each Gate Company will not incur, (i) any indebtedness for borrowed money except in the Ordinary Course Of Business for leasehold improvements or facility expansions, and refinancings thereof (in each case for facilities leased to such Gate Company under its Gate Lease), provided, however, that any such additional indebtedness shall not exceed the fair market value of improvements to the property of the Gate Company financed thereby, or (ii) any Liens on any of the assets of such Gate Company, other than to secure the Obligations, or the indebtedness authorized to be incurred under the provisions of this section and other than Liens which if such assets were Ground Equipment, would be Permitted Liens other than Senior Security Interests. The Company shall cause each Gate Company to, and each Gate Company shall, maintain and retain sufficient funds to satisfy any ordinary course obligations which are not payable by the Company under the Gate Subleases, or by other subleases and sufficient proceeds of insurance awards and condemnation awards to repair, rebuild or restore the Property subject to the Gate Leases to its condition prior to any casualty or condemnation as required thereunder to prevent any termination thereof. 22 (g) The Company will not authorize the filing of a petition in bankruptcy or reorganization under any Bankruptcy Law for or against any Gate Company nor will the Company permit any Gate Company to enter into any assignment for the benefit of creditors or receivership of all or a part of its assets. (h) No Gate Company will own assets other than the rights under the Gate Leases and Gate Subleases with respect thereto, and assets incidental thereto and will conduct no operations, enter into no contracts and incur no consensual obligations other than directly relating thereto or as otherwise permitted hereunder. (i) The Company will not permit the Gate Companies to (i) declare or make any dividends other than (so long as no Event of Default shall have occurred and be continuing) cash dividends, or (ii) to transfer or encumber any of their assets, except as provided in Section 4.14(f), provided, however, that, so long -------- ------- as no Event of Default shall have occurred or be continuing, each Gate Company (1) may transfer any of their assets (other than the Specified Gate Leases) in the Ordinary Course Of Business to entities which are not Affiliates, and (2) may enter into subleases of all or a part of the Gate Facilities in the Ordinary Course Of Business to entities which are not Affiliates provided, that any such -------- subleases with respect to any of the Specified Gate Leases also must meet the following terms and conditions: (A) any such sublease shall be authorized by the Board of Directors of the applicable Gate Company and the Company; (B) such sublease shall not materially impair the ability of the Company or the applicable Gate Company to perform its respective obligations thereunder or under this Pledge Agreement; (C) any such sublease shall require periodic cash rentals reflecting no less than the fair market rental value of the Gate Facilities subject thereto for the term of such sublease, as confirmed by an appraisal by a Company Appraiser; (D) the term of such sublease shall not exceed the term of the Gate Lease; (E) except to the extent otherwise required by the Gate Lease, no rentals under such sublease may be paid more than thirty (30) days in advance nor may any advance payment in lieu of rent be made and all such sublease rentals will be paid or payable in equal periodic installments (subject to reasonable abatements, adjustments and credits customary in the then current rental market for such property; provided neither the Company nor the applicable Gate Company receives any consideration for such abatements, adjustments and credits other than through payments of rentals thereunder and such abatements, adjustments or credits may not exceed 10% of the yearly net fair market rental for such property without the consent of the Collateral Agent); (F) the entry into such sublease and the terms of such sublease shall be permitted by the relevant Gate Lease and the terms of such sublease shall assure that such Gate Facilities are maintained in compliance with the applicable Gate Lease; and (G) such sublease shall neither reduce the obligations of the Company or the applicable Gate Company under the applicable Gate Sublease (except to the extent the same are paid and performed by the sublessee) nor impair the ability of the Company or the applicable Gate Company to perform its respective obligations thereunder or under this Pledge Agreement. 23 ARTICLE 5. INSURANCE Section 5.1. Insurance to Be Carried. ----------------------- (a) The Company will at all times carry and maintain, at its own expense, with responsible insurers valid and collectible insurance (subject to deductibles and self-insurance consistent with the Company's current practices as of the date hereof) on the Ground Equipment. All insurance required hereunder shall be of such type as is customarily carried by corporations engaged in the same or a similar business, similarly situated with the Company, and owning and operating similar Property and shall be placed with responsible insurance companies, underwriters or funds. (b) Without limiting anything set forth in this Article 5: (i) all liability policies shall: (A) be primary without right of contribution from any other insurance carried by the Collateral Agent, and (B) name the Collateral Agent as additional insured under a standard mortgagee clause, provided that the inclusion of more than one insured shall not operate to increase the insurer's limit of liability or to avoid the coverage of an insured as respects claims against said insured by the other insured or the employees of such other insured; and (ii) all policies (other than liability policies) required hereunder covering loss or damage to any Collateral shall name the Collateral Agent as loss payee under a standard mortgagee clause and shall provide that proceeds payable under such policies shall be paid exclusively to the Collateral Agent as loss payee. Section 5.2. Alteration of Insurance. All policies (other than war-risk ----------------------- policies) required by Section 5.1 hereof shall provide for not less than thirty (30) days' prior written notice to the Collateral Agent before any material alteration which adversely affects the interests of the Collateral Agent, or cancellation of the insurance evidenced thereby, shall be effective as to the Collateral Agent, or if it is not commercially possible at the time to obtain the notice specified above, shall provide for as long a period of prior notice as shall then be commercially possible to obtain (it being understood that in the case of cancellation for non-payment of premium, ten (10) days prior notice is the longest notice commercially possible to obtain on the date hereof). Section 5.3. Additional Insurance. Nothing contained herein shall -------------------- prevent the Company from carrying additional insurance in excess of that required hereunder in respect of any Collateral at its own expense. Section 5.4. Insurance Certificates. On or prior to the date of this ---------------------- Pledge Agreement and annually on or before the anniversary date of such insurance policy, the Company will 24 furnish to the Collateral Agent a certificate from the Company's independent insurance broker describing in reasonable detail the insurance then carried and maintained on the Collateral. Section 5.5. Proceeds of Insurance. --------------------- (a) So long as no Event of Default has occurred and is continuing, all proceeds of insurance required hereby which are received by the Collateral Agent or the Company as the result of the occurrence of an Event of Loss with respect to any Collateral shall be immediately paid over to or retained by the Company, provided that the Company has fully complied with the terms of Section 4.4 and has made all payments then due and required to be made by the Company under the Indenture, and otherwise shall be paid over to or retained by the Collateral Agent to be held as Temporary Cash Collateral or, if the Company so notifies the Collateral Agent at any time, Cash Collateral hereunder. (b) So long as no Event of Default has occurred and is continuing, all proceeds of insurance required hereby which are received by the Collateral Agent or the Company as the result of any property damage or loss to any Collateral not constituting an Event of Loss will be immediately applied in payment for repair (whether such payment be for repair or partial repair already made or for advance payments or deposits requested by the person mailing such repair) or replacement in accordance with the terms of Section 4.3, if not already paid for by the Company, or, if already paid for by the Company, will be immediately applied to reimburse the Company for such payment, and any balance remaining after such application or payment shall be immediately paid over to or retained by the Company. (c) All proceeds of insurance required hereby which are received by the Collateral Agent or the Company as a result of any property damage or loss to ground equipment, or other Property, not constituting Ground Equipment or other Collateral shall be immediately paid over to or retained by the Company. (d) All proceeds of insurance received by the Collateral Agent hereunder and not then required to be paid over to the Company shall be held by the Collateral Agent as Temporary Cash Collateral hereunder or, if the Company so notifies the Collateral Agent at any time, Cash Collateral. ARTICLE 6. REMEDIES Section 6.1. Remedies. In case of the happening and during the -------- continuance of any Event of Default (as applied to the Non-Slot Collateral) and upon the acceleration of the obligations of the Company under the Securities and the Indenture (as applied to the Slot Collateral) and so long as such Event of Default shall not have been cured or waived and/or such acceleration shall not have been rescinded, as the case may be, the Collateral Agent may transfer to or register in its name (or any of its nominees) as Collateral Agent the Beneficial Interest Certificate and any Pledged Stock and may take possession of the Collateral or any part or the 25 whole of any type of the Collateral, and may by its agents enter upon the premises of the Company or of any sublessee where any part or the whole of such type of the Collateral may be and take possession of any part or the whole of such type of the Collateral and withdraw the same from said premises, retaining all payments which up to that time may have been made on account of such type of the Collateral and otherwise, and shall be entitled to collect, receive and retain all unpaid charges of any kind earned by such type of the Collateral or any part thereof, and may lease such portion of the Collateral or any part thereof, or with or without retaking possession thereof sell the same or any part thereof, free from any and all claims of the Company at law or in equity, in one lot and as an entirety or in separate lots, insofar as may be necessary to perform and fulfill the Obligations, at public or private sale with or without advertisement, for cash or upon credit, in its discretion, and may proceed otherwise to enforce its rights and the rights of the Holders of Securities in the manner herein provided. Upon any such sale, the Collateral Agent itself may bid for the Property offered for sale or any part thereof. Any such sale may be held or conducted at such place and at such time as the Collateral Agent may specify, or as may be required by law, and without gathering at the place of sale the Collateral to be sold, and in general in such manner as the Collateral Agent may determine, but so that the Company may and shall have a reasonable opportunity to bid at any such sale. Subject to the second paragraph of Section 6.2 hereof and to Section 6.3 hereof, upon such taking possession or withdrawal or lease or sale of part or the whole of such type of the Collateral, the Company shall cease to have any rights or remedies in respect of such type of the Collateral hereunder, but all such rights and remedies shall be deemed thenceforth to have been waived and surrendered by the Company, and no payments theretofore made by the Company for the rent or use of such type of the Collateral shall, in case of the happening of any Event of Default and such taking possession, withdrawal, lease or sale by the Collateral Agent, give to the Company any legal or equitable interest or title in or to such type of the Collateral or any part of it or any cause or right of action at law or in equity in respect of such type of the Collateral against the Collateral Agent or the Holders of Securities. No such taking possession, withdrawal, lease or sale of such type of the Collateral by the Collateral Agent and no omission of or delay in taking any such action shall be a bar to the recovery by the Collateral Agent from the Company of the Obligations and the Collateral Agent may sue for and collect, and the Company shall be and remain liable for, the Obligations until such sums shall have been realized as, with the proceeds of the lease or sale of such portion of the Collateral, if any, shall be sufficient for the discharge of all of the Obligations whether or not they shall have then matured. The Company hereby expressly waives any and all claims against the Collateral Agent and its agent or agents for damages of whatever nature in connection with any retaking of Collateral in any commercially reasonable manner. Upon any sale of the Collateral pursuant to this Section 6.1, whether made under the power of sale hereby given or pursuant to judicial proceedings, to the extent permitted by law: A. the principal of and accrued interest on all Outstanding Securities, if not previously due, shall at once become and be immediately due and payable; 26 B. the Collateral Agent may make and deliver to the purchaser or purchasers a good and sufficient deed, bill of sale and instrument of assignment and transfer of the property sold; and C. the Collateral Agent is hereby irrevocably appointed the true and lawful attorney of the Company, in its name and stead, to make all necessary deeds, bills of sale and instruments of assignment and transfer of the property thus sold; and for that purpose it may execute all necessary deeds, bills of sale and instruments of assignment and transfer, and may substitute one or more persons, firms or corporations with like power, the Company hereby ratifying and confirming all that its said attorney or such substitute or substitutes shall lawfully do by virtue hereof; but if so requested by the Trustee or by any purchaser, the Company shall ratify and confirm any such sale or transfer by executing and delivering to the Trustee or to such purchaser or purchasers all proper deeds, bills of sale, instruments of assignment and transfer and releases as may be designated in any such request. In the case of the happening and during the continuance of any Event of Default, the Collateral Agent (or its nominees) shall be entitled to exercise any and all voting and consensual rights and powers relating or pertaining to the Pledged Stock or any part thereof. Section 6.2. Application of Proceeds. If, in the case of the happening ----------------------- of any Event of Default or acceleration, the Collateral Agent shall exercise any of the powers conferred upon it by Section 6.1 hereof, all payments made by the Company to the Collateral Agent hereunder after such Event of Default, and the proceeds of any judgment collected by the Collateral Agent hereunder, and (subject to the rights of the holders of any Senior Security Interests therein) the proceeds of every sale or lease by the Collateral Agent hereunder of any part or the whole of the Collateral, together with any other sums which may then be held by the Collateral Agent under any of the provisions hereof, shall be applied by the Collateral Agent in the manner set forth in Section 6.10 of the Indenture. After all such payments shall have been made in full, the title to any part or the whole of the Collateral remaining unsold shall be conveyed by the Collateral Agent to the Company or its named designee free from any further liabilities or obligations to the Collateral Agent hereunder. If after applying all such sums of money realized by the Collateral Agent as aforesaid there shall remain any amount due to the Collateral Agent under the provisions hereof, the Company agrees to pay the amount of such deficit to the Collateral Agent. Section 6.3. Obligations of Company Not Affected by Remedies. No ----------------------------------------------- retaking of possession of part or the whole of the Collateral by the Collateral Agent, nor any withdrawal, lease or sale thereof, nor any action or failure or omission to act against the Company or in respect of the Collateral, on the part of the Collateral Agent or on the part of the Holder of any Securities, nor any delay or indulgence granted to the Company by the Collateral Agent or by any such Holder, shall affect the obligations of the Company hereunder. The Collateral Agent may at any time upon notice in writing to the Company, apply to any court of competent jurisdiction for instructions as to the application and distribution of the property held by it. 27 Section 6.4. Remedies Cumulative and Subject to Applicable Law. No ------------------------------------------------- right, power or remedy herein conferred upon or reserved to the Collateral Agent, the Indenture Trustee and the Slot Trustee and/or the Holders of the Securities is intended to be exclusive of any other right, power or remedy conferred upon or reserved to any one or more of them and every right, power and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right, power and remedy given hereunder or under the Indenture or the other Operative Documents or now or hereafter existing at law or in equity or otherwise (including without limitation under the Uniform Commercial Code as in effect in any applicable jurisdiction) and may be exercised from time to time and as often and in such order as may be deemed expedient by the Collateral Agent, the Indenture Trustee, the Slot Trustee and/or the Holders of the Securities. The exercise by any of them of any right, power or remedy shall not be construed as a waiver of the right of any of them to exercise at the same time or thereafter any other right, power or remedy, nor as an election precluding exercise at the same time or thereafter of any alternative right, power or remedy. The exercise of any right, power or remedy shall be subject to applicable law. Section 6.5. Subordination to Senior Security Interests. Notwithstanding ------------------------------------------ any provisions of this Article 6, or any other Section of this Pledge Agreement or any other Operative Document to the contrary, the lien and the security interest granted hereby upon any Collateral which secures the payment of any Senior Obligations shall be subject and subordinate to the respective Senior Security Interests having a Lien therein, and neither the Collateral Agent nor any of the Holders of the Securities shall be entitled to foreclose upon, take possession of or terminate the Company's interest in respect of such Collateral, or apply such Collateral or any portion thereof, including any Proceeds of any sale or other remedy hereunder, to the payment of any principal or interest on the Obligations, unless the Senior Obligations which are secured by such Collateral are paid in full. The foregoing shall in no way limit or restrict the right of the Collateral Agent or the Holders to accelerate the indebtedness of the Company under the Securities and to take any and all actions which they determine to be necessary or appropriate to collect such indebtedness from assets and properties of the Company, other than the Collateral then subject to such Senior Security Interests, and to protect and preserve the Lien granted hereby in and to such Collateral and the Proceeds thereof as a junior and subordinate lien and security interest subject only to the respective prior Liens of the Senior Security Interests on the Collateral securing payment of the respective Senior Obligations, and to exercise any and all rights and remedies against and seek to collect such indebtedness from any such Collateral (subject to all other provisions of the Indenture and Operative Documents) after the Senior Obligations secured thereby are paid in full. The Collateral Agent shall not be deemed to have consented to any release, substitution, sale, revocation, condemnation, seizure, alteration, modification, amendment, suspension or other disposition of the Collateral securing such Senior Obligations unless the Collateral Agent shall have received a certificate from the Company to the effect that the Company has complied with all applicable provisions of the Operative Documents in connection therewith. The Collateral Agent shall not be entitled to foreclose upon, take possession of or terminate the 28 Company's interest in any Collateral subject to a Senior Security Interest. At such time as any Senior Obligation is paid in full, and such holder of a Senior Security Interest releases its security interest and Lien on any such Collateral (subject to all other provisions of the Indenture and Operative Documents): the Lien granted hereby to the Collateral Agent shall automatically become a first priority Lien, subject only to the other Permitted Liens, upon the released Collateral; the Collateral Agent, as secured party hereunder, is and automatically shall be entitled to all consent and approval rights of the releasing holder of the Senior Security Interest granted in and afforded by the provisions of the appropriate Senior Security Agreement regarding the substitution, sale, release, revocation, condemnation, seizure, alteration, modification, amendment, suspension or other disposition of the Collateral released by the holder of such Senior Security Interest; and the Company shall take prompt action under Sections 4.01 and 4.06 to confirm, preserve or effectuate the rights provided by this Section. Section 6.6. Senior Security Interests. The Company acknowledges and ------------------------- agrees that Sections 4.13 and 6.5 and all other provisions hereof and of the Indenture and other Operative Documents relating to Senior Obligations, Qualified Senior Financing Agreements, Senior Security Interests and Senior Security Agreements (the "Senior Security Provisions") are included herein and therein as a convenience in the event that the Required Holders consent to a Senior Security Interest, and that until and unless and to the extent the Required Holders so consent, the Senior Security Provisions shall have no effect. The Company shall not enter into any Senior Security Agreement, or create or permit to be created any Senior Security Interest, without the prior written consent of the Required Holders, which consent may be withheld by the Required Holders in their sole and absolute discretion. In soliciting the consent of the Required Holders to the creation of a Senior Security Interest, the Company will make fair and adequate disclosure to the Holders of the Senior Security Provisions. ARTICLE 7. TERMINATION Section 7.1. Termination. The Company agrees that this is a continuing ----------- agreement and shall remain in full force and effect until the earlier of (i) the Company pays in full and performs all of its Obligations hereunder and under the Securities, and (ii) (x) the occurrence of the Indenture Discharge Date and (y) the payment of all Obligations then due and payable, at which time the Collateral Agent shall have no further interest in and to the Collateral or the Slot Trust Assets, and will at the Company's expense release all of the Collateral Agent's interest in and to the Collateral and the Slot Trust Assets, including any cash and/or Investment Securities held in accordance with the terms of this Pledge Agreement and/or the Master Sub-License Agreement. 29 ARTICLE 8. COLLATERAL AGENT Section 8.1. Duties of Collateral Agent. -------------------------- The Collateral Agent has been appointed as Collateral Agent hereunder. The Collateral Agent shall be obligated, and shall have the right hereunder to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking action (including, without limitation, the release of Collateral or the substitution of Permitted Substitutes) solely in accordance with this Pledge Agreement and the Indenture. The Collateral Agent may resign and a successor Collateral Agent may be appointed in the manner provided for a successor Trustee in the Indenture. Upon the acceptance of any appointment as a Collateral Agent by a successor Collateral Agent, that successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent under this Pledge Agreement, and the retiring Collateral Agent shall thereupon be discharged from its duties and obligations under this Pledge Agreement. After any retiring Collateral Agent's resignation, the provisions of this Pledge Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Pledge Agreement while it was Collateral Agent. The Collateral Agent agrees to and shall have the benefit of all provisions of the Indenture and the Operative Documents stated therein to be applicable to the Collateral Agent. ARTICLE 9. MISCELLANEOUS Section 9.1. Benefits of Agreement Restricted. Subject to the provisions -------------------------------- of Section 9.10 hereof, nothing in this Pledge Agreement or the Securities, express or implied, shall give or be construed to give to any Person, other than the parties hereto and the Holders of the Securities, any legal or equitable right, remedy or claim under or in respect of this Pledge Agreement or under any covenant, condition or provision herein contained, all such covenants, conditions and provisions, subject to Section 9.10 hereof, being for the sole benefit of the parties hereto and the Holders of the Securities. Section 9.2. Funds May Be Held by the Collateral Agent; Investments in --------------------------------------------------------- Investment Securities. - --------------------- (a) (i) Subject to the provisions of Section 9.2(b), any money at any time paid to or held by the Collateral Agent hereunder until paid out by the Collateral Agent as herein provided may be carried by the Collateral Agent on deposit with itself, or on deposit or invested with one or more banks or investment banking or brokerage institutions acting on its behalf, and the Collateral Agent shall not have any liability for interest upon any such money except as otherwise agreed with the Company. (ii) At any time and from time to time, if no Event of Default shall have occurred and be continuing and subject to Section 9.2(b), the Collateral Agent shall invest and 30 reinvest any funds held by it in Investment Securities to be held by the Collateral Agent in trust for the benefit of the Holders of the Securities. Any such investments may be made by the Collateral Agent through its own bond or investment department, or through one or more banks or investment banking or brokerage institutions acting on its behalf. (iii) Funds held in trust for the benefit of the Holders of the Securities by the Collateral Agent on deposit with itself or elsewhere, Investment Securities held in trust for the benefit of the Holders of the Securities, funds and/or Investment Securities held for the Company by the Collateral Agent, and funds or Investment Securities held under Section 9.2(b) shall each be held in distinct, identifiable accounts, and no other funds or investments of any nature or from any source whatsoever may be held in such accounts. (iv) The Collateral Agent shall sell any Investment Securities held by it and retain the proceeds of such a sale as Collateral hereunder. (v) The Collateral Agent shall retain, for the benefit of the Holders of the Securities, (a) any interest earned on deposits carried pursuant to the first paragraph of this Section 9.2(a), and (b) any interest (other than accrued interest paid for at the time of purchase of an investment) or other profit which may accrue upon, or be realized from any sale or redemption of, Investment Securities. (b) Notwithstanding the foregoing and so long as no Event of Default shall have occurred and be continuing, any funds or Investment Securities held by the Collateral Agent as Temporary Cash Collateral shall be held for the benefit of the Holders of the Securities and shall be invested and reinvested by the Collateral Agent in Investment Securities as specified in a Request. Any such investments may be made by the Collateral Agent through its own bond or investment department, or through one or more banks or investment banking or brokerage institutions acting on its behalf if specified in such Request. No later than six (6) months after the Event of Loss or proposed release occasioning the deposit with the Collateral Agent of such Temporary Cash Collateral, if no Event of Default shall have occurred and be continuing and upon satisfaction by the Company of the applicable Substitution Requirements, the Collateral Agent shall return to the Company Temporary Cash Collateral in an amount equal to the entire amount of the related deposit, plus or minus any net earnings or loss thereon during the time it was held as Temporary Cash Collateral, or, if the Appraised Value of the Ground Equipment or Slots being substituted for such Temporary Cash Collateral (determined under paragraph (f)(ii) of the Substitution Requirements) is less than the Appraised Value of the Ground Equipment, Acquired Slots or Pledged Stock on account of whose loss, sale or deemed sale such Temporary Cash Collateral was furnished (determined under paragraph (a)(ii)(C), (b)(ii) or (f)(ii) of the Substitution Requirements), in an amount equal to such portion of such deposit, plus or minus such net earnings or loss, as is allocable to such lesser Appraised Value. If an Event of Default shall have occurred and be continuing or six (6) months shall have elapsed since the date of such Event of Loss or release, such Temporary Cash Collateral shall cease to be such and shall be held by the Collateral Agent for the benefit of the Holders of the Securities under Section 9.2(a). 31 (c) All Investment Securities shall be issued in the name of the Collateral Agent and held by it, or, if not so held, the Collateral Agent shall be reflected as the owner of, or secured party in respect of, such Investment Securities in the register of the issuer of such Investment Securities. In no event shall the Collateral Agent invest in, or hold, Investment Securities in a manner which would cause the Collateral Agent not to have a Lien on, and first priority perfected security interest in, such Investment Securities under the applicable provisions of the Uniform Commercial Code in effect where the Collateral Agent holds such Investment Securities, or if not held by it, in effect where the registrar is located, or other applicable law then in effect, and in no event shall the Collateral Agent hold cash other than in a manner which would cause the Collateral Agent to have a Lien on, and first priority perfected security interest in, such cash. (d) The Collateral Agent shall deliver to the Company within five (5) Business Days after December 31 of each year a statement which sets forth the amount of cash and/or Investment Securities held by the Collateral Agent and, with respect to Investment Securities, a schedule identifying each Investment Security and the face or principal amount thereof. (e) If the Company elects to repurchase the Securities, the Collateral Agent shall release the Temporary Cash Collateral and Cash Collateral and cooperate with the Company and the Indenture Trustee in connection with applications of Temporary Cash Collateral and Cash Collateral to the purchase of Securities in accordance with, and to the extent permitted by, the provisions of Section 3.2 of the Indenture. Section 9.3. Certificates and Opinions of Counsel; Statements to Be ------------------------------------------------------ Contained Therein; Bases Therefor. Subject to the next sentence, upon any - --------------------------------- application or Request by the Company to the Collateral Agent to take any action under any of the provisions of this Pledge Agreement, the Company shall furnish to the Collateral Agent an Officers' Certificate and an Opinion of Counsel in compliance with, but only if required by Sections 11.4 and/or 11.5 of the Indenture. Section 9.4. Appraiser's Certificate. Unless otherwise specifically ----------------------- provided, an Independent Appraiser's Certificate shall be sufficient evidence of the Appraised Value and Fair Market Value to the Company of any Property under this Pledge Agreement. Section 9.5. Notices; Waivers. Any request, demand, authorization, ---------------- direction, notice, consent, waiver or other document provided or permitted by this Pledge Agreement to be made upon, given or furnished to, or filed with (a) the Collateral Agent, by any Holder or by the Company shall be sufficient for every purpose hereunder if in writing and made, given, furnished or filed by personal delivery or registered or certified mail to or with the Collateral Agent at First Security Bank, N.A., Corporate Trust Services, 79 South Main Street, Salt Lake City, Utah 84111. 32 (b) the Company, by any Holder or by the Collateral Agent shall be sufficient for every purpose hereunder if in writing and made, given, furnished or filed by personal delivery or mailed, first class postage prepaid, to the Company at One City Centre, 515 N. 6th Street, St. Louis, Missouri 63101, Attention: Richard P. Magurno, Senior Vice President and General Counsel, or to any of the above parties at any other address subsequently furnished in writing by it to each of the other parties listed above. An affidavit by any person representing or acting on behalf of the Company or the Collateral Agent as to such mailing, having any registry receipt required by this Section attached, shall be conclusive evidence of the giving of such demand, notice or communication. Where this Pledge Agreement provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Collateral Agent, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Section 9.6. Amendments, Etc. --------------- (a) Except as provided in Section 9.6(b) hereof and subject to Section 4.11 and Article 9 of the Indenture, this Pledge Agreement may be amended by the Company and the Collateral Agent only with the affirmative vote of the Required Holders. (b) The Company and the Collateral Agent may also amend this Pledge Agreement without the vote of the Holders of the Securities if such parties each deem it necessary to cure any ambiguity, defect or inconsistency or conform this Pledge Agreement to the requirements of applicable Federal or State laws or regulations; provided that such amendment or amendments do not have a material adverse effect on the interests of the Holders. Section 9.7. No Waiver; Remedies. ------------------- (a) No failure on the part of the Collateral Agent to exercise, and no delay in exercising any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative, may be exercised singly or concurrently, and are not exclusive of any remedies provided by law or the Indenture, the Securities or any of the other Operative Documents. (b) Failure by the Collateral Agent at any time or times hereafter to require strict performance by the Company or any other Person of any of the provisions, warranties, terms or conditions contained herein or in any of the Indenture, the Securities or any other Operative Documents now or at any time or times hereafter executed by the Company or any such other Person and delivered to the Collateral Agent shall not waive, affect or diminish any right of the 33 Collateral Agent at any time or times hereafter to demand strict performance thereof, and such right shall not be deemed to have been modified or waived by any course of conduct or knowledge of the Collateral Agent or any agent, officer or employee of the Collateral Agent. Section 9.8. Conflict with Trust Indenture Act of 1939. If and to the ----------------------------------------- extent that any provision of this Pledge Agreement limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive of the TIA, such imposed duties shall control. Section 9.9. Holidays. In the event that any date for the payment of any -------- amount due hereunder shall not be a Business Day, then (notwithstanding any other provision of this Pledge Agreement) such payment need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the due date, and no interest shall accrue for the period from such due date to and including the next succeeding Business Day. Section 9.10. Successors and Assigns. This Pledge Agreement and all ---------------------- obligations of the Company hereunder shall be binding upon the successors and assigns of the Company, and shall, together with the rights and remedies of the Collateral Agent hereunder, inure to the benefit of the Collateral Agent, the Indenture Trustee, the Holders, and their respective successors and assigns. Section 9.11. Governing Law. The laws of the State of New York shall ------------- govern this Pledge Agreement without regard to principles of conflict of laws. Section 9.12. Indemnification. The Company agrees to pay, and to save the --------------- Indenture Trustee and the Collateral Agent harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all excise, sales or other similar taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Pledge Agreement. Section 9.13. Effect of Headings. The Article and Section headings and ------------------ the Table of Contents contained in this Pledge Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of this Pledge Agreement. Section 9.14. No Adverse Interpretation of Other Agreement. This Pledge -------------------------------------------- Agreement may not be used to interpret any agreement of the Company or any of its Subsidiaries which is unrelated to the Indenture, the Securities or the Operative Documents. Any such agreement may not be used to interpret this Pledge Agreement. Section 9.15. No Recourse Against Others. A director, officer, employee -------------------------- or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under this Pledge Agreement or for any claim based on, in respect of or by reason of such obligations or their creation. 34 Section 9.16. Duplicate Originals. The parties may sign any number of ------------------- copies of this Pledge Agreement. Each signed copy shall be an original, but all of them together represent the same agreement. Section 9.17. Severability. In case any provision in this Pledge ------------ Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby, and a Holder shall have no claim therefor against the Collateral Agent. 35 IN WITNESS WHEREOF, the parties have caused this Pledge Agreement to be duly executed, all as of the date first above written. TRANS WORLD AIRLINES, INC. By: ______________________________ Name: Title: Agreed and accepted as of the date first written above: FIRST SECURITY BANK, NATIONAL ASSOCIATION, as Collateral Agent By: _____________________________________ Name: Title: 36 EXHIBIT A FORM OF SUPPLEMENTAL PLEDGE AGREEMENT (To Add Collateral) SUPPLEMENTAL PLEDGE AGREEMENT No. ____ SUPPLEMENTAL PLEDGE AGREEMENT NO. ___, dated as of _____________ between TRANS WORLD AIRLINES, INC., a Delaware corporation (together with its successors and assigns, the "Company"), having an office at One City Centre, 515 N. 6th Street, St. Louis, Missouri 63101, and FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, as Collateral Agent under the Pledge Agreement described below, having its principal office at 79 South Main Street, Salt Lake City, Utah 84111, (together with its successors in trust, the "Collateral Agent"). WHEREAS, the Company has heretofore executed and delivered to the Collateral Agent a Pledge and Security Agreement, dated as of March 31, 1997 (the "Pledge Agreement"), covering the property of the Company therein described, to secure (subject to the provisions of the Pledge Agreement and the Indenture) the due and punctual payment and performance of the Obligations (as defined in the Pledge Agreement) outstanding from time to time; [ WHEREAS, the Pledge Agreement (and any Supplemental Pledge Agreements) has (have) been duly recorded with the Federal Aviation Administration at Oklahoma City, Oklahoma, pursuant to the Federal Aviation Act of 1958, as amended, on the following date as a document or conveyance bearing the following number: DOCUMENT OR DATE OF RECORDING CONVEYANCE NO. Pledge Agreement......] WHEREAS, the Company, as provided in the Pledge Agreement, is hereby executing and delivering or heretofore has executed and delivered, to the Collateral Agent one or more Supplemental Pledge Agreements for the purposes of specifically subjecting to the Lien of the Pledge Agreement certain property herein described. (Recite any other filing or recording data.) WHEREAS, the Company is the legal and beneficial owner of the property specifically described in Schedule I annexed hereto (and located at the (Designated Location) (location) described in Schedule I annexed hereto), free and clear of all mortgages, security interests, pledges, liens, claims, charges and encumbrances of every kind whatsoever, except only Permitted Liens (as defined in the Definitions Appendix referred to in the Pledge Agreement) and desires to execute and deliver this Supplemental Pledge Agreement for the purpose of specifically subjecting said property to the Lien of the Pledge Agreement; A-1 WHEREAS, all things necessary to make this Supplemental Pledge Agreement the valid, binding and legal obligation of the Company, including all proper corporate action on the part of the Company, have been done and performed and have happened; NOW, THEREFORE, THIS SUPPLEMENTAL PLEDGE AGREEMENT WITNESSETH, that, to secure (subject to the provisions of the Pledge Agreement) the due and punctual payment and performance of the Obligations (as defined therein), the Company does hereby transfer, grant, bargain, sell, assign, convey, mortgage, hypothecate and pledge to the Collateral Agent the property described in Schedule I annexed hereto. TO HAVE AND TO HOLD all and singular the aforesaid property described in Schedule I annexed hereto unto the Collateral Agent in trust and for the uses and purposes and subject to the terms, provisions, agreements and covenants set forth in the Pledge Agreement. This Supplemental Pledge Agreement shall be construed as supplemental to the Pledge Agreement and shall form a part thereof, and the Pledge Agreement is hereby incorporated by reference herein and is hereby ratified, approved and confirmed. This Supplemental Pledge Agreement is intended to be delivered in the State of New York and shall be governed by the laws of that State. This Supplemental Pledge Agreement may be executed in any number of counterparts, each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same Supplemental Pledge Agreement. A-2 IN WITNESS WHEREOF, the parties have caused this Pledge Agreement to be duly executed, all as of the date first above written. TRANS WORLD AIRLINES, INC. By: ______________________________ Name: Title: Agreed and accepted as of the date first written above: FIRST SECURITY BANK, NATIONAL ASSOCIATION, as Collateral Agent By: _____________________________________ Name: Title: A-3 STATE OF MISSOURI ) ) ss.: COUNTY OF __________ ) On the ____ day of ________ 19___, before me personally came __________________,to me known, who, being by me duly sworn, did depose and say that he resides at ________________________________; that he is a _______________ of TRANS WORLD AIRLINES, INC., the corporation described in and that executed the above instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. [NOTARIAL SEAL] _____________________________ Notary Public STATE OF ____________ ) ) ss: COUNTY OF __________ ) On the _____ day of _____________, 19__, before me personally came ___________________, to me known, who, being by me duly sworn, did depose and say that she resides at ______________________________; that she is a ______________ of FIRST SECURITY BANK, NATIONAL ASSOCIATION, the national banking association described in and that executed the above instrument as Collateral Agent; and that she signed her name thereto by order of the Board of Directors of said national banking association. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. [NOTARIAL SEAL] ____________________________ Notary Public A-4 SCHEDULE I to EXHIBIT A A-5 EXHIBIT B FORM OF SUPPLEMENTAL PLEDGE AGREEMENT (To Release Collateral) SUPPLEMENTAL PLEDGE AGREEMENT NO.__ SUPPLEMENTAL PLEDGE AGREEMENT NO. ___, dated as of ___ between TRANS WORLD AIRLINES, INC., a Delaware corporation (together with its successors and assigns, the "Company"), having an office at One City Centre, 515 N. 6th Street, St. Louis, Missouri 63101, and FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, as Collateral Agent under the Pledge Agreement described below, having its principal office at 79 South Main Street, Salt Lake City, Utah 84111, (together with its successors in trust, the "Collateral Agent"). WHEREAS, the Company has heretofore executed and delivered to the Collateral Agent a Pledge and Security Agreement, dated as of March 31, 1997 (the "Pledge Agreement"), covering the property of the Company therein described, to secure (subject to the provisions of the Pledge Agreement and the Indenture) the due and punctual payment and performance of the Obligations (as defined in the Pledge Agreement) outstanding from time to time; [WHEREAS, the Pledge Agreement [and any Supplemental Pledge Agreements] has [have] been duly recorded with the Federal Aviation Administration at Oklahoma City, Oklahoma, pursuant to the Federal Aviation Act of 1958, as amended, on the following date as a document or conveyance bearing the following number: DOCUMENT OR DATE OF RECORDING CONVEYANCE NO. Pledge Agreement.....] WHEREAS, the Company, as provided in the Pledge Agreement, is hereby executing and delivering or heretofore has executed and delivered, to the Collateral Agent one or more Supplemental Pledge Agreements for the purposes of specifically releasing from the Lien of the Pledge Agreement certain property herein described. [Recite any other filing or recording data.] WHEREAS, the Company desires to execute and deliver this Supplemental Pledge Agreement for the purpose of specifically releasing said property from the Lien of the Pledge Agreement; WHEREAS, all things necessary to make this Supplemental Pledge Agreement the valid, binding and legal obligation of the Company, including all proper corporate action on the part of the Company, have been done and performed and have happened; B-1 NOW, THEREFORE, THIS SUPPLEMENTAL PLEDGE AGREEMENT WITNESSETH, that, the Collateral Agent releases from the Lien of the Pledge Agreement the property described in Schedule I annexed hereto. This Supplemental Pledge Agreement shall be construed as supplemental to the Pledge Agreement and shall form a part thereof, and the Pledge Agreement is hereby incorporated by reference herein and is hereby ratified, approved and confirmed. This Supplemental Pledge Agreement is intended to be delivered in the State of New York and shall be governed by the laws of that State. This Supplemental Pledge Agreement may be executed in any number of counterparts, each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same Supplemental Pledge Agreement. This release is made without covenant or warranty, without recourse, and without affecting the rights of the Collateral Agent to any and all Collateral other than that specifically released hereby. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Pledge Agreement to be duly executed, as of the date and year first above written. TRANS WORLD AIRLINES, INC. By: _____________________________ Name: Title: Agreed and accepted as of the date first written above: FIRST SECURITY BANK, NATIONAL ASSOCIATION, as Collateral Agent By: _____________________________________ Name: Title: B-2 STATE OF MISSOURI ) ) ss.: COUNTY OF __________ ) On the ____ day of _______________, 19___, before me personally came ___________________ to me known, who, being by me duly sworn, did depose and say that he resides at ________________________________; that he is a ______________ of TRANS WORLD AIRLINES, INC., the corporation described in and that executed the above instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. [NOTARIAL SEAL] ____________________________ Notary Public STATE OF ________ ) ) ss.: COUNTY OF _________ ) On the ____ day of ____________ 19__, before me personally came ___________________ to me known, who, being by me duly sworn, did depose and say that she resides at ________________________________________; that she is a ______________ of FIRST SECURITY BANK, NATIONAL ASSOCIATION; the national banking association described in and that executed the above instrument as Collateral Agent; and that she signed her name thereto by order of the Board of Directors of said national banking association. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. [NOTARIAL SEAL] _______________________________ Notary Public B-3 SCHEDULE I to EXHIBIT B B-4 SCHEDULE 1 GROUND EQUIPMENT AND PLEDGED STOCK 1. Ground Equipment: At the Locations Listed on Exhibit I attached hereto. ----------------------------------------------------------------------- Detailed schedule of Ground Equipment at Exhibit III. ---------------------------------------------------- 2. Pledged Stock of LAX Holding Co., Inc. -------------------------------------- Certificate No. 1 for 100 shares of Common Stock, par value $.01 3. Pledged Stock of TWA-LAX Gate Company, Inc. ------------------------------------------- Certificate No. 1 for 100 shares of Common Stock, par value $.01 4. Pledged Stock of TWA San Francisco Gate Company, Inc. ----------------------------------------------------- Certificate No. 1 for 100 shares of Common Stock, par value $.01 5. Pledged Stock of TWA-Omnibus Gate Company., Inc. ------------------------------------------------ Certificate No. 1 for 100 shares of Common Stock, par value $.01 S1-1 Exhibit I to Schedule 1 ----------------------- GROUND EQUIPMENT LOCATIONS --------------------------
TWA LOCATION CITY/AIRPORT STATE COUNTY - ------------ ------------ ----- ------ 503 New York New York New York 504 New York New York New York 510 BOS Boston Massachusetts Suffolk 511 BDL Hartford Connecticut Hartford 518 Jamaica New York Queens 519 New York New York New York 523 New York New York New York 530 New York New York New York 531 New York New York New York 535 PHL Philadelphia Pennsylvania Philadelphia 538 Camden New Jersey Camden 547 New York New York New York 549 BWI Baltimore Maryland Anne Arundel 554 Syracuse New York Onondaga 558 DCA D.C. (National) Virginia Alexandria 559 Washington, D.C. Washington, D.C. District of Columbia 560 IAD D.C. (Dulles) Virginia Loudon
S1-2
TWA LOCATION CITY/AIRPORT STATE COUNTY - ------------ ------------ ----- ------ 569 Williamsport Pennsylvania 575 PIT Pittsburgh Pennsylvania Allegheny 579 RDU Raleigh-Durham North Carolina Wake 588 Orlando Florida Orange City 589 MCO Orlando Florida Orange City 590 MIA Miami Florida Dade 592 FLL Fort Lauderdale Florida Broward 595 TPA Tampa Florida Hillsborough 596 JAK Jacksonville Florida Duval 601 SRQ Sarasota Florida Sarasota 602 PBI West Palm Beach Florida Palm Beach 605 RSW Ft. Myers Florida Lee 607 ORF Norfolk Virginia Norfolk 614 CLT Charlotte North Carolina Mecklenburg 615 CLE Cleveland Ohio Cuyahoga 620 ATL Atlanta Georgia Fulton and Clayton 624 Jackson Mississippi 625 CMH Columbus Ohio Franklin 626 Columbus Ohio Franklin 631 DTN Detroit Michigan Wayne 637 Norfolk Virginia Norfolk
S1-3 TWA LOCATION CITY/AIRPORT STATE COUNTY - ------------ ------------ ----- ------ 645 DAY Dayton Ohio Montgomery 651 CVG Erlanger (Cincinnati) Kentucky Kenton 655 SDF Louisville Kentucky Jefferson 669 ORD Chicago (O'Hare) Illinois Cook 670 Chicago Illinois Cook 673 MKE Milwaukee Wisconsin Milwaukee 675 Peoria Illinois Peoria 676 MLI Moline Illinois Rock Island 690 M.P. Minneapolis Minnesota Hennepin 701 MSY New Orleans Louisiana Orleans Parish 704 Memphis Tennessee 705 New Orleans Louisiana 707 Knoxville Tennessee 708 Shreveport Louisiana 710 IND Indianapolis Indiana Marion 721 SGF Springfield Missouri Greene 722 St. Louis Missouri St. Louis City 725 St. Louis Missouri 729 St. Louis Missouri 742 OMA Omaha Nebraska Douglas 744 Kansas City Missouri Platte S1-4 TWA LOCATION CITY/AIRPORT STATE COUNTY - ------------ ------------ ----- ------ 745 CID Cedar Rapids Iowa Linn 748 DSM Des Moines Iowa Polk 750 MKC Kansas City Missouri Platte 753 Kansas City Missouri Jackson 761 Houston Texas Harris 765 DFW Dallas-Ft. Worth Texas Dallas, Tarrant 767 HOU Houston Texas Harris 768 LIT Little Rock Arkansas Pulaski 770 ICT Wichita Kansas Sedgwick 773 TUL Tulsa Oklahoma Tulsa 776 OKC Oklahoma City Oklahoma Oklahoma, Cleveland 781 AUS Austin Texas Travis 782 SAT San Antonio Texas Bekar 805 Ft. Carson Colorado 806 COS Colorado Springs Colorado El Paso 809 Englewood Colorado Arapahoe 810 DEN Denver Colorado Denver 816 Lincoln Nebraska Lancaster 817 FSD Sioux City South Dakota Union 825 ABQ Albuquerque New Mexico Bernadillo 827 Reno Nevada S1-5 TWA LOCATION CITY/AIRPORT STATE COUNTY - ------------ ------------ ----- ------ 833 Las Vegas Nevada Clark 837 Scottsdale Arizona 840 PHX Phoenix Arizona Maricopa 847 LAS Las Vegas Nevada Clark 849 Sacramento California Sacramento 854 SAN San Diego California San Diego 858 Pasadena California Los Angeles 859 Los Angeles California Los Angeles 860 Los Angeles California 863 Woodland Hills California Los Angeles 867 LAX Los Angeles California Los Angeles 869 Ontario California San Bernardino 871 Hollywood California Los Angeles 872 Los Angeles California Los Angeles 874 Costa Mesa California Orange 875 Beverly Hills California Los Angeles 878 SJC San Jose California Santa Clara 880 Van Nuys California Los Angeles 882 Los Angeles California Los Angeles 883 San Francisco California San Francisco 886 Palo Alto California Santa Clara S1-6 TWA LOCATION CITY/AIRPORT STATE COUNTY - ------------ ------------ ----- ------ 889 SNA Santa Ana California Orange 890 SFO San Francisco California San Matco 892 San Francisco California San Francisco 894 PDX Portland Oregon Multnomah 895 SEA Seattle Washington King 896 San Jose California San Jose 898 HNL Honolulu Hawaii Honolulu 963 SLC Salt Lake City Utah Salt Lake 981 999 Airport Operations System Equipment/*/ ______________________________ /*/ [This equipment is not stored at one location. It consists of metal containers used to store passenger luggage in the aircraft and are moved daily from one location to another.] S1-7 EXHIBIT II LOCATION OF GROUND LEASES Name of Gate Company Location of Airports - -------------------- -------------------- TWA-San Francisco Gate Company, Inc. San Francisco TWA-LAX Gate Company, Inc. Los Angeles TWA-Omnibus Gate Company, Inc. Hartford Philadelphia Pittsburgh Raleigh-Durham Orlando Miami Jacksonville West Palm Beach Norfolk Columbus Detroit Dayton Louisville Erlanger (Cincinnati) Milwaukee Moline Minneapolis Indianapolis Springfield Omaha Cedar Rapids Houston Little Rock Tulsa Austin San Antonio Albuquerque Las Vegas San Jose Santa Ana Portland Salt Lake City S1-8 SCHEDULE 2 COLLATERAL RELEASE SCHEDULE Released Collateral Collateral Release Trigger - ------------------- -------------------------- (Securities Outstanding in Millions of Dollars) 1. Pledged Stock a. TWA-Omnibus Gate Company Inc. and LAX Holding Co., Inc. An amount equal to (i) the sum of (x) $37,500,000, plus (y) 75% of any Securities issued pursuant to any exercise of the over-allotment option contained in the Purchase Agreement, less (ii) an amount equal to the Applied Amount b. TWA San Francisco Gate Company, Inc. An amount equal to (i) the sum of (x) $25,000,000, plus (y) 50% of any Securities issued pursuant to any exercise of the over-allotment option contained in the Purchase Agreement, less (ii) an amount equal to the Applied Amount 2. Ground Equipment An amount equal to (i) the sum of (x) $10,000,000, plus (y) 20% of any Securities issued pursuant to any exercise of the over-allotment option contained in the Purchase Agreement, less (ii) an amount equal to the Applied Amount Note: Collateral referred to is as of the date of the Pledge Agreement. If additional Collateral is pledged to the Collateral Agent in satisfaction of the Substitution Requirements, such additional Collateral shall be subject to release at the same time and under the same circumstances (and only at the same time and under the same circumstances) as the Collateral for which it was substituted could have been released under this Schedule. S2-1 EXHIBIT E TO INDENTURE FORM OF INTERCREDITOR AGREEMENT ------------------------------- This Intercreditor Agreement dated this ___ day of _____________, 1997, by and between (i) FIRST SECURITY BANK, NATIONAL ASSOCIATION, as trustee (the "Trustee") under the Indenture dated March 31, 1997 between Trustee and Trans World Airlines, Inc. (the "Company") pursuant to which the Company authorized the issuance of the Company's 12% Senior Secured Notes due April 1, 2002 (the "Notes") and (ii) ___________________________, as trustee (the "New Trustee") under the Indenture dated __________ __, 1997 between the New Trustee and the Company pursuant to which the Company issued its securities consisting of _____________________________________________________________ (the "New Notes"). RECITALS -------- WHEREAS, the Note Trustee holds a first priority Lien in and against the Collateral pursuant to the Senior Note Trust Documents; and WHEREAS, ON ___________ __, _____ the Company granted to First Security Bank, as trustee (the "Trustee") under the Indenture dated as of ____________ __, 1997 between the Trustee and the Company pursuant to which the Company issued its Notes, a first priority lien in and against the Collateral pursuant to the Pledge and Security Agreement dated as of March 31, 1997 with respect to the Notes (the "Notes Pledge Agreement"); and WHEREAS, the Required Holders have consented, pursuant to the Pledge Agreement and the Indenture, that the Trustee's Lien in and to the Collateral will be subordinate to the first priority Lien in the Collateral granted to the New Trustee and that the Trustee may not take certain action with respect to the Collateral while the Lien of the New Trustee is outstanding and, in particular, as long as the prior Lien to the New Trustee in the Collateral exists, the Trustee is not to have any ability to foreclose upon or otherwise exercise any rights with respect to such Collateral; and WHEREAS, it is the further intention of the parties that the New Trustee shall be able to dispose of any or all Collateral in accordance with its rights under the New Trust Documents and in accordance with law, but that the Trustee shall retain its legal rights with respect to any such disposition; NOW, THEREFORE, the parties hereto agree as follows: 1 SECTION 1. DEFINITIONS ----------- In addition to the terms defined above: 1.1 "Collateral" shall mean the Ground Equipment, Slots, Pledged Stock and other collateral more fully described in Schedule A of this Agreement. 1.2 "Company" shall mean Trans World Airlines, Inc. and its successors or assigns or any obligor on the Notes and the New Notes. 1.3 "Creditors" shall mean, individually and collectively, the New Trustee and the Trustee and their respective successors and assigns. 1.4 "New Trustee" shall mean __________________ National Association, in its capacities as Trustee and Collateral Agent for the holders of the New Notes pursuant to the New Trust Documents until a successor replaces it, and thereafter any such successor. 1.5 "New Trust Documents" shall mean the Indenture dated _____________, ____, the Notes due ________________ ___, 199__ issued thereunder, and the Operative Documents (as defined in such Indenture) dated _____________ __, _____ by and between the Company and ________________, as Collateral Agent, each as amended or supplemented from time to time. 1.6 "New Trust Obligations" shall mean the New Notes and all other Obligations under and defined in the New Trust Documents. 1.7 "New Trustee" shall mean ____________________ National Association, in its capacity as Trustee and Collateral Agent for the holders of the New Notes pursuant to the Notes Trust Documents, until a successor replaces it, and thereafter means any such successor. 1.8 "Required Holders" means the "Required Holders" as defined in the Indenture. 1.9 "Trustee" shall mean First Security Bank, National Association in its capacity as Trustee, Collateral Agent and Slot Trustee for the holders of the Notes pursuant to the Trust Documents. 1.10 "Trust Documents" shall mean the Indenture dated March 31 1997, by and between the Company and First Security Bank, National Association, as trustee; the Notes, and the Operative Documents, dated as of March 31, 1997, by and between the Company and First Security Bank, National Association, as Collateral Agent, each as amended or supplemented from time to time. 1.11 "Trust Obligations" shall mean the Notes and all other Obligations under the Notes Trust Documents. 2 1.12 "Insolvency Proceeding" shall mean any action or proceeding by or against the Company seeking a reorganization, arrangement, composition, readjustment, liquidation or other similar relief under the U.S. Bankruptcy Code or any present or future insolvency statute, law or regulation relative to the Company or its properties, or any proceedings for voluntary liquidation, dissolution or other winding up of the Company, or the appointment of any trustee, receiver or liquidator for the Company or any part of any of its properties, or any assignment for the benefit of creditors or any marshaling of assets of the Company. 1.13 "Lien" shall mean any security interest, mortgage, lien, collateral assignment or right of setoff in, upon, of or against any property whether consensual or non-consensual, whether arising under statute or common law, and howsoever evidenced or acquired. 1.14 "Permitted Substitutes" shall have the meaning provided in the Notes Trust Documents. 1.15 "UCC" shall mean the Uniform Commercial Code as adopted in the state of New York. SECTION 2. SECURITY INTERESTS ------------------ 2.1 (a) The Trustee acknowledges that the Company has granted the New Trustee, and the New Trustee holds, a valid and perfected Lien in and against the Collateral, which Lien secures payment and performance of the Trust Obligations. (b) The New Trustee acknowledges that the Company has granted the Trustee, and the Trustee continues to hold, a valid and perfected Lien in and against the Collateral, which Lien secures payment and performance of the Trust Obligations. (c) The New Trustee agrees that, in addition to acting as a secured party in possession on its own behalf, it shall act as bailee (for purposes of Section 9-305 of the UCC) for the Trustee, as a secured creditor, with respect to any proceeds of Collateral that are in the possession of the New Trustee, which proceeds shall be accounted for separately. The Trustee's interest in such proceeds shall be subject to the priority provisions of Section 2.2 below. The New Trustee agrees that the New Trustee's role as bailee shall in no way modify or enlarge the New Trust Trustee's obligations as a secured party in possession under Section 9-207 of the UCC, nor shall it restrict the Note Trustee from taking any action permitted in the New Trust Documents with respect to such proceeds, including without limitation its right to redeem New Notes, its right to be reimbursed for its fees and expenses, and its obligation in certain circumstances to pay over such proceeds to the Company for repair or replacement of Collateral subject to the Lien of the New Trustee pursuant to the New Trust Documents and subject to the Lien of the Trustee pursuant to the Trust Documents. 2.2 Notwithstanding the order or time of creation, acquisition, attachment, or the order, time or manner of perfection, or the order or time of filing or recordation of any document or 3 instrument, or other method of perfecting a Lien in favor of each of the Creditors in and against the Collateral, the Liens of the New Trustee in and against the Collateral have and shall have priority over the Liens of the Trustee in and against the Collateral, and such Liens of the Trustee are and shall be subject and subordinate to the Liens of the New Trustee in and against the Collateral to the full extent of the New Trust Obligations outstanding at any time and from time to time. SECTION 3. RIGHTS WITH RESPECT TO COLLATERAL --------------------------------- 3.1 The New Trustee shall have the exclusive right to take any action with respect to the Collateral, including without limitation the right to inspect, and the right to enforce covenants relating to maintenance, usage, and condition, and the Trustee shall have no right to take any remedial or enforcement action with respect to the Collateral without the prior written consent of the New Trustee, which may be withheld in the sole and absolute discretion of the New Trustee, provided that the of covenants relating to maintenance, usage and condition which parallels or supplements such action taken by the New Trustee so long as the Trustee gives prior written notice of such action to the New Trustee of its rights under the New Trust Documents. The Trustee shall have any right to inspect records with respect to Collateral provided to it in the Trust Documents, and to assure and assess compliance by the Company of its covenants with respect thereto under the Trust Documents, so long as the exercise of such rights does not interfere with the exercise by the New Trustee of its rights under the New Trust Documents. 3.2 The New Trustee shall have the exclusive right to take or retake control or possession of the Collateral and, in its sole and absolute discretion, to hold, use, prepare for sale, sell, lease, dispose of or liquidate the Collateral in any manner, subject however to the provisions of Section 3.5. 3.3 Before or after an event of default under the Trust Documents, the Trustee shall have no right to take control of possession of the Collateral, no right to hold, use, prepare for sale, sell, lease, dispose of or liquidate the Collateral, and no right to take any other action with respect to the Collateral, other than the right to make periodic refilings as required by applicable law to continue perfection of its lien. The Trustee acknowledges that under the Operative Documents it has no authority or power to, and shall not purport to attempt to, exercise any rights or remedies or seek to foreclose its Lien in and against the Collateral, and, except as provided in Section 3.1, shall not take any other action, directly or indirectly, that would interfere in any manner with the rights or interests of the New Trustee in and against the collateral. 3.4 At any time, the Trustee agrees that it shall, upon satisfaction by the Company of the provisions of Section 4.4 of the Pledge Agreement relating to the sale of Collateral, release the Lien of the Notes Pledge Agreement upon particular items of Collateral in connection with the sale of such Collateral by the Company. 3.5 (a) Upon or after the occurrence of an event of default under the New Trust Documents and acceleration of the New Trust Obligations, the New Trustee may request a release of the Lien of the Pledge Agreement upon the Collateral specified in the request to be disposed of by 4 the New Trustee and subject to the Lien of the New Trust Documents, provided such written request shall (1) specify the event of default; (2) describe and provide notice of the foreclosure or other remedial action contemplated for which such release is required and the steps being taken to effectuate it; (3) acknowledge the Lien of the Pledge Agreement for purposes of the distribution of proceeds of the exercise of such rights and remedies under Section 9.504 of the UCC or other applicable law; and (4) include the form of release requested. (b) No later than give (5) days after receipt of the request described in (a), the Trustee shall deliver to the New Trustee the release of the specified Collateral in the form requested. The Trustee shall be deemed to have given such release upon the expiration of the five (5) day period, but shall not be relived of the obligation to deliver a release. (c) The delivery of said release shall not relieve the New Trustee of its obligations under applicable law, including the UCC, nor shall it deprive the Trustee of any rights it has under the applicable law, including the UCC, other than the right to prevent the foreclosure or other remedial action set forth in the request for said release. Without limitation, the Trustee shall retain its right to distribution of proceeds under Section 9-504 of the UCC, and the right under Section 9-507 of the UCC of a secured party to recover a loss after a non-complying disposition of collateral has occurred. (d) Without limiting the jurisdiction of any other court, the Trustee consents to the jurisdiction of the U. S. Bankruptcy Court for the District of Delaware in any action by the Trustee to enforce its obligations under this section. 3.6 The Trustee agrees that, upon satisfaction of the provisions of Section 3.5, it will, in order to allow the New Trustee to effectuate any sale, lease or other disposition of Collateral as herein provided, take any additional action necessary to release or otherwise terminate its Lien in an against the subject Collateral, and immediately upon request will deliver any additional release documents or other documents as the New Trustee may demand or require to effectuate the release. 3.7 The commencement or existence of an Insolvency Proceeding involving the Company shall in no way limit or restrict the rights granted to the New Trustee under this Agreement. Without limitation, the Trustee agrees to consent to the sale of any Collateral for purposes of Section 363 of the Bankruptcy Code, and to consent to the granting of relief from stay to the New Trustee pursuant to Section 362 of the Bankruptcy Code as long as the opportunity is provided to the Trustee to concurrently obtain such relief, all conditioned upon the satisfaction of Section 3.5 hereof, provided nothing herein shall limit the rights of the Trustee to make claim with respect to the Notes, or to seek adequate protection of its interest in the Collateral in a manner that does not interfere with the rights or interests of the New Trustee in and against the Collateral. 3.8 The New Trustee agrees that upon the satisfaction of the Trust Obligations in full, it shall release its Lien upon the Collateral in favor of the Trustee and shall pay any remaining proceeds of Collateral directly to the Trustee, so long as the Notes have not yet been paid in full. The 5 Company, by its acknowledgment of this Agreement, agrees and consents to this provisions, and authorizes the New Trustee to take actions therewith. SECTION 4. EFFECT OF CERTAIN AMENDMENTS, ETC. ---------------------------------- ON RIGHT AND BENEFITS --------------------- 4.1 The rights and benefits provided to the New Trustee and the Trustee and the covenants made under this Intercreditor Agreement, including without limitation the priorities provided in Section 2.2 and the rights with respect to the Collateral provided in Section 3, shall not be altered or otherwise affected by any amendment, modification, supplement, extension, renewal, restatement or refinancing of the New Obligations or the Trust Obligations, or by any action or inaction which either such party may take or fail to take in respect of the Collateral, provided that the New Trustee acknowledges the existence of, but is in no way bound by, limitations upon the ability of the Company to modify, amend, supplement, extend, refinance or renew the New Obligations or to waive rights thereunder agreed to by the Company pursuant to the Notes Pledge Agreement. SECTION 5. MISCELLANEOUS ------------- 5.1 The parties hereto shall execute and deliver such additional documents and take such additional action as may be reasonably necessary to effectuate the provisions and purposes of this Intercreditor Agreement. 5.2 The provisions of this Intercreditor Agreement shall continue in full force and effect until all of the New Obligations have been fully and indefeasibly paid and satisfied. 5.3 The provisions of this Intercreditor Agreement are not inconsistent with any provisions in the Trust Documents relating to the Collateral or the New Trustee's rights, directly or indirectly, therein, or to any right to payment on the New Notes, including without limitation any agreement or term sheet between the New Trustee and the Company. 5.4 In the event that, prior to the expiration or termination of this Intercreditor Agreement, the Trustee receives, in violation of the provisions of this Intercreditor Agreement with respect to priority and rights in Collateral, any funds or other property which are the proceeds of the Collateral, the New Trustee immediately shall deliver such funds or other property to the New Trustee. 5.5 This Intercreditor Agreement may be executed in any number of counterparts, each of which shall be deemed an original hereof and admissible into evidence, and all of which together shall be deemed to be a single instrument. 5.6 This Intercreditor Agreement represents the entire agreement and understanding concerning the subject matter hereof between the parties hereto and supersedes all other prior and contemporaneous agreements, understandings, negotiations and discussions, representations and 6 warranties, commitments, offers and contracts concerning the subject matter hereof, whether oral or written. 5.7 In the event of breach of any provisions of this Intercreditor Agreement by the Trustee, the Trust shall be liable to pay all costs and expenses, including reasonable attorneys' fees, of the New Trustee incurred to enforce this Agreement or remedy such breach, and the Trust shall be liable to the New Trustee and the holders of the New Notes for any damages incurred as a result of such breach. In the event of breach of any provision of this Intercreditor Agreement by the New Trustee, the New Trust shall be liable to pay all costs and expenses, including reasonable attorneys' fees, of the Trustee incurred to enforce this Agreement or remedy such breach, and the New Trustee shall be liable to the Trustee and the holders of the Notes for any damages incurred as a result of such breach. 5.8 The provisions of this Agreement shall not waive, limit, modify or abrogate any obligations of the Company to the Trustee under the Trust Documents or the Operative Documents defined therein. In particular, but without limitation, the release or deemed release of the Lien of the Trustee hereunder shall not (1) be deemed a waiver or relinquishment of any Default or Event of Default under and as defined in the Trust Documents; or (2) relieve the Company of any obligation to meet the substitution requirements under the Trust Documents upon the disposition of Collateral. 5.9 The terms and provisions of this Intercreditor Agreement shall be for the sole benefit of the undersigned and their respective successors and assigns, who shall have the right to amend it from time to time upon their mutual agreement, and no other person, firm, entity or corporation, including without limitation the Company, shall have any right, benefit, priority or interest under, or because of the existence of, this Agreement. 5.10 The validity, interpretation and effect of this Intercreditor Agreement shall be governed by the laws of the State of New York and applicable federal law. In any action or proceeding arising out of or relating to this Agreement, each of the parties hereby waives trial by jury. 5.11 If any portion or provisions of this Agreement is determined to be invalid or unenforceable, all other provisions of this Agreement shall remain in full force and effect and this Agreement shall be binding between the parties hereto with respect to such remaining provisions. 7 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their proper and duly authorized officers as of the day and year first above written. ___________________________________________ as New Trustee and Collateral Agent for the New Trust Documents By:________________________________________ Title:_____________________________________ FIRST SECURITY BANK, NATIONAL ASSOCIATION, as Trustee and Collateral Agent for the Trust Documents By:________________________________________ Title:_____________________________________ ACKNOWLEDGED BY: TRANS WORLD AIRLINES, INC. By:________________________ Title:_____________________ 8 Schedule A Collateral 1. Ground Equipment, Slots and Pledged Stock listed on attached Schedule I. 2. Permitted Substitutes of the above. 3. Proceeds of all of the foregoing. 9 EX-4.17 5 REGISTRATION RIGHTS AGREEMENT EXHIBIT 4.17 TRANS WORLD AIRLINES, INC. 12% Senior Secured Notes Due 2002 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made and entered into as of March 31, 1997, by Trans World Airlines, Inc., a Delaware corporation (the "Company"), and PaineWebber Incorporated (the "Initial Purchaser"). Subject to the terms and conditions stated in the Purchase Agreement dated as of March 27, 1997 between the Company and the Initial Purchaser (the "Purchase Agreement"), the Company shall issue and sell to the Initial Purchaser 50,000 Units (subject to adjustment to up to 57,500 Units in the event that the Initial Purchaser exercises its over-allotment option as provided in the Purchase Agreement) each consisting of 12% Senior Secured Notes Due 2002 with a principal amount at maturity of $1,000 (collectively the "Notes") and one warrant (collectively, the "Warrants") to purchase 126.26 shares of the common stock, par value $.01 per share, of the Company (the "Common Stock"). The Notes will be issued pursuant to an indenture dated as of March 31, 1997 (the "Indenture"), between the Company and First Security Bank, National Association, as trustee (the "Trustee"). As an inducement to the Initial Purchaser, the Company hereby agrees with the Initial Purchaser, for the benefit of the holders of the Notes (including, without limitation, the Initial Purchaser), the Exchange Notes (as defined below) and the Private Exchange Notes (as defined below) (collectively, the "Holders"), as follows: SECTION 1. EXCHANGE OFFER REGISTRATION The Company shall, at its cost, use its best efforts to prepare and, not later than 60 days after (or if the 60th day is not a business day, the first business day thereafter) the Issue Date (as defined in the Indenture) of the Notes, file with the Securities and Exchange Commission (the "Commission"), a registration statement (the "Exchange Offer Registration Statement") on an appropriate form under the Securities Act of 1933, as amended (the "Securities Act"), with respect to a proposed offer (the "Registered Exchange Offer") to the Holders of Transfer Restricted Notes (as defined below), who are not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer, to issue and deliver to such Holders, in exchange for the Notes, a like aggregate principal amount of debt securities (the "Exchange Notes") of the Company issued under the Indenture and identical in all material respects to the Notes (except for the transfer restrictions relating to the Notes) that would be registered under the Securities Act. The Company shall use its best efforts to cause such Exchange Offer Registration Statement to become effective under the Securities Act within 120 days (or if the 120th day is not a business day, the first business day thereafter) after the Issue Date of the Notes and shall keep the Exchange Offer Registration Statement effective for not less than 30 days (or longer if required by applicable law) after the date on which notice of the Registered Exchange Offer is mailed to the Holders (such period being called the "Exchange Offer Registration Period"). 1 If the Company effects the Registered Exchange Offer, the Company will be entitled to close the Registered Exchange Offer 30 days after the commencement thereof; provided however, that the Company has accepted all the ----------------- Notes theretofore validly tendered in accordance with the terms of the Registered Exchange Offer. Following the declaration of the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder of Transfer Restricted Notes electing to exchange the Notes for Exchange Notes (assuming that such Holder is not an affiliate of the Company within the meaning of the Securities Act, acquires the Exchange Notes in the ordinary course of such Holder's business, has no arrangements with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes and is not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer) to trade such Exchange Notes from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states of the United States. In connection with such Registered Exchange Offer, the Company shall take such further action, including, without limitation, appropriate filings under state securities laws, as may be necessary to realize the foregoing objective subject to the proviso of Section 3(h). The Company acknowledges that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, in the absence of an applicable exemption therefrom, (i) each Holder that is a broker-dealer electing to exchange Notes, acquired for its own account as a result of market making activities or other trading activities, for Exchange Notes (an "Exchanging Dealer"), is required to deliver a prospectus containing the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section, and in Annex C hereto in the "Plan of Distribution" section of such prospectus in connection with a sale of any such Exchange Notes received by such Exchanging Dealer pursuant to the Registered Exchange Offer and (ii) the Initial Purchaser selling Exchange Notes acquired in exchange for Notes constituting any portion of an unsold allotment is required to deliver a prospectus containing the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in connection with such sale. The Company shall use its best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein in order to permit such prospectus to be lawfully delivered by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Notes; provided, however, that (i) in the case -------- where such prospectus and any amendment or supplement thereto must be delivered by an Exchanging Dealer or the Initial Purchaser, such period shall be the lesser of 180 days after the expiration date of the Registered Exchange Offer and the date on which all Exchanging Dealers and the Initial Purchaser have sold all Exchange Notes held by them (unless such period is extended pursuant to Section 3(j) below), and (ii) the Company shall make such prospectus and any amendment or supplement thereto available to any broker-dealer for use in connection with 2 any resale of any Exchange Notes for a period not less than 90 days after the consummation of the Registered Exchange Offer. If, upon consummation of the Registered Exchange Offer, the Initial Purchaser holds Notes acquired by it as part of its initial distribution, the Company, simultaneously with the delivery of the Exchange Notes pursuant to the Registered Exchange Offer, shall issue and deliver to such Initial Purchaser upon the written request of such Initial Purchaser, in exchange (the "Private Exchange") for the Notes held by such Initial Purchaser, a like principal amount of debt securities of the Company issued under the Indenture and identical in all material respects (including the existence of restrictions on transfer under the Securities Act and the securities laws of the several states of the United States) to the Notes (the "Private Exchange Notes"). The Notes, the Exchange Notes and the Private Exchange Notes are herein collectively called the "Securities". In connection with the Registered Exchange Offer, the Company shall: (a) mail to each Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Registered Exchange Offer open for not less than 30 days (or longer, if required by applicable law) after the date notice thereof is mailed to the Holders; (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York, which may be the Trustee or an affiliate of the Trustee; (d) permit Holders to withdraw tendered Notes at any time prior to the close of business, New York time, on the last business day on which the Registered Exchange Offer shall remain open; and (e) otherwise comply in all material respects with all applicable law. As soon as practicable after the close of the Registered Exchange Offer or the Private Exchange, as the case may be, the Company shall: (i) accept for exchange all the Notes validly tendered and not withdrawn pursuant to the Registered Exchange Offer or the Private Exchange, as the case may be; (ii) deliver to the Trustee for cancellation all the Notes so accepted for exchange; and (iii) cause the Trustee to authenticate and promptly deliver to each Holder of the Notes, Exchange Notes or Private Exchange Notes, as the case may be, equal in principal amount to the Notes of each Holder so accepted for exchange. 3 The Indenture will provide that the Exchange Notes will not be subject to the transfer restrictions set forth in the Indenture and that all the Securities will vote and consent together on all matters as one class and that none of the Securities will have the right to vote or consent as a class separate from one another on any matter. Each Holder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Notes received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate in the distribution of the Notes or the Exchange Notes within the meaning of the Securities Act, (iii) such Holder is not an "affiliate", as defined in Rule 405 of the Securities Act, of the Company or, if it is an affiliate, such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (iv) if such Holder is not a broker- dealer, that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Notes, and (v) if such Holder is a broker-dealer, that it will receive Exchange Notes for its own account in exchange for Notes that were acquired as a result of market-making activities or other trading activities and that it will deliver a prospectus in connection with any resale of such Exchange Notes. Notwithstanding any other provisions hereof, the Company will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto will comply in all material respects with the Securities Act and the rules and regulations thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that in no such case shall the ----------------- Company be responsible for information concerning the Initial Purchaser included in the Exchange Offer Registration Statement, the prospectus contained therein, or any amendment or supplement thereto, as the case may be. SECTION 2. SHELF REGISTRATION STATEMENT (a) If (i) because of any change in law or in applicable interpretations thereof by the staff of the Commission, the Company is not permitted to effect a Registered Exchange Offer, as contemplated by Section 1 hereof, (ii) the Registered Exchange Offer is not consummated within 180 days of the date of this Agreement, (iii) the Initial Purchaser so requests with respect to the Notes (or the Private Exchange Notes) not eligible to be exchanged for Exchange Notes in the Registered Exchange Offer and held by it following consummation of the Registered Exchange Offer or (iv) any Holder (other than an Exchanging Dealer) is not eligible to participate in the Registered Exchange Offer or, in the case of any Holder (other than an Exchanging Dealer) that participates in the Registered Exchange Offer, such Holder does not 4 receive freely tradeable Exchange Notes on the date of the exchange, the Company shall take the following actions: (i) The Company shall use its best efforts , at its cost, as promptly as practicable (but in no event more than the later of (i) 60 days after the Issue Date and (ii) 30 days after so required or requested pursuant to this Section 2) to file with the Commission and thereafter shall use its best efforts to cause to be declared effective a registration statement (the "Shelf Registration Statement" and, together with the Exchange Offer Registration Statement, a "Registration Statement") on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Notes by the Holders thereof from time to time in accordance with the methods of distribution set forth in the Shelf Registration Statement and Rule 415 under the Securities Act (hereinafter, the "Shelf Registration"); provided, however, that no Holder (other than ----------------- the Initial Purchaser) shall be entitled to have the Securities held by it covered by such Shelf Registration Statement unless such Holder agrees in writing to be bound by all the provisions of this Agreement applicable to such Holder (including certain indemnification obligations). (ii) The Company shall use its best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus included therein to be lawfully delivered by the Holders of the relevant Securities, for a period of two years (or for such longer period if extended pursuant to Section 3(j) below) from the Issue Date or such shorter period that will terminate when all the Securities covered by the Shelf Registration Statement have been sold pursuant thereto or can be sold pursuant to Rule 144(k) thereof. Subject to Section 6(b), the Company shall be deemed not to have used its best efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in Holders of Securities covered thereby not being able to offer and sell such Securities during that period, unless such action is required by applicable law; provided, --------- however, that the Company shall not be deemed to have voluntarily taken any ------- such action if it enters, in good faith, into negotiations concerning, or executes and delivers any agreement or other document relating to, any business combination, acquisition or disposition. (iii) Notwithstanding any other provisions of this Agreement to the contrary, the Company shall cause the Shelf Registration Statement and the related prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement, amendment or supplement, (i) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission and (ii) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) No Holder of Securities may include any of its Securities in the Shelf Registration Statement unless such Holder furnishes to the Company in writing, within 10 business days after receipt of a request therefor, such information and representations and 5 warranties as the Company may reasonably request for use in connection with the Shelf Registration Statement or prospectus or preliminary prospectus included therein. No Holder of Securities shall be entitled to Liquidated Damages, pursuant to Section 6 hereof, if such Holder's Securities are excluded from the Shelf Registration Statement because such Holder failed to furnish the Company in writing such information and representations and warranties reasonably requested by the Company for use in connection with the Shelf Registration Statement or prospectus or preliminary prospectus included therein. Each Holder as to which the Shelf Registration Statement is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously provided to the Company by such Holder not misleading. SECTION 3. REGISTRATION PROCEDURES In connection with the Shelf Registration contemplated by Section 2 hereof and, to the extent applicable, any Registered Exchange Offer contemplated by Section 1 hereof, the following provisions shall apply: (a) The Company shall (i) furnish to the Initial Purchaser, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and, in the event that the Initial Purchaser (with respect to any portion of an unsold allotment from the original offering) is participating in the Registered Exchange Offer or the Shelf Registration Statement, shall use its best efforts to reflect in each such document, when so filed with the Commission, such comments as the Initial Purchaser reasonably may propose; (ii) include the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement and include the information set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; (iii) if requested by the Initial Purchaser, include the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement; (iv) include within the prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution", reasonably acceptable to the Initial Purchaser, which shall contain a summary statement of the positions taken or policies made by the staff of the Commission with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of Exchange Notes received by such broker-dealer in the Registered Exchange Offer (a "Participating Broker-Dealer"), whether such positions or policies have been publicly disseminated by the staff of the Commission or such positions or policies, in the reasonable judgment of the Initial Purchaser based upon advice of counsel (which may be in-house counsel), represent the prevailing views of the staff of the Commission; and (v) in the case of a Shelf Registration Statement, include the names of the Holders who propose to sell Securities pursuant to the Shelf Registration Statement as selling securityholders. 6 (b) The Company shall give written notice to the Initial Purchaser, the Holders of the Securities and any Participating Broker-Dealer from whom the Company has received prior written notice that it will be a Participating Broker-Dealer in the Registered Exchange Offer (which notice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when the Registration Statement or any amendment thereto has been filed with the Commission and when the Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to the Registration Statement or the prospectus included therein or for additional information (provided, however, that with respect to any requests prior to the effectiveness of the Registration Statement, the Company shall be required to give written notice only to the Initial Purchaser and its counsel, Hughes Hubbard & Reed LLP); (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the Company to make changes in the Registration Statement or the prospectus in order that the Registration Statement or the prospectus does not contain an untrue statement of a material fact nor omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (c) The Company shall use its best efforts to obtain the withdrawal at the earliest possible time of any order suspending the effectiveness of the Registration Statement. (d) The Company shall furnish to each Holder of Securities included within the coverage of the Shelf Registration, without charge, at least one copy of the Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if the Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Company shall deliver to each Exchanging Dealer, to the Initial Purchaser, and to any other Holder who so requests, without charge, at least one copy of the Exchange Offer Registration Statement and any post- effective amendment thereto, including financial statements and schedules, and, if the Initial Purchaser or any such Holder requests, all exhibits thereto (including those incorporated by reference). 7 (f) The Company shall deliver to each Holder of Securities included within the coverage of the Shelf Registration, without charge, as many copies of the prospectus (including each preliminary prospectus) included in the Shelf Registration Statement and any amendment or supplement thereto as such person may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto included in the Shelf Registration Statement by each of the selling Holders of the Securities in connection with the offering and sale of the Securities covered by such prospectus, or any such amendment supplement. (g) The Company shall deliver to the Initial Purchaser, any Exchanging Dealer, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement and any amendment or supplement thereto as such persons may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by the Initial Purchaser, if necessary, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer in connection with the offering and sale of the Exchange Notes covered by the prospectus, or any amendment or supplement thereto, included in such Exchange Offer Registration Statement. (h) Prior to any public offering of the Securities, pursuant to any Registration Statement, the Company shall use its best efforts to register or qualify or cooperate with the Holders of the Securities included therein and their respective counsel in connection with the registration or qualification of the Securities for offer and sale under the securities or "blue sky" laws of such states of the United States as any Holder of the Securities reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities covered by such Registration Statement; provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified, (ii) take any action which would subject it to general service of process or to taxation in any jurisdiction where it is not then so subject or (iii) register or qualify Securities or take any other action under the securities or "blue sky" laws of any jurisdiction if, in the judgment of the Board of Directors of the Company, the consequences of such registration, qualification or other action would be unduly burdensome to the Company. (i) The Company shall cooperate with the Holders of the Securities to facilitate the timely preparation and delivery of certificates representing the Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders may request a reasonable period of time prior to sales of the Securities pursuant to such Registration Statement. (j) Upon the occurrence of any event contemplated by paragraphs (ii) through (v) of Section 3(b) above during the period for which the Company is required to maintain an effective Registration Statement, the Company shall promptly prepare and file a post-effective amendment to the Registration Statement or a supplement to the related prospectus and any other required document so that, as thereafter delivered to Holders of the Notes or the Exchange Notes 8 or purchasers of Securities, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Initial Purchaser, the Holders of the Securities and any known Participating Broker-Dealer in accordance with paragraphs (ii) through (v) of Section 3(b) above to suspend the use of the prospectus until the requisite changes to the prospectus have been made, then the Initial Purchaser, the Holders of the Securities and any such Participating Broker-Dealers shall suspend use of such prospectus, and the period of effectiveness of the Shelf Registration Statement provided for in Section 2 above and the Exchange Offer Registration Statement provided for in Section 1 above shall each be extended (i) by the number of days from and including the date of the giving of such notice to and including the date when the Initial Purchaser, the Holders of the Securities and any known Participating Broker-Dealer shall have received such amended or supplemented prospectus pursuant to this Section 3(j) or (ii) if earlier, until the date when none of the Securities represent Transfer Restricted Notes (as defined in Section 6(d)). (k) Not later than the effective date of the applicable Registration Statement, the Company will provide a CUSIP number for the Notes, the Exchange Notes or the Private Exchange Notes, as the case may be, and provide the applicable trustee with printed certificates for the Notes, the Exchange Notes or the Private Exchange Notes, as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company will comply with all rules and regulations of the Commission to the extent and so long as they are applicable to the Registered Exchange Offer or the Shelf Registration and will make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Securities Act, no later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement, which statement shall cover such 12-month period. (m) The Company shall cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended, in a timely manner and containing such changes, if any, as shall be necessary for such qualification. In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture. (n) The Company may require each Holder of Securities to be sold pursuant to the Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of the Securities as the Company may from time to time reasonably require for inclusion in the Shelf Registration Statement, and the Company may exclude from such registration the Securities of any Holder that unreasonably fails to furnish such information within a reasonable time after receiving such request. 9 (o) The Company shall enter into such customary agreements (including if requested an underwriting agreement in customary form) and take all such other action, if any, as may be required in order to facilitate the disposition of the Securities pursuant to any Shelf Registration. (p) In the case of any Shelf Registration, subject to appropriate confidentiality arrangements being entered into, the Company shall (i) make available at reasonable times for inspection by the Holders of the Securities, any underwriter participating in any disposition pursuant to the Shelf Registration Statement and any attorney, accountant or other agent retained by the Holders of the Securities or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and (ii) cause the Company's officers, directors, employees, accountants and auditors to supply all relevant information reasonably requested by the Holders of the Securities or any such underwriter, attorney, accountant or agent in connection with the Shelf Registration Statement, in each case, as shall be reasonably necessary, in the judgment of the Holder or any such underwriter, attorney, accountant or agent referred to in this paragraph, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act. (q) In the case of any Shelf Registration, the Company, if requested by any Holder of Securities covered thereby, shall cause (i) its counsel to deliver an opinion and updates thereof relating to the Securities in customary form addressed to such Holders and the managing underwriters, if any, thereof and dated, in the case of the initial opinion, the effective date of such Shelf Registration Statement covering the matters customarily covered in opinions of counsel requested in underwritten offerings and such other matters as may be reasonably requested by the managing underwriter or underwriters; (ii) its officers to execute and deliver all customary documents and certificates and updates thereof reasonably requested by any underwriters of the applicable Securities; and (iii) its independent public accountants to provide to the selling Holders of the applicable Securities and any underwriter therefor a comfort letter in customary form and covering matters of the type customarily covered in comfort letters in connection with primary underwritten offerings, subject to receipt of appropriate documentation as contemplated, and only if permitted, by Statement of Auditing Standards No. 72. (r) In the case of the Registered Exchange Offer, if requested by the Initial Purchaser or any known Participating Broker-Dealer, the Company shall cause (i) its counsel to deliver to the Initial Purchaser or such Participating Broker-Dealer, signed opinions in the forms set forth in Section 5(e) of the Purchase Agreement with such changes as are customary in connection with the preparation of a Registration Statement and (ii) its independent public accountants to deliver to the Initial Purchaser or such Participating Broker- Dealer a comfort letter, in customary form, meeting the requirements as to the substance thereof as set forth in Section 5(i) of the Purchase Agreement, with appropriate date changes. (s) If a Registered Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Notes by Holders to the Company (or to such other Person as directed by the Company) in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be, the Company shall mark, or cause to be marked, on the Notes so exchanged that 10 such Notes are being cancelled in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be; in no event shall the Notes be marked as paid or otherwise satisfied. (t) In the event that any broker-dealer registered under the Exchange Act shall underwrite any Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Rules of Fair Practice and the By-Laws of the National Association of Securities Dealers, Inc. ("NASD")) thereof, whether as a Holder of such Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Company shall assist such broker-dealer in complying with the requirements of such Rules and By-Laws (including without limitation the indemnification of any "qualified independent underwriter" required thereby). (u) The Company will use its best efforts to cause the Transfer Restricted Securities to be eligible for inclusion in the National Association of Securities Dealers, Inc. Private Offerings, Resales and Trading through Automated Linkages trading system. (v) The Company shall use its best efforts to take all other steps necessary to effect the registration of the Securities covered by a Registration Statement contemplated hereby. (w) The Company agrees that it will not include in the registration contemplated by the Shelf Registration Statement any securities other than the Securities. SECTION 4. REGISTRATION EXPENSES The Company shall bear all fees and expenses incurred in connection with the performance of its obligations under Sections 1 through 3 hereof (including the reasonable fees and expenses of Hughes Hubbard & Reed LLP, counsel for the Initial Purchaser, incurred in connection with the Registered Exchange Offer), whether or not the Registered Exchange Offer or a Shelf Registration is filed or becomes effective, and, in the event of a Shelf Registration, shall bear, or reimburse the Holders of the Securities covered thereby for, the reasonable fees and disbursements of one firm of counsel designated by the Holders of a majority in principal amount of the Securities covered thereby to act as counsel for the Holders of the Securities in connection therewith, it being understood that the Company shall not be responsible for the fees and expenses of more than one counsel employed at any one time. The Company will, in any event, bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, and the fees and expenses of any Person, including special experts, retained by the Company. The Holders shall bear the expense of any broker's commission or underwriters' discount or commission. SECTION 5. INDEMNIFICATION (a) The Company agrees to indemnify and hold harmless each Holder of the Securities, any Participating Broker-Dealer and each person, if any, who controls such Holder or such Participating Broker-Dealer within the meaning of the Securities Act or the Exchange Act 11 (each Holder, any Participating Broker-Dealer and such controlling persons being referred to in this Section 5(a) collectively as the "indemnified parties" from and against any losses, claims, damages or liabilities, joint or several, or any actions in respect thereof (including, but not limited to, any losses, claims, damages, liabilities or actions relating to purchases and sales of the Securities) to which each indemnified party may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto, or arise out of, or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and shall reimburse the indemnified parties for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action in respect thereof; provided, however, that (i) the Company shall not be liable in any such case to - ----------------- the extent that such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein, (ii) with respect to any untrue statement or omission or alleged untrue statement or omission made in any prospectus relating to such registration statement, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any person as to which there is a prospectus delivery requirement (a "Delivering Seller") that sold the Securities to the person asserting any such losses, claims, damages or liabilities to the extent that any such loss, claim, damage or liability of such Delivering Seller results from the fact that there was not sent or given to such person, on or prior to the written confirmation of such sale, a copy of the relevant prospectus, as amended and supplemented, provided that (I) the Company shall have previously furnished copies thereof to such Delivering Seller in accordance with this Agreement and (II) such furnished prospectus, as amended and supplemented, would have corrected any such untrue statement or omission or alleged untrue statement or omission, and (iii) this indemnity agreement will be in addition to any liability which the Company may otherwise have to such indemnified party. The Company shall also indemnify underwriters, selling brokers, dealer-managers and similar securities industry professionals participating in the distribution (in each case as described in the Registration Statement), their officers and directors and each person who controls such persons within the meaning of the Securities Act or the Exchange Act to the same extent as provided above with respect to the indemnification of the Holders of the Securities if requested by such Holders; provided, however, that the Company shall not indemnify any such party to the extent its liability arises from its failure to comply with the requirements described in Annexes A, B and C hereto, as updated. (b) Each Holder of the Securities, severally and not jointly, will indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act from and against any losses, claims, damages or liabilities or any actions in respect thereof to which the Company or any such controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as 12 such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein; and, subject to the limitation set forth immediately preceding this clause, shall reimburse, as incurred, the Company for any legal or other expenses reasonably incurred by the Company or any such controlling person in connection with investigating or defending any loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability which such Holder may otherwise have to the Company or any of its controlling persons. (c) Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action or proceeding (including a governmental investigation), such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 5, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above, except to the extent that it is prejudiced or harmed in any material respect by failure to give such prompt notice. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with one counsel (and local counsel as necessary) reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof the indemnifying party will not be liable to such indemnified party under this Section 5 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof. No indemnifying party shall, without the prior written consent of the indemnified party, not to be unreasonably withheld, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action and does not include any injunctive relief against such indemnified party. No indemnifying party shall be liable for any amounts paid in settlement of any action or claim without its written consent, which consent shall not be unreasonably withheld. (d) If the indemnification provided for in this Section 5 is unavailable or insufficient to hold harmless an indemnified party under subsections (a) or (b) above for any reason other than as provided in subsection (c) above, then each indemnifying party shall 13 contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the exchange of the Notes, pursuant to the Registered Exchange Offer, or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or such Holder or such other indemnified person, as the case may be, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding any other provision of this Section 5(d), the Holders of the Securities shall not be required to contribute any amount in excess of the amount by which the net proceeds received by such Holders from the sale of the Securities pursuant to a Registration Statement exceeds the amount of damages which such Holders have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each officer, director, employee, representative and agent of an indemnified party and each person, if any, who controls such indemnified party within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as such indemnified party, and each officer, director, employee, representative and agent of the Company and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as the Company. (e) The agreements contained in this Section 5 shall survive the sale of the Securities pursuant to a Registration Statement and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any indemnified party. SECTION 6. LIQUIDATED DAMAGES (a) If any of the following events occurs (each such event in clauses (i) through (iii) below a "Registration Default"): 14 (i) if by May 30, 1997, neither the Exchange Offer Registration Statement nor a Shelf Registration Statement has been filed with the Commission; (ii) if by September 29, 1997, neither the Registered Exchange Offer is consummated nor, if required in lieu thereof, the Shelf Registration Statement is declared effective by the Commission; or (iii) if after either the Exchange Offer Registration Statement or the Shelf Registration Statement is declared effective (A) such Registration Statement thereafter ceases to be effective; or (B) such Registration Statement or the related prospectus ceases to be usable (except as permitted in paragraph (b)) in connection with resales of Transfer Restricted Notes during the periods specified herein, the Company will pay liquidated damages ("Liquidated Damages") to each Holder of Transfer Restricted Notes, during the first 90-day period immediately following such Registration Default in an amount equal to $0.05 per week per Transfer Restricted Note held by such Holder. The amount of the Liquidated Damages will increase by an additional $0.05 per week per Transfer Restricted Note, for each subsequent 90-day period until the date on which the Exchange Offer Registration Statement or Shelf Registration Statement is declared effective or such Registration Statement again becomes effective, or such Registration Statement prospectus becomes usable as the case may be, up to a maximum Liquidated Damages with respect to any Registration Default of $0.25 per week per Transfer Restricted Note. Such Liquidated Damages are payable in addition to any other interest payable from time to time with respect to the Securities. (b) A Registration Default referred to in Section 6(a)(iii) shall be deemed not to have occurred and be continuing in relation to a Shelf Registration Statement or the related prospectus if (i) such Registration Default has occurred solely as a result of (x) the filing of a post-effective amendment to such Shelf Registration Statement to incorporate annual audited or, if required by the rules and regulations under the Securities Act, quarterly unaudited financial information with respect to the Company where such post- effective amendment is not yet effective and needs to be declared effective to permit Holders to use the related prospectus or (y) other material events or developments with respect to the Company that would need to be described in such Shelf Registration Statement or the related prospectus and (ii) in the case of clause (y), the Company is proceeding promptly and in good faith to amend or supplement such Shelf Registration Statement and related prospectus to describe such events; provided, however, that in no event shall the Company be required to disclose the business purpose for such suspension if the Company determines in good faith that such business purpose must remain confidential; provided further, however, that in any case if such Registration Default occurs for a continuous period in excess of 45 days, Liquidated Damages shall be payable in accordance with the above paragraph from the day following such 45 day period until the date on which such Registration Default is cured. (c) All accrued Liquidated Damages shall be payable by the Company in cash on the regular interest payment dates with respect to the Notes or the Exchange Notes to the Holders of record on the applicable record dates. The parties hereto agree that the Liquidated 15 Damages provided in this Section constitute a reasonable estimate of the damages that will be incurred by the Holders by reason of the failure of the Exchange Offer Registration Statement or the Shelf Registration Statement to be filed, declared effective or to remain effective or such Registration Statement or related prospectus to be usable, as the case may be. (d) "Transfer Restricted Notes" means each Security until (i) the date on which such Transfer Restricted Note has been exchanged by a person other than a broker-dealer for a freely transferable Exchange Note in the Registered Exchange Offer, (ii) following the exchange by a broker-dealer in the Registered Exchange Offer of a Transfer Restricted Note for an Exchange Note, the date on which such Exchange Note is sold to a purchaser who receives from such broker- dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such Transfer Restricted Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Transfer Restricted Note is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. SECTION 7. RULE 144 AND RULE 144A The Company shall use its reasonable best efforts to file on a timely basis all such reports required to be filed under the Securities Act as, and endeavor in good faith to take such other actions as, are reasonably necessary to enable Holders to sell Transfer Restricted Securities without registration under the Securities Act within the limitation of the exemptions provided under (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, (b) Rule 144A under the Securities Act, as such Rule may be amended from time to time, and (c) any similar rules or regulations hereafter adopted by the Commission. Upon request of any Holder of Transfer Restricted Securities, the Company will provide a written statement as to whether it has complied with such requirements and will, at its expense, forthwith upon the request of the Initial Purchaser, deliver to the Initial Purchaser a certificate, signed by the Company's principal financial officer, stating (a) the Company's name, address and telephone number (including area code), (b) the Company's Internal Revenue Service identification number, (c) the Company's Commission file number, (d) the number of shares of each class of capital stock outstanding as shown by the most recent report or statement published by the Company, and (e) whether the Company has filed the reports required to be filed under the Exchange Act for a period of at least ninety (90) days prior to the date of such certificate and in addition has filed the most recent annual report required to be filed thereunder. SECTION 8. UNDERWRITING If any of the Transfer Restricted Securities covered by any Shelf Registration Statement are to be sold in an underwritten offering, the investment banker(s) and manager(s) that will manage the offering will be selected by the Holders of a majority of the then outstanding Transfer Restricted Securities (determined in accordance with Section 9(d)) included in such offering (after consultation with the Company as to such selection and upon the written consent of the Company, which consent will not be unreasonably withheld or delayed). If 16 requested by the underwriters, the Company will promptly enter into an underwriting agreement reasonably acceptable to the Company with such underwriters for such offering, such agreement to contain such representations and warranties by the Company and such other terms and conditions as are customary for underwriting agreements with respect to secondary offerings, including without limitation, indemnities to the effect and to the extent provided in Section 5 hereof. The Holders of Transfer Restricted Securities on whose behalf such securities are being distributed shall be party to any such underwriting agreement. Such Holders shall not be required by the Company to make any representations or warranties to the underwriters with respect to the Company or the Transfer Restricted Securities (other than that the Holders are conveying such securities free and clear of all pledges, securities interests, liens, charges, encumbrances, agreements, equities, claims and options of whatever nature), and the Holders shall not be required to indemnify the Company or the underwriters (other than with respect to the matters, and to the extent, provided in Section 5). Furthermore, the Company shall make available for inspection by the Holders, any underwriter participating in any disposition pursuant to such Shelf Registration Statement, and any attorney, accountant or other agent retained by the Holders or underwriter, all financial and other records and other information, pertinent corporate documents and properties of the Company as shall be reasonably necessary to enable them to exercise their due diligence responsibilities. No Holder of Transfer Restricted Securities may participate in any underwritten distribution hereunder unless such holder (a) agrees to sell such Holder's Transfer Restricted Securities on the basis provided in any underwriting arrangements approved in accordance with the terms hereof, and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. The Company agrees not to effect any private or public sale or distribution of any of its securities during the period beginning seven days prior to, and ending 90 days after, the date on which the Shelf Registration Statement becomes effective, except for (i) the Warrants, (ii) shares of Common Stock issuable upon exercise of the Warrants, (iii) shares of Common Stock issuable upon the exercise of the presently outstanding stock options and other options to be granted under the Company's Key Employee Stock Incentive Program, Employee Stock Incentive Plan, 1995 Outside Directors' Stock Option and Stock Compensation Plan in accordance with the terms thereof, (iv) shares of Common Stock issuable pursuant to the exercise of warrants outstanding as of the date of this Agreement, (v) the conversion of shares of the Company's Employee Preferred Stock, or the Company's 8% Cumulative Convertible Exchangeable Preferred Stock (vi) shares of Common Stock or Employee Preferred Stock issuable under the Company's plan of reorganization, (vii) shares of the Company's Series A Participating Cumulative Preferred Stock issuable upon conversion of the stock purchase rights described in the Rights Agreement dated as of December 19, 1995 between the Company and American Stock Transfer and Trust Company, as Rights' Agent or (viii) securities issuable pursuant to registrations by the Company on Forms S-4 or S-8 or any successors thereto. 17 SECTION 9. MISCELLANEOUS (a) Remedies. Each Holder of Securities, in addition to being --------- entitled to exercise all rights provided herein, and as provided in the Purchase Agreement and granted by law, including the recovery of damages, shall be entitled to specific performance of such Holder's rights under this Agreement. Except with respect to the payment of Liquidated Damages in the event of the occurrence of a Registration Default, the Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees in any action for specific performance to waive the defense that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company has not and shall not on --------------------------- or after the date of this Agreement enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders of Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders of Securities hereunder do not and will not in any way conflict with and are not and will not be inconsistent with the rights granted to the holders of the Company's other securities under any other agreements. No Holder of any securities of the Company has rights to the registration of any securities of the Company because of the execution, delivery or performance by the Company of this Agreement or as a result of the filing of the Exchange Offer Registration Statement or the Shelf Registration Statement. (c) No Adverse Action Affecting the Securities. The Company has not ------------------------------------------- taken and will not take, any action, or permit any change to occur with respect to the Securities which would adversely affect the ability of any of the Holders of Securities to include such Securities in a registration undertaken pursuant to this Agreement. (d) Amendments and Waivers. The provisions of this Agreement, ----------------------- including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of a majority of the outstanding principal amount of Transfer Restricted Notes. Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders of Transfer Restricted Notes whose Transfer Restricted Notes are being sold pursuant to the Shelf Registration Statement and that does not directly or indirectly affect the rights of other Holders of Transfer Restricted Notes may be given by the Holders of a majority of the Transfer Restricted Notes being sold. (e) Notices. All notices and other communications provided for or -------- permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telex, telecopier, or air courier guaranteeing overnight deliver: (i) if to a Holder of Securities, at the address set forth on the records of the Company or the Trustee under the Indenture, with a copy to the Trustee, and if the Initial Purchaser, at the addresses set forth in the Purchase Agreement; and 18 (ii) if to the Company, initially at its address set forth in the Purchase Agreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Section. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and on the next business day, if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee under the Indenture at the address specified in the Indenture. (f) Successors and Assigns. This Agreement shall inure to the benefit ----------------------- and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Securities. (g) Counterparts. This Agreement may be executed in any number of ------------- counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of --------- reference only and shall not limit or otherwise affect the meaning hereof. (i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED -------------- IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. (j) Severability. In the event that any one or more of the provisions ------------- contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (k) Entire Agreement. This Agreement is intended by the parties as a ----------------- final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Company with respect to the Securities except as provided in the Indenture and in the Purchase Agreement. This Agreement supersedes all prior agreements and understandings between the parties with respect to the subject matter hereof. 19 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. TRANS WORLD AIRLINES, INC. By: /s/ Michael J. Lichty ----------------------- Name: Title: PAINEWEBBER INCORPORATED By: PaineWebber Incorporated By: /s/ Joseph M. Cerulli ------------------------ Name: Title: 20 ANNEX A Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Notes where such Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." 21 ANNEX B Each broker-dealer that receives Exchange Notes for its own account in exchange for Notes, where such Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." 22 ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account pursuant to the Registered Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Existing Notes where such Existing Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 199 , all dealers ----- - effecting transactions in the Exchange Notes may be required to deliver a prospectus./*/ The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer (including the reasonable expenses of one counsel for the Holders of the Notes) other than commissions or concessions of any brokers or dealers and will indemnify the Holders of Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. - ---------------------- /*/ In addition, the legend required by Item 502(e) of Regulation S-K will appear on the back cover page of the Exchange Offer prospectus. 23 ANNEX D [_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: ------------------------------------------------------ Address: -------------------------------------------------- -------------------------------------------------- If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. 24 EX-4.18 6 WARRANT AGREEMENT WARRANT AGREEMENT dated as of March 31, 1997 (this "Agreement"), between TRANS WORLD AIRLINES, INC., a Delaware corporation (the "Company"), and AMERICAN STOCK TRANSFER & TRUST COMPANY, as Warrant Agent (the "Warrant Agent"). The Company desires to issue the redeemable warrants (the "Warrants") described herein. The Warrants will be issued in connection with an offering by the Company (the "Units Offering") of 50,000 units (the "Units") (subject to adjustment to up to 57,500 Units in the event that PaineWebber Incorporated (the "Initial Purchaser") exercises its over-allotment option (the "Over-Allotment Option") pursuant to the Purchase Agreement dated as of March 27, 1997, between the Initial Purchaser and the Company) each consisting of (i) 12% Senior Secured Notes Due 2002 with a principal amount at maturity of $1,000 (collectively, the "Notes") and (ii) one Warrant. Each Warrant will entitle the holder thereof (the "Holder") to purchase 126.26 shares of common stock, par value, $0.01 per share of the Company ("Common Stock"), subject to adjustment as provided herein. In connection with the sale of the Units, 50,000 Warrants (subject to adjustment in the event that the Initial Purchaser exercises the Over-Allotment Option) will be issued to the purchasers of the Units which 50,000 Warrants will initially entitle the Holders thereof to purchase in the aggregate 6,313,000 shares of Common Stock. The Warrants and Notes will not be separately transferable until the earliest of (i) June 29, 1997, (ii) the date on which an exchange offer registration statement or a shelf registration statement for the Notes is declared effective by the Securities and Exchange Commission or (iii) such date as PaineWebber Incorporated shall determine (the "Separation Date"). The Company further desires the Warrant Agent to act on behalf of the Company in connection with the issuance of the Warrants as provided herein and the Warrant Agent is willing to so act. Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the holders of Warrants: ARTICLE 1 DEFINITIONS ----------- SECTION 1.01. Definitions. ----------- "Affiliate" of any Person means (i) any other Person which, directly or indirectly, is in control of, is controlled by or is under common control with such Person, or (ii) any other Person who is a director or executive officer (A) of such Person, (B) of any subsidiary of such Person or (C) of any Person described in clause (i) above. For purposes hereof, (a) "control" of a Person means the power, direct or indirect, to direct or cause the direction of the management and policies of such Person whether by contract or otherwise and (b) beneficial ownership of 5% 1 or more of the voting common equity (on a fully diluted basis) or warrants to purchase such equity (whether or not currently exercisable) of a Person shall be deemed to be in control of such Person; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Board" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board of Directors. "Business Day" means each day that is not a Saturday, a Sunday or a day on which banking institutions are not required to be open in the State of New York. "Combination" means an event in which the Company consolidates with, merges with or into, or sells all or substantially all of its assets to another Person. "Current Market Value" per share of Common Stock or any other security at any date means (i) if the security is not registered under the Exchange Act, (a) the value of the security, determined in good faith by the Board and certified in a board resolution, based on the most recently completed arm's- length transaction between the Company and a Person other than an Affiliate of the Company and the closing of which occurs on such date or shall have occurred within the six-month period preceding such date, or (b) if no such transaction shall have occurred on such date or within such six-month period, the value of the security as determined by an independent financial expert or (ii) if the security is registered under the Exchange Act, the average of the daily closing prices (or the equivalent in an over-the-counter market) for each Business Day during the period commencing 15 Business Days before such date and ending on the date one day prior to such date, or if the security has been registered under the Exchange Act for less than 15 consecutive Business Days before such date, the average of the daily closing bid prices (or such equivalent) for all of the Business Days before such date for which daily closing bid prices are available; provided, however, that if the closing bid price is not determinable for at least ten Business Days in such period, the "Current Market Value" of the security shall be determined as if the security were not registered under the Exchange Act. "DTC" means The Depository Trust Company, or any successor thereto. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exercise Date" means, for a given Warrant, the day on which such Warrant is exercised pursuant to Section 3.04. "Indenture" means the Indenture dated as of March 31, 1997, from the Company to the Trustee, with respect to the Notes, as it may be amended or supplemented from time to time. "Issue Date" means the date on which Warrants are initially issued. "Officer" means the Chairman of the Board, the President, any Vice President, the Treasurer, or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Company. 2 "Person" means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "SEC" means the Securities and Exchange Commission, or any successor agency or body performing substantially similar functions. "Securities Act" means the Securities Act of 1933, as amended. "Trustee" means First Security Bank, National Association or any successor trustee under the Indenture. "Warrant Certificates" mean the registered certificates (including without limitation, the global certificates) issued by the Company under this Agreement representing the Warrants. "Warrant Shares" mean the shares of Common Stock (and any other securities) for which the Warrants are exercisable. SECTION 1.02. Other Definitions. ------------------ Defined in Term Section ---- ---------- "Agreement"................................................ Recitals "Certificate Register"..................................... 2.04 "Common Stock"............................................. Recitals "Company".................................................. Recitals "Delivering Seller......................................... 5.05 "Employee Preferred Stock"................................. 4.04 "ESIP"..................................................... 4.04 "Exempted Issuances"....................................... 4.04 "Exercise Price"........................................... 3.01 "Expiration Date".......................................... 3.02(b) "Holders".................................................. Recitals "KESIP".................................................... 4.04 "Notes".................................................... Recitals "Notice of Redemption"..................................... 3.09 "Redemption Date".......................................... 3.09 "Redemption Price.......................................... 3.09 "Registrar"................................................ 3.07 "Rights.................................................... 4.02 "Rights Agreement.......................................... 4.02 "Separability Legend"...................................... 2.02(b) "Separation Date".......................................... Recitals "Successor Company"........................................ 4.05(a) 3 "Transfer Agent"........................................... 3.05 "Transfer Restricted Warrant".............................. 5.08 "Transfer Restricted Warrant Share"........................ 5.08 "Units".................................................... Recitals "Warrant Agent"............................................ Recitals "Warrant Liquidated Damages"............................... 5.08 "Warrant Registration Default"............................. 5.08 "Warrants"................................................. Recitals "Warrant Shelf Registration Statement"..................... 5.01 SECTION 1.03. Rules of Construction. Unless the text otherwise ---------------------- requires: (i) a defined term has the meaning assigned to it; (ii) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles as in effect from time to time; (iii) "or" is not exclusive; (iv) "including" means including without limitation; and (v) words in the singular include the plural and words in the plural include the singular. ARTICLE 2 WARRANT CERTIFICATES -------------------- SECTION 2.01. Form and Dating. Each Warrant Certificate shall be --------------- substantially in the form of Exhibit A, which is hereby incorporated in and expressly made a part of this Agreement. The Warrant Certificates may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Company) and shall bear the legends required by Section 2.02. Each Warrant Certificate shall be dated the date of its countersignature. The terms of the Warrant Certificate set forth in Exhibit A are part of the terms of this Agreement. SECTION 2.02 Legends. (a) Each Warrant Certificate shall bear the ------- following legend: "THE COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF THE COMPANY FOR WHICH THIS WARRANT IS EXERCISABLE MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES ABSENT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ANY APPLICABLE STATE SECURITIES 4 LAWS OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. ACCORDINGLY, NO HOLDER SHALL BE ENTITLED TO EXERCISE SUCH HOLDER'S WARRANTS AT ANY TIME UNLESS, AT THE TIME OF EXERCISE, (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT RELATING TO THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAS BEEN FILED WITH, AND DECLARED EFFECTIVE BY, THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), AND NO STOP ORDER SUSPENDING THE EFFECTIVENESS OF SUCH REGISTRATION STATEMENT HAS BEEN ISSUED BY THE SEC, OR (ii) THE ISSUANCE OF SUCH SHARES IS PERMITTED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS." (b) Each Warrant Certificate issued prior to the Separation Date shall bear the following legend (the "Separability Legend"): "THE WARRANTS REPRESENTED BY THIS CERTIFICATE WERE INITIALLY ISSUED AS PART OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF $1,000 PRINCIPAL AMOUNT AT MATURITY OF 12% SENIOR SECURED NOTES DUE 2002 OF TRANS WORLD AIRLINES, INC. (THE "NOTES") AND ONE WARRANT. PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EARLIEST OF (i) JUNE 29, 1997, (ii) THE DATE ON WHICH AN EXCHANGE OFFER REGISTRATION STATEMENT OR A SHELF REGISTRATION STATEMENT FOR THE NOTES IS DECLARED EFFECTIVE BY THE SECURITIES AND EXCHANGE COMMISSION OR (iii) SUCH EARLIER DATE AS PAINEWEBBER INCORPORATED MAY, IN ITS DISCRETION, DEEM APPROPRIATE, THE WARRANTS REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, THE NOTES." (c) Each Warrant Certificate issued prior to the second anniversary of the original issuance of the Units, unless otherwise agreed by the Company and the Holder thereof, shall bear the following legends: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT, OR ANY STATE SECURITIES LAWS. NEITHER THESE SECURITIES NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED 5 THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER." "THE HOLDER OF THESE SECURITIES BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL, OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE RESALE RESTRICTION TERMINATION DATE WHICH IS THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE DATE OF ORIGINAL ISSUANCE AND THE LAST DATE ON WHICH THE CORPORATION OR ANY AFFILIATE OF THE CORPORATION WAS THE OWNER OF THESE SECURITIES (OR ANY PREDECESSOR OF THESE SECURITIES) ONLY (A) TO THE CORPORATION, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE CORPORATION'S AND THE TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE, OR TRANSFER (i) PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THESE SECURITIES IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE." (d) Each Warrant Certificate issued in global form and deposited with DTC shall bear the following legends: "UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK 6 CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN." "TRANSFERS OF THIS GLOBAL WARRANT SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE WARRANT AGREEMENT REFERRED TO HEREIN." (e) Each Warrant issued in definitive form will also bear the following additional legend: "IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS." "BY ITS ACQUISITION HEREOF, THE HOLDER REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S." SECTION 2.03. Execution and Countersignature. Two Officers shall sign ----------------------------- the Warrant Certificates for the Company by manual or facsimile signature. The Company's seal shall be impressed, affixed, imprinted or reproduced on the Warrant Certificate and may be in facsimile form. If an Officer whose signature is on a Warrant Certificate no longer holds that office at the time the Warrant Agent countersigns the Warrant Certificate, the Warrant Certificate shall nevertheless be valid. A Warrant Certificate shall not be valid until an authorized signatory of the Warrant Agent manually countersigns the Warrant Certificate. Such authorized signature shall be conclusive evidence that the Warrant Certificate has been countersigned under this Agreement. The Warrant Agent shall initially countersign and deliver Warrant Certificates entitling the Holders thereof to purchase in the aggregate not more than 6,313,000 Warrant 7 Shares upon a written order of the Company signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of the Company. The Warrant Agent may appoint an agent reasonably acceptable to the Company to countersign the Warrant Certificates. Unless limited by the terms of such appointment, such agent may countersign Warrant Certificates whenever the Warrant Agent may do so. Each reference in this Agreement to countersignature by the Warrant Agent includes countersignature by such agent. Such agent will have the same rights as the Warrant Agent for service of notices and demands. SECTION 2.04. Certificate Register. The Warrant Agent shall keep a ------------------- register ("Certificate Register") of the Warrant Certificates and of their transfer and exchange. The Certificate Register shall show the names and addresses of the respective Holders and the date and number of Warrants represented on the face of each Warrant Certificate. The Company and the Warrant Agent may deem and treat the Person in whose name a Warrant Certificate is registered as the absolute owner of such Warrant Certificate for all purposes whatsoever and neither the Company nor the Warrant Agent shall be affected by notice to the contrary. SECTION 2.05. Separation of Warrants and Notes. (a) Prior to the -------------------------------- Separation Date, no Warrant may be sold, assigned or otherwise transferred to any Person unless, simultaneously with such transfer, the Warrant Agent receives confirmation from the Trustee for the Notes that the Holder thereof has requested a transfer of the related Notes to the same transferee. (b) On or after the Separation Date, the holder of a Warrant Certificate containing a Separability Legend may surrender such Warrant Certificate accompanied by a written application to the Warrant Agent, duly executed by the Holder thereof, for a new Warrant Certificate or certificates not containing the Separability Legend. SECTION 2.06. Transfer and Exchange. The Warrant Certificates shall --------------------- be issued in registered form only and shall be transferable only upon the surrender of such Warrant Certificate for registration of transfer. When a Warrant Certificate is presented to the Warrant Agent with a request to register a transfer, the Warrant Agent shall register the transfer as requested if the reasonable requirements of the Warrant Agent and of Section 8-401(1) of the Uniform Commercial Code as in effect in the State of New York are met; provided, however, that prior to the Separation Date the Warrant Agent shall not register a transfer of a Warrant Certificate and such transfer will be void and of no effect unless the Notes that are a part of the same Unit as the Warrants represented by the Warrant Certificate to be transferred are simultaneously transferred to the same transferee. To permit the registration of transfers and exchanges, the Company shall execute and the Warrant Agent shall countersign Warrant Certificates at the Warrant Agent's request. All Warrant Certificates issued upon any registration of transfer or exchange of Warrant Certificates shall be valid obligations of the Company, entitled to the same benefits under this Agreement as the Warrant Certificates surrendered upon such registration of transfer or exchange. No service charge will be made to a Holder for any registration of transfer or exchange upon surrender of any Warrant Certificate at the office of the 8 Warrant Agent maintained for that purpose. However, the Company may require payment of a sum sufficient to cover any tax, assessment or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Warrant Certificates but not for any exchange or original issuance (not involving a transfer) pursuant to Section 2.08, 3.04 or 3.05. SECTION 2.07. Replacement Certificates. If a mutilated Warrant ------------------------ Certificate is surrendered to the Warrant Agent or if the Holder of a Warrant Certificate claims that the Warrant Certificate has been lost, destroyed or wrongfully taken, the Company shall issue and the Warrant Agent shall countersign a replacement Warrant Certificate if the reasonable requirements of the Warrant Agent and of Section 8-405 of the Uniform Commercial Code as in effect in the State of New York are met. If required by the Warrant Agent or the Company, such Holder shall furnish an indemnity bond sufficient in the judgment of the Company and the Warrant Agent to protect the Company and the Warrant Agent from any loss which either of them may suffer if a Warrant Certificate is replaced. The Company and the Warrant Agent may charge the Holder for their expenses in replacing a Warrant Certificate. Every replacement Warrant Certificate is an additional obligation of the Company. SECTION 2.08. Temporary Certificates. Until definitive Warrant ---------------------- Certificates are ready for delivery, the Company may prepare and the Warrant Agent shall countersign temporary Warrant Certificates. Temporary Warrant Certificates shall be substantially in the form of definitive Warrant Certificates but may have variations that the Company considers appropriate for temporary Warrant Certificates. Without unreasonable delay, the Company shall prepare and the Warrant Agent shall countersign definitive Warrant Certificates and deliver them in exchange for temporary Warrant Certificates. SECTION 2.09. Cancellation. (a) In the event the Company shall ------------ purchase or otherwise acquire Warrant Certificates, the same shall thereupon be delivered to the Warrant Agent for cancellation. (b) The Warrant Agent and no one else shall cancel and destroy all Warrant Certificates surrendered for transfer, exchange, replacement, exercise or cancellation and deliver a certificate of such destruction to the Company unless the Company directs the Warrant Agent to deliver canceled Warrant Certificates to the Company. The Company may not issue new Warrant Certificates to replace Warrant Certificates to the extent they represent Warrants which have been exercised or Warrants which the Company has purchased or otherwise acquired. ARTICLE 3 EXERCISE TERMS -------------- SECTION 3.01. Exercise Price. Each Warrant shall initially entitle -------------- the Holder thereof, subject to adjustment pursuant to the terms of this Agreement, to purchase 126.26 shares of Common Stock for a per share exercise price (the "Exercise Price") of $7.92. 9 SECTION 3.02. Exercise Periods. (a) Subject to the terms and ---------------- conditions set forth herein, the Warrants shall be exercisable at any time or from time to time on or after March 31, 1998; provided, however, that Holders of Warrants will be able to exercise their Warrants only if (i) the Warrant Shelf Registration Statement is effective, or (ii) the exercise of such Warrants is exempt from the registration requirements of the Securities Act, and the Warrant Shares are qualified for sale or exempt from qualification under the applicable securities laws of the states or other jurisdictions in which such holders reside. (b) No Warrant shall be exercisable after the earlier of 5:00 p.m. New York City time on (i) April 1, 2002 (the "Expiration Date"), or (ii) if the Company exercises its right to redeem such Warrant pursuant to Section 3.09 hereof and has deposited with the Warrant Agent in accordance with Section 3.09(c) hereof, cash or an irrevocable letter of credit issued by a national or state bank sufficient in amount to purchase all of the Warrants stated in the applicable Notice of Redemption (as defined in Section 3.09) given to the Warrant Agent, the applicable Redemption Date (as defined in Section 3.09). SECTION 3.03. Expiration. Each Warrant shall terminate and become ---------- void as of the earliest of (i) the close of business on the Expiration Date, (ii) the date such Warrant is exercised or (iii) the date on which the Redemption Price (as defined in Section 3.09) with respect to such Warrant is paid to the Holder thereof. The Company shall give notice not less than 90 and not more than 120 days prior to the Expiration Date to the Holders of all then outstanding Warrants to the effect that the Warrants will terminate and become void as of the close of business on the Expiration Date; provided, however, that if the Company fails to give notice as provided in this Section 3.03, the Warrants will nevertheless expire and become void on the Expiration Date. SECTION 3.04. Manner of Exercise. Warrants may be exercised upon (i) ------------------ surrender to the Warrant Agent at the office of the Warrant Agent of the related Warrant Certificate, together with the form of election to purchase Common Stock on the reverse thereof duly filled in and signed by the Holder thereof, and (ii) payment to the Warrant Agent, for the account of the Company, of the Exercise Price for each Warrant Share issuable upon the exercise of such Warrants then exercised. Such payment shall be made at the option of the Holder either (x) in cash or by certified or official bank check payable to the order of the Company or by wire transfer of funds to an account designated by the Company for such purpose or (y) prior to the maturity date of the Notes, by the surrender to the Company for cancellation of Notes with a principal amount equal to the aggregate Exercise Price for all shares issuable upon exercise of such Warrant. If payment of the Exercise Price is to be made by the cancellation of Notes, the holder of such Note shall not be entitled to receive or otherwise be credited with, and by surrendering such Note for cancellation expressly waives any and all rights to receive or otherwise be credited with, any accrued but unpaid interest on, or liquidated damages with respect to, such tendered Note. Subject to the provisions of this Warrant Agreement, the rights represented by the Warrants shall be exercisable at the election of the Holders thereof either in full at any time or from time to time in part and in the event that a Warrant Certificate is surrendered for exercise of less than all the Warrants represented by such Warrant Certificate at any time prior to the Expiration Date, a new Warrant Certificate representing the remaining 10 Warrants shall be issued. The Warrant Agent shall countersign and deliver the required new Warrant Certificates, and the Company, at the Warrant Agent's request, shall supply the Warrant Agent with Warrant Certificates duly signed on behalf of the Company for such purpose. The Warrant Agent shall account promptly to the Company with respect to all Warrants exercised, and shall concurrently deliver to the Company all funds or Notes acquired with respect to the purchase of shares of Common Stock upon exercise of the Warrants. SECTION 3.05. Issuance of Warrant Shares. Subject to Section 2.07, -------------------------- upon the surrender of Warrant Certificates and payment of the per share Exercise Price, as set forth in Section 3.04, the Company shall issue and cause the Warrant Agent or, if appointed, a transfer agent for the Common Stock ("Transfer Agent") to countersign and deliver to or upon the written order of the Holder and in such name or names as the Holder may designate a certificate or certificates for the number of full Warrant Shares so purchased upon the exercise of such Warrants or other securities or property to which it is entitled, registered or otherwise, to the Person or Persons entitled to receive the same, together with cash as provided in Section 3.06 in respect of any fractional Warrant Shares otherwise issuable upon such exercise. Such certificate or certificates shall be deemed to have been issued and any Person so designated to be named therein shall be deemed to have become a holder of record of such Warrant Shares as of the date of the surrender of such Warrant Certificates and payment of the per share Exercise Price, as aforesaid; provided, however, that if, at such date, the transfer books for the Warrant Shares shall be closed, the certificates for the Warrant Shares in respect of which such Warrants are then exercised shall be issuable as of the date on which such books shall next be opened and until such date the Company shall be under no duty to deliver any certificates for such Warrant Shares; provided further, however, that such transfer books, unless otherwise required by law, shall not be closed at any one time for a period longer than 20 calendar days. SECTION 3.06. Fractional Warrant Shares. The Company shall not be ------------------------- required to issue fractional Warrant Shares on the exercise of Warrants. If more than one Warrant shall be exercised in full at the same time by the same Holder, the number of full Warrant Shares which shall be issuable upon such exercise shall be computed on the basis of the aggregate number of Warrant Shares purchasable pursuant thereto. If any fraction of a Warrant Share would, except for the provisions of this Section 3.06, be issuable on the exercise of any Warrant (or specified portion thereof), the Company shall pay an amount in cash equal to the Current Market Value per Warrant Share, as determined on the trading day immediately preceding the date the Warrant is exercised, multiplied by such fraction, computed to the nearest whole cent. Each Holder, by acceptance of a Warrant Certificate, expressly waives any and all rights to receive any fraction of a share of Common Stock or a stock certificate representing a fraction of a share of Common Stock. SECTION 3.07. Reservation of Warrant Shares. The Company shall at ----------------------------- all times keep reserved out of its authorized shares of Common Stock a number of shares of Common Stock sufficient to provide for the exercise of all outstanding Warrants. The registrar for the Common Stock (the "Registrar") shall at all times until the Expiration Date reserve such number of authorized shares as shall be required for such purpose. The Company will keep a copy of this Agreement on file with the Transfer Agent. The Company covenants that all Warrant Shares 11 which may be issued upon exercise of Warrants shall, upon the payment of the Exercise Price and issue in accordance with the terms of this Warrant Agreement, be fully paid, nonassessable, free of preemptive rights and free from all taxes, liens, charges and security interests, created by or through the Company with respect to the issue thereof. The Company will supply such Transfer Agent with duly executed stock certificates for such purpose and will itself provide or otherwise make available any cash which may be payable as provided in Section 3.06. The Company will furnish to such Transfer Agent a copy of all notices of adjustments (and certificates related thereto) transmitted to each Holder. Before taking any action which would cause an adjustment pursuant to Article 4 to reduce the Exercise Price below the then par value (if any) of the Common Stock, the Company shall take any and all corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock at the Exercise Price as so adjusted. SECTION 3.08. Compliance with Law. Notwithstanding anything in this ------------------- Agreement to the contrary, in no event shall a Holder be entitled to exercise a Warrant unless (i) a registration statement filed under the Securities Act in respect of the issuance of the Warrant Shares is then effective or (ii) (A) in the opinion of counsel to the Company addressed to the Warrant Agent the exercise of such Warrants is exempt from the registration requirements of the Securities Act and such securities are qualified for sale or exempt from qualification under the applicable securities laws of the States or other jurisdictions in which such holders reside and (B) each certificate for Warrant Shares issued upon such exercise shall bear the legend set forth in Section 2.02(c) hereof unless otherwise agreed by the Company and the Holder. SECTION 3.09. Redemption of Warrants. ------------------------ (a) Commencing on April 1, 2000, the Warrants shall be redeemable in whole or in part by the Company at a price of $.01 per Warrant (the "Redemption Price"), upon not less than 20 nor more than 60 days' prior written notice thereof (the date set for redemption in such notice being a "Redemption Date"), if the closing price of a share of Common Stock on the American Stock Exchange (or such other national securities exchange or the National Association of Securities Dealers' Automated Quotation National Market, as shares of Common Stock may then be listed or admitted for trading) exceeds 125% of the then effective Exercise Price for at least 20 trading days out of a period of 30 consecutive trading days ending not more than 10 calendar days prior to the date of such notice. If the Company shall determine to redeem less than all of the Warrants then outstanding, the Warrant Agent shall determine the Warrants to be redeemed by such manner or method as it shall deem fair and appropriate. In the event that the Company exercises its right to redeem any or all of the Warrants, such Warrants will be exercisable until 5:00 p.m., New York City time, on the applicable Redemption Date. (b) The Company shall give notice to the Warrant Agent of any redemption (a "Notice of Redemption") in sufficient time so that the Warrant Agent shall give the Notice of Redemption to all Holders of Warrants, to be redeemed at least 20 days prior to the applicable Redemption Date. Each Notice of Redemption shall: (a) specify the Redemption Date and the 12 Redemption Price, (b) state that payment of the Redemption Price will be made by the Warrant Agent upon presentation and surrender, to the Warrant Agent of the Warrant Certificates representing the Warrants being redeemed; (c) state the right to exercise the Warrants shall terminate at 5:00 p.m., New York time, on the applicable Redemption Date; and (d) if less than all of the Warrants are to be redeemed, specify the serial numbers or portions of the Warrants to be redeemed. The Company shall also make a prompt public announcement of such redemption of publication in The Wall Street Journal at the time of the Warrant Agent's mailing of the Notice of Redemption. (c) On or prior to the opening of business on the Redemption Date, the Company shall deposit with the Warrant Agent cash, or an irrevocable letter of credit issued by a national or state bank and in form reasonably satisfactory to the Warrant Agent, sufficient in amount to purchase all of the Warrants stated in the Notice of Redemption to be redeemed. Payment of the Redemption Price shall be made by the Warrant Agent upon presentation and surrender of the Warrant Certificates representing such Warrants for which Notice of Redemption shall have been duly given and if the Company shall have duly deposited with the Warrant Agent the cash or irrevocable letter of credit required by this Section 3.09, then any Warrants not exercised in accordance with Section 3.04 by 5:00 p.m. New York time, on the Redemption Date shall no longer be deemed to be outstanding, and the Holders thereof will be entitled to receive only the Redemption Price with respect to such Warrants without interest. ARTICLE 4 ANTIDILUTION PROVISIONS ----------------------- SECTION 4.01. Changes in Common Stock. In the event that at any time ----------------------- or from time to time the Company shall (i) pay a dividend or make a distribution to all holders of its Common Stock in shares of its Common Stock, (ii) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (iv) increase or decrease the number of shares of Common Stock outstanding by reclassification of its Common Stock, then the number of shares of Common Stock issuable upon exercise of each Warrant immediately after the happening of such event shall be adjusted to a number determined by multiplying the number of shares of Common Stock that such holder would have owned or have been entitled to receive upon exercise had such Warrants been exercised immediately prior to the happening of the events described above (or, in the case of a dividend or distribution of Common Stock or other shares of capital stock, immediately prior to the record date therefor) by a fraction, the numerator of which shall be the total number of shares of Common Stock outstanding immediately after the happening of the events described above and the denominator of which shall be the total number of shares of Common Stock outstanding immediately prior to the happening of the events described above; and subject to Section 4.08 the Exercise Price for each Warrant shall be adjusted to a number determined by dividing the Exercise Price immediately prior to such event by such fraction. An adjustment made pursuant to this Section 4.01 shall become effective immediately after the effective date of such event, retroactive to the record date 13 therefor in the case of a dividend or distribution in shares of Common Stock or other shares of the Company's capital stock. SECTION 4.02. Cash Dividends and Other Distributions. In the event -------------------------------------- that at any time or from time to time the Company shall distribute to all holders of Common Stock (i) any dividend or other distribution of cash, evidences of its indebtedness, shares of its capital stock or any other properties or securities or (ii) any options, warrants or other rights to subscribe for or purchase any of the foregoing (other than, in each case, (v) the issuance of any stock purchase rights ("Rights") under the Rights Agreement dated as of December 19, 1995 (the "Rights Agreement") between the Company and American Stock Transfer and Trust Company, as Rights Agent, (w) the issuance of any shares of the Company's Series A Participating Cumulative Preferred Stock, par value $.01 per share upon exercise of Rights, (x) any dividend or distribution described in Section 4.01, (y) any rights, options, warrants or securities described in Section 4.03 and (z) any cash dividends or other cash distributions from current or retained earnings), then the number of shares of Common Stock issuable upon the exercise of each Warrant shall be increased to a number determined by multiplying the number of shares of Common Stock issuable upon the exercise of such Warrant immediately prior to the record date for any such dividend or distribution by a fraction, the numerator of which shall be the Current Market Value per share of Common Stock on the record date for such dividend or distribution and the denominator of which shall be such Current Market Value per share of Common Stock on the record date for such dividend or distribution less the sum of (x) the amount of cash, if any, distributed per share of Common Stock and (y) the fair value (as determined in good faith by the Board, whose determination shall be evidenced by a board resolution filed with the Warrant Agent, a copy of which will be sent to Holders upon request) of the portion, if any, of the distribution applicable to one share of Common Stock consisting of evidences of indebtedness, shares of stock, securities, other property, warrants, options or subscription or purchase rights; and subject to Section 4.08 the Exercise Price shall be adjusted to a number determined by dividing the Exercise Price immediately prior to such record date by the above fraction. Such adjustments shall be made whenever any distribution is made and shall become effective as of the date of distribution, retroactive to the record date for any such distribution. No adjustment shall be made pursuant to this Section 4.02 which shall have the effect of decreasing the number of shares of Common Stock issuable upon exercise of each Warrant or increasing the Exercise Price. SECTION 4.03. Rights Issue. In the event that at any time or from ------------ time to time the Company shall issue rights, options or warrants entitling the holders thereof to subscribe for shares of Common Stock, or securities convertible into or exchangeable or exercisable for Common Stock to all holders of Common Stock without any charge, entitling such holders to subscribe for or purchase shares of Common Stock at a price per share that is lower at the record date for such issuance than the then Current Market Value per share of Common Stock, the number of shares of Common Stock issuable upon the exercise of each Warrant shall be increased to a number determined by multiplying the number of shares of Common Stock theretofore issuable upon exercise of each Warrant by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options, warrants or securities plus the number of additional shares of Common Stock offered for 14 subscription or purchase or into or for which such securities that are issued are convertible, exchangeable or exercisable, and the denominator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options, warrants or securities plus the total number of shares of Common Stock which the aggregate consideration expected to be received by the Company (assuming the exercise or conversion of all such rights, options, warrants or securities) would purchase at the then Current Market Value per share of Common Stock. Subject to Section 4.08, in the event of any such adjustment, the Exercise Price shall be adjusted to a number determined by dividing the Exercise Price immediately prior to such date of issuance by the aforementioned fraction. Such adjustment shall be made immediately after such rights, options or warrants are issued and shall become effective, retroactive to the record date for the determination of stockholders entitled to receive such rights, options, warrants or securities. No adjustment shall be made pursuant to this Section 4.03 which shall have the effect of decreasing the number of shares of Common Stock purchasable upon exercise of each Warrant or of increasing the Exercise Price. SECTION 4.04 Issuance of Common Stock or Rights. In the event that ---------------------------------- at any time or from time to time the Company shall issue (i) shares of Common Stock (subject to the provisions below), (ii) rights, options or warrants entitling the holders thereof to subscribe for shares of Common Stock, or (iii) securities convertible into or exchangeable or exercisable for Common Stock (in each case, other than, in connection with the issuance of shares of Common Stock or securities exchangeable for or convertible into shares of Common Stock (x) upon conversion or exercise of the Company's 8% Preferred Stock, ALPA Preferred Stock, IAM Preferred Stock, IFFA Preferred Stock (collectively, the "Employee Preferred Stock") or options granted pursuant to the Company's 1995 Outside Directors' Stock Ownership and Stock Option Plan, 1994 Key Employee Stock Incentive Plan (the "KESIP"), or Employee Stock Incentive Plan (the "ESIP"), in each case which are issued and outstanding as of the date hereof, (y) pursuant to one or more programs providing for the exchange by the Company of 12% Reset Notes for shares of Common Stock (where the applicable exchange ratio from time to time is based upon a discount from the Current Market Value at the time of exchange not to exceed 15%) or (z) pursuant to the exercise of certain additional stock purchase rights under the ESIP providing for the aggregate purchase of additional shares of Common Stock or Employee Preferred Stock (not to exceed an additional aggregate amount of 2% of the then outstanding Common Stock and Employee Preferred Stock over a seven year period) for a per share purchase price not less than 20% below the Current Market Value at the time of issuance, each of the issuances described in clauses (x), (y) and (z) being collectively, the "Exempted Issuances") at a price per share at the record date of such issuance that is less than the then Current Market Value per share of Common Stock, the number of shares of Common Stock issuable upon the exercise of each Warrant shall be increased to a number determined by multiplying the number of shares of Common Stock theretofore issuable upon exercise of each Warrant by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately after such sale or issuance plus the number of additional shares of Common Stock offered for subscription or purchase or into or for which such securities that are issued are convertible, exchangeable or exercisable, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such sale or issuance plus the total number of shares of Common Stock which the aggregate consideration expected to be received by the 15 Company (assuming the exercise or conversion of all such rights, options, warrants or securities, if any) would purchase at the then Current Market Value per share of Common Stock; and subject to Section 4.08 the Exercise Price shall be adjusted to a number determined by dividing the Exercise Price immediately prior to such date of issuance by the aforementioned fraction. Such adjustments shall be made whenever such rights, options or warrants or convertible securities are issued. No adjustment shall be made pursuant to this Section 4.04 which shall have the effect of decreasing the number of shares of Common Stock issuable upon exercise of each warrant or of increasing the Exercise Price. SECTION 4.05. Combination; Liquidation. (a) Except as provided in ------------------------ Section 4.05(b), in the event of a Combination, each Holder shall have the right to receive upon exercise of the Warrants the kind and amount of shares of capital stock or other securities or property which such Holder would have been entitled to receive upon or as a result of such Combination had such Warrant been exercised immediately prior to such event. Unless paragraph (b) is applicable to a Combination, the Company shall provide that the surviving or acquiring Person (the "Successor Company") in such Combination will enter into an agreement with the Warrant Agent confirming the Holders' rights pursuant to this Section 4.05(a) and providing for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 4. The provisions of this Section 4.05(a) shall similarly apply to successive Combinations involving any Successor Company. (b) In the event of (i) a Combination where consideration to the holders of Common Stock in exchange for their shares is payable solely in cash or (ii) the dissolution, liquidation or winding-up of the Company, the holders of the Warrants shall be entitled to receive, upon surrender of their Warrant Certificates, distributions on an equal basis with the holders of Common Stock or other securities issuable upon exercise of the Warrants, as if the Warrants had been exercised immediately prior to such event, less the Exercise Price. In case of any Combination described in this Section 4.05(b), the surviving or acquiring Person and, in the event of any dissolution, liquidation or winding-up of the Company, the Company, shall deposit promptly with the Warrant Agent the funds, if any, necessary to pay to the holders of the Warrants the amounts to which they are entitled as described above. After such funds and the surrendered Warrant Certificates are received, the Warrant Agent is required to deliver a check in such amount as is appropriate (or, in the case of consideration other than cash, such other consideration as is appropriate) to such Person or Persons as it may be directed in writing by the Holders surrendering such Warrants. SECTION 4.06. Other Events. If any event occurs as to which the ------------ foregoing provisions of this Article 4 are not strictly applicable or, if strictly applicable, would not, in the good faith judgment of the Board, fairly and adequately protect the purchase rights of the Warrants in accordance with the essential intent and principles of such provisions, then such Board shall make such adjustments in the application of such provisions, in accordance with such essential intent and principles, as shall be reasonably necessary, in the good faith opinion of such Board, to protect such purchase rights as aforesaid, but in no event shall any such adjustment have the effect of increasing the Exercise Price or decreasing the number of shares of Common Stock issuable upon exercise of any Warrant. 16 SECTION 4.07. Superseding Adjustment. Upon the expiration of any ---------------------- rights, options, warrants or conversion or exchange privileges which resulted in adjustments pursuant to this Article 4, if any thereof shall not have been exercised, the number of Warrant Shares issuable upon the exercise of each Warrant shall be readjusted pursuant to the applicable section of Article 4 as if (A) the only shares of Common Stock issuable upon exercise of such rights, options, warrants, conversion or exchange privileges were the shares of Common Stock, if any, actually issued upon the exercise of such rights, options, warrants or conversion or exchange privileges and (B) shares of Common Stock actually issued, if any, were issuable for the consideration actually received by the Company upon such exercise plus the aggregate consideration, if any, actually received by the Company for the issuance, sale or grant of all such rights, options, warrants or conversion or exchange privileges whether or not exercised and the Exercise Price shall be readjusted inversely; provided, however, that no such readjustment shall (except by reason of an intervening adjustment under Section 4.01) have the effect of decreasing the number of Warrant Shares purchasable upon the exercise of each Warrant or increase the Exercise Price by an amount in excess of the amount of the adjustment initially made in respect of the issuance, sale or grant of such rights, options, warrants or conversion or exchange privileges. SECTION 4.08. Minimum Adjustment. The adjustments required by the ------------------ preceding Sections of this Article 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that no adjustment of the Exercise Price or the number of shares of Common Stock issuable upon exercise of Warrants that would otherwise be required shall be made unless and until such adjustment either by itself or with other adjustments not previously made increases or decreases by at least 1% the Exercise Price or the number of shares of Common Stock issuable upon exercise of Warrants immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Article 4 and not previously made, would result in a minimum adjustment. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. In computing adjustments under this Article 4, fractional interests in Common Stock shall be taken into account to the nearest one-hundredth of a share. SECTION 4.09. Notice of Adjustment. Upon any adjustment of the -------------------- Exercise Price or the number of shares of Common Stock and other property, if any, issuable upon exercise of the Warrants, the Company shall promptly thereafter give a written certificate of the Company to the Warrant Agent of such adjustment or adjustments. In addition, the Company at its sole expense shall, within 90 calendar days following the end of each fiscal year of the Company during which any Warrants remaining outstanding, cause to be delivered to the Warrant Agent a certificate of a firm of independent accountants selected by the Board (who may be the regular accountants employed by the Company) setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated (including a description of the basis on which (i) the Board determined the fair value of any evidences of indebtedness, other securities or property or warrants, options or other subscription or purchase rights and (ii) the Current Market Value of the Common Stock was determined, if 17 either of such determinations were required), and specifying the Exercise Price and the number of shares of Common Stock issuable upon exercise of Warrants after giving effect to such adjustment. The Company shall promptly cause the Warrant Agent to mail a copy of such certificate to each Holder in accordance with Section 7.06. The Warrant Agent shall be entitled to rely on such certificate and shall be under no duty or responsibility with respect to any such certificate, except to exhibit the same from time to time, to any Holder desiring an inspection thereof during reasonable business hours. The Warrant Agent shall not at any time be under any duty or responsibility to any Holder to determine whether any facts exist which may require any adjustment of the Exercise Price or the number of shares of Common Stock or other stock or property issuable on exercise of the Warrants, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed in making such adjustment or the validity or value of any shares of Common Stock, evidences of indebtedness, warrants, options, or other securities or property. SECTION 4.10. Notice of Certain Transactions. In the event that the ------------------------------ Company shall propose to (a) pay any dividend payable in securities of any class to the holders of its Common Stock or to make any other non-cash dividend or distribution to the holders of its Common Stock, (b) offer the holders of its Common Stock rights to subscribe for or to purchase any securities convertible into shares of Common Stock or shares of stock of any class or any other securities, rights or options, (c) issue any (i) shares of Common Stock, (ii) rights, options or warrants entitling the holders thereof to subscribe for shares of Common Stock, or (iii) securities convertible into or exchangeable or exercisable for Common Stock (in each case, other than, in connection with the issuance of Exempted Securities), (d) effect any capital reorganization, reclassification, consolidation or merger, (e) effect the voluntary or involuntary dissolution, liquidation or winding-up of the Company or (f) make a tender offer or exchange offer with respect to the Common Stock, the Company shall within 5 days send to the Warrant Agent and the Warrant Agent shall within 5 days send the Holders a notice (in such form as shall be furnished to the Warrant Agent by the Company) of such proposed action or offer, unless the giving of such notice would cause the Company to be in violation of any applicable law or regulation. Such notice shall be mailed by the Warrant Agent to the Holders at their addresses as they appear in the Certificate Register, which shall specify the record date for the purposes of such dividend, distribution or rights, or the date such issuance or event is to take place and the date of participation therein by the holders of Common Stock, if any such date is to be fixed, and shall briefly indicate the effect of such action on the Common Stock and on the number and kind of any other shares of stock and on other property, if any, and the number of shares of Common Stock and other property, if any, issuable upon exercise of each Warrant and the Exercise Price after giving effect to any adjustment pursuant to Article 4 which will be required as a result of such action. Such notice shall be given as promptly as possible and (x) in the case of any action covered by clause (a) or (b) above, at least 10 days prior to the record date for determining holders of the Common Stock for purposes of such action or (y) in the case of any other such action, at least 20 days prior to the date of the taking of such proposed action or the date of participation therein by the holders of Common Stock, whichever shall be the earlier. SECTION 4.11. Adjustment to Warrant Certificate. The form of Warrant --------------------------------- Certificate need not be changed because of any adjustment made pursuant to this Article 4, and 18 Warrant Certificates issued after such adjustment may state the same Exercise Price and the same number of shares of Common Stock issuable upon exercise of the Warrants as are stated in the Warrant Certificates initially issued pursuant to this Agreement. The Company, however, may at any time in its sole discretion make any change in the form of Warrant Certificate that it may deem appropriate to give effect to such adjustments and that does not affect the substance of the Warrant Certificate, and any Warrant Certificate thereafter issued or countersigned, whether in exchange or substitution for an outstanding Warrant Certificate or otherwise, may be in the form as so changed. ARTICLE 5 REGISTRATION RIGHTS ------------------- SECTION 5.01. Effectiveness of Registration Statement. Subject to --------------------------------------- Section 5.02, the Company shall use its best efforts to cause to be filed pursuant to Rule 415 (or any successor provision) of the Securities Act not later than 60 days after the Issue Date, a shelf registration statement relating to the offer and sale of the Warrants and the Warrant Shares by the Holders from time to time in accordance with the methods of distribution elected by such Holders and set forth in such registration statement and covering the issuance of Warrant Shares by the Company to the Holders upon exercise of the Warrants (the "Warrant Shelf Registration Statement"). The Company shall use its reasonable best efforts to cause the Warrant Shelf Registration Statement to be declared effective on or before 120 days after the Issue Date, and to cause the Warrant Shelf Registration Statement to remain effective with respect to the offer and sale of the Warrants and the Warrant Shares by the Holders thereof until the latest of (i) such time as all Warrants have been sold thereunder, (ii) two years after its effective date and (iii) such time as all of the Warrants and Warrant Shares can be sold by the Holders thereof without restriction under the Securities Act and with respect to the issuance of Warrant Shares by the Company to the Holders upon exercise of the Warrants until the earliest of (x) such time as all of the Warrants have been exercised, (y) the Expiration Date and (z) in the event that the Company has exercised its right to redeem all of its then currently outstanding Warrants pursuant to Section 3.09 hereof and has deposited with the Warrant Agent in accordance with Section 3.09 (c) hereof cash or an irrevocable letter of credit issued by a national or state bank sufficient in amount to purchase all of the then currently outstanding Warrants, on the business day immediately following the Redemption Date with respect to all such outstanding Warrants. In connection with the Warrant Shelf Registration Statement, (i) the Company shall furnish to the Warrant Agent, prior to the filing with the Commission, a copy of the Warrant Shelf Registration Statement, and each amendment thereof and each amendment or supplement, if any, to the prospectus included therein and shall use its reasonable best efforts to reflect in each such document, when filed with the Commission, such comments as the Warrant Agent may reasonably propose, (ii) the Company shall furnish to each Holder, without charge, at least one copy of the Warrant Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if the Holder so requests in writing, all exhibits thereto (including those incorporated by reference), (iii) the Company shall, for so long as the Warrant Shelf Registration Statement is effective, deliver to each Holder, without charge, 19 as many copies of the prospectus (including each preliminary prospectus) included in the Warrant Shelf Registration Statement and any amendment or supplement thereto as such Holder may reasonably request, and the Company consents to the proper use of the prospectus therein and any amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Warrants or the Warrant Shares, as the case may be, covered by such prospectus and any amendment or supplement thereto, (iv) the Company may require each Holder of Warrants or Warrant Shares to be sold pursuant to the Warrant Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of such Warrants or Warrant Shares as the Company may from time to time reasonably request for inclusion in such Registration Statement, (v) the Company shall, if requested, promptly incorporate in a prospectus supplement or post-effective amendment to the Warrant Shelf Registration Statement such information as a majority in interest of the Holders reasonably agree should be included therein and shall make all required filings of such prospectus supplement or post-effective amendment as soon as notified of the matters to be incorporated in such prospectus supplement or post-effective amendment, (vi) the Company shall enter into such agreements (including underwriting agreements) as are appropriate, customary and reasonably necessary in connection with the Warrant Shelf Registration Statement and (vii) the Company shall (A) make available all material customary for reasonable due diligence examinations in connection with the Warrant Shelf Registration Statement, (B) make such representations and warranties to the Holders of Warrants and Warrant Shares and the underwriters, if any, as are customary and reasonable in connection with the Warrant Shelf Registration Statement, (C) obtain such opinions of counsel to the Company addressed to and reasonably satisfactory to the Holders as are customary and reasonable in connection with the Warrant Shelf Registration Statements and (D) obtain such "comfort" letters and updates thereof from the independent certified public accountants of the Company addressed to the Holders as are customary and reasonable in connection with the Warrant Shelf Registration Statements. The Company will furnish the Warrant Agent with current prospectuses meeting the requirements of the Securities Act in sufficient quantity to permit the Warrant Agent to deliver, at the Company's expense, a prospectus to each holder of a Warrant upon the exercise thereof. The Company shall promptly inform the Warrant Agent of any change in the status of the effectiveness or availability of the Warrant Shelf Registration Statement. SECTION 5.02. Suspension. During any consecutive 365-day period, the ---------- Company shall be entitled to suspend the availability of the Warrant Shelf Registration Statement for up to two 45 consecutive-day periods (except during the 45 consecutive-day period immediately prior to the Expiration Date) if the Company's Board determines in the exercise of its reasonable judgment that there is a valid business purpose for such suspension and provides notice that such determination was made by the Company's board to the holders of the Warrants: 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. SECTION 5.03. Blue Sky. The Company shall use its reasonable best -------- efforts to register or qualify the Warrants and the Warrant Shares under all applicable securities laws, blue sky laws or similar laws of all jurisdictions in the United States in which any Holder of Warrants 20 may or may be deemed to purchase Warrants or Warrant Shares and shall use its reasonable best efforts to maintain such registration or qualification with respect to the offer and sale of the Warrants and the Warrant Shares by the Holders thereof until the latest of (i) such time as all Warrants have been sold under the Warrant Shelf Registration Statement, (ii) two years after the effective date of the Warrant Shelf Registration Statement and (iii) such time as all of the Warrants and Warrant Shares can be sold by the Holders thereof without restriction under the Securities Act and with respect to the issuance of Warrant Shares by the Company to the Holders upon exercise of the Warrants until the earliest of (x) such time as all of the Warrants have been exercised, (y) the Expiration Date and (z) in the event that the Company has exercised its right to redeem all of its then currently outstanding Warrants pursuant to Section 3.09 hereof and has deposited with the Warrant Agent in accordance with Section 3.09 (c) hereof, cash or an irrevocable letter of credit issued by a national or state bank sufficient in amount to purchase all of the then currently outstanding Warrants, on the business day immediately following the Redemption Date with respect to all such outstanding Warrants; provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 5.03 or to take any action which would subject it to general service of process or to taxation in any such jurisdiction where it is not then so subject. SECTION 5.04. Accuracy of Disclosure. The Company represents and ---------------------- warrants to each Holder and agrees for the benefit of each Holder that (i) the Warrant Shelf Registration Statement and any amendment thereto will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading; and (ii) the prospectus furnished to such Holder for delivery in connection with the sale of Warrants, the exercise of Warrants and/or the sale of Warrant Shares and the documents incorporated by reference therein will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading; provided, however, that the Company shall have no liability under clauses (i) or (ii) of this Section 5.04 with respect to any such untrue statement or omission made in the Warrant Shelf Registration Statement in reliance upon and in conformity with information furnished to the Company by or on behalf of the Holders specifically for inclusion therein. SECTION 5.05. Indemnification. (a) In connection with the Warrant --------------- Shelf Registration Statement, the Company agrees to indemnify and hold harmless each Holder of the Warrants and the Warrant Shares and each person, if any, who controls such Holder within the meaning of the Securities Act or the Exchange Act (each Holder and such controlling persons being referred to collectively as the "indemnified parties") from and against any losses, claims, damages or liabilities, joint or several, or any actions in respect thereof (including but not limited to any losses, claims, damages, liabilities or actions relating to purchases and sales of the Warrants or the Warrant Shares) to which each indemnified party may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Warrant Shelf Registration Statement or prospectus or in any amendment or supplement thereto, or arise out of, or are based upon the omission or alleged 21 omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and shall reimburse the indemnified parties for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action in respect thereof; provided, however, that (i) the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in the Warrant Shelf Registration Statement or any preliminary or final prospectus or in any amendment or supplement thereto in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein, (ii) with respect to any untrue statement or omission or alleged untrue statement or omission made in any prospectus relating to the Warrant Shelf Registration Statement, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any person as to which there is a prospectus delivery requirement (a "Delivering Seller") that sold the securities to the person asserting any such losses, claims, damages or liabilities to the extent that any such loss, claim, damage or liability of such Delivering Seller results from the fact that there was not sent or given to such person, on or prior to the written confirmation of such sale, a copy of the relevant prospectus, as amended and supplemented, provided that (I) the Company shall have previously furnished copies thereof to such Delivering Seller in accordance with this Agreement and (II) such furnished prospectus, as amended and supplemented, would have corrected any such untrue statement or omission or alleged untrue statement or omission, and (iii) this indemnity agreement will be in addition to any liability which the Company may otherwise have to such indemnified party. The Company shall also indemnify underwriters, selling brokers, dealer-managers and similar securities industry professionals participating in the distribution (in each case as described in the Warrant Shelf Registration Statement), their officers and directors and each person who controls such persons within the meaning of the Securities Act or the Exchange Act to the same extent as provided above with respect to the indemnification of the Holders of the Warrants and Warrant Shares if requested by such Holders. (b) In connection with the Warrant Shelf Registration Statement, each Holder of the Warrants, severally and not jointly, will indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act from and against any losses, claims, damages or liabilities or any actions in respect thereof to which the Company or any such controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Warrant Shelf Registration Statement or preliminary or final prospectus or in any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein; and, subject to the limitation set forth immediately preceding this clause, shall reimburse, as incurred, the Company for any legal or other expenses reasonably 22 incurred by the Company or any such controlling person in connection with investigating or defending any loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability which such Holder may otherwise have to the Company or any of its controlling persons. (c) Promptly after receipt by an indemnified party under this section of notice of the commencement of any action or proceeding (including a governmental investigation), such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this section, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above, except to the extent that it is prejudiced or harmed in any material respect by failure to give such prompt notice. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with one counsel (and local counsel as necessary) reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof the indemnifying party will not be liable to such indemnified party under this section for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof. No indemnifying party shall, without the prior written consent of the indemnified party, not to be unreasonably withheld, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action. No indemnifying party shall be liable for any amounts paid in settlement of any action or claim without its written consent, which consent shall not be unreasonably withheld. (d) If the indemnification provided for in this section is unavailable or insufficient to hold harmless an indemnified party under subsections (a) or (b) above for any reason other than as provided in subsection (c) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by 23 the Company on the one hand or such Holder or such other indemnified person, as the case may be, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding any other provision of this Section 5(d), the Holders shall not be required to contribute any amount in excess of the amount by which the net proceeds received by such Holders from the sale of the Warrants or the Warrant Shares pursuant to the Warrant Shelf Registration Statement exceeds the amount of damages which such Holders would have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each officer, director, employee, representative and agent of an indemnified party and each person, if any, who controls such indemnified party within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as such indemnified party, and each officer, director, employee, representative and agent of the Company and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as the Company. (e) The agreements contained in this section shall survive the sale of the Warrants and the Warrant Shares pursuant to the Warrant Shelf Registration Statement, and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any indemnified party. SECTION 5.06. Additional Acts. If the sale of Warrants or the --------------- issuance or sale of the Warrant Shares requires registration or approval of any governmental authority (other than the registration requirements under the Securities Act), or the taking of any other action under the laws of the United States of America or any political subdivision thereof before such securities may be validly offered or sold in compliance with such laws, then the Company covenants that it will, in good faith and as expeditiously as reasonably possible, use commercially reasonable efforts to secure and maintain such registration or approval or to take such other action, as the case may be. SECTION 5.07. Expenses. All expenses incident to the Company's -------- performance of or compliance with its obligations under this Article 5 will be borne by the Company, including without limitation: (i) all SEC, stock exchange or National Association of Securities Dealers, Inc. registration and filing fees, (ii) all reasonable fees and expenses incurred in connection with compliance with state securities or blue sky laws, (iii) all expenses of any Persons incurred by or on behalf of the Company in preparing or assisting in preparing, printing and distributing the Warrant Shelf Registration Statement or any other registration statement, prospectus, any amendments or supplements thereto and other documents relating to the performance of and compliance with this Article 5, (iv) the fees and disbursements of the Warrant Agent, (v) the fees and disbursements of counsel for the Company and the Warrant 24 Agent and (vi) the fees and disbursements of the independent public accountants of the Company, including the expenses of any special audits or comfort letters required by or incident to such performance and compliance. SECTION 5.08. Liquidated Damages. ------------------ (a) If (i) on or prior to 60 days after the Issue Date, the Warrant Shelf Registration Statement has not been filed with the SEC, (ii) on or prior to 120 days after the Issue Date, the Warrant Shelf Registration Statement has not been declared effective, or (iii) after the Warrant Shelf Registration Statement is declared effective, such registration statement thereafter ceases to be effective or usable in connection with issuances of Warrant Shares and resales of Warrants and Warrant Shares in accordance with and during the periods specified in Sections 5.01 and 5.02 of this Warrant Agreement (each such event referred to in clauses (i), (ii) and (iii) above shall be referred to as a "Warrant Registration Default"), the Company shall pay liquidated damages ("Warrant Liquidated Damages") to each Holder of Transfer Restricted Warrants (as defined below) or Transfer Restricted Warrant Shares (as defined below) during the first 90-day period immediately following such Warrant Registration Default in an amount equal to $0.01 per week per Transfer Restricted Warrant or $0.0025 per week per Transfer Restricted Warrant Share held by such Holder. The amount of Warrant Liquidated Damages payable by the Company shall increase by an additional $0.01 per week per Transfer Restricted Warrant or $0.0025 per week per Transfer Restricted Warrant Share for each subsequent 90-day period until the Warrant Shelf Registration Statement is declared effective or such registration statement again becomes effective, as the case may be, up to a maximum amount of Warrant Liquidated Damages with respect to any Warrant Registration Default of $0.05 per week per Transfer Restricted Warrant or $0.0125 per week per Transfer Restricted Warrant Share. All accrued Warrant Liquidated Damages payable by the Company to Holders pursuant to this Section 5.08 shall be paid in cash quarterly in arrears on the next succeeding January 1, April 1, July 1 and October 1, as the case may be (each a "Liquidated Damages Payment Date"), to Holders of record as of a record date determined by the Company which is not less than 10 nor more than 30 days prior to any such Liquidated Damages Payment Date. (b) "Transfer Restricted Warrants" and "Transfer Restricted Warrant Shares" means each Warrant or Warrant Share, as the case may be, until (i) the date on which such Transfer Restricted Warrant or Transfer Restricted Warrant has been effectively registered under the Securities Act and disposed of in accordance with the Warrant Shelf Registration Statement or (ii) the date on which such Transfer Restricted Warrant or Transfer Restricted Warrant Share is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. 25 ARTICLE 6 WARRANT AGENT ------------- SECTION 6.01. Appointment of Warrant Agent. The Company hereby ---------------------------- appoints the Warrant Agent to act as agent for the Company in accordance with the provisions of this Agreement and the Warrant Agent hereby accepts such appointment. SECTION 6.02. Rights and Duties of Warrant Agent. (a) Agent for the ---------------------------------- ------------- Company. In acting under this Warrant Agreement and in connection with the - ------- Warrant Certificates, the Warrant Agent is acting solely as agent of the Company and does not assume any obligation or relationship or agency or trust for or with any of the holders of Warrant Certificates or beneficial owners of Warrants. (b) Counsel. The Warrant Agent may consult with counsel satisfactory ------- to it (who may be counsel to the Company), and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with the advice of such counsel. (c) Documents. The Warrant Agent shall be protected and shall incur --------- no liability for or in respect of any action taken or thing suffered by it in reliance upon any Warrant Certificate, notice, direction, consent, certificate, affidavit, statement or other paper or document reasonably believed by it to be genuine and to have been presented or signed by the proper parties. (d) No Implied Obligations. The Warrant Agent shall be obligated to ---------------------- perform only such duties as are specifically set forth herein and in the Warrant Certificates, and no implied duties or obligations of the Warrant Agent shall be read into this Agreement or the Warrant Certificates. The Warrant Agent shall not be under any obligation to take any action hereunder which may tend to involve it in any expense or liability for which it does not receive indemnity if such indemnity is reasonably requested. The Warrant Agent shall not be accountable or under any duty or responsibility for the use by the Company of any of the Warrant Certificates countersigned by the Warrant Agent and delivered by it to the Holders or on behalf of the Holders pursuant to this Agreement or for the application by the Company of the proceeds of the Warrants. The Warrant Agent shall have no duty or responsibility in case of any default by the Company in the performance of its covenants or agreements contained herein or in the Warrant Certificates or in the case of the receipt of any written demand from a Holder with respect to such default, including any duty or responsibility to initiate or attempt to initiate any proceedings at law or otherwise. (e) Not Responsible for Adjustments or Validity of Stock. The Warrant ---------------------------------------------------- Agent shall not at any time be under any duty or responsibility to any Holder to determine whether any facts exist that may require an adjustment of the number of shares of Common Stock issuable upon exercise of each Warrant or the Exercise Price, or with respect to the nature or extent of any adjustment when made or with respect to the method employed or provided to be employed herein or in any supplemental agreement in making the same. The Warrant Agent 26 shall not be accountable with respect to the validity or value of any shares of Common Stock or of any securities or property which may at any time be issued or delivered upon the exercise of any Warrant or upon any adjustment pursuant to Article 4, and it makes no representation with respect thereto. The Warrant Agent shall not be responsible for any failure of the Company to make any cash payment or to issue, transfer or deliver any shares of Common Stock or stock certificates upon the surrender of any Warrant Certificate for the purpose of exercise or upon any adjustment pursuant to Article 4, or to comply with any of the covenants of the Company contained in Article 4. SECTION 6.03. Individual Rights of Warrant Agent. The Warrant Agent ---------------------------------- and any stockholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities of the Company or its affiliates or become pecuniarily interested in transactions in which the Company or its affiliates may be interested, or contract with or lend money to the Company or its affiliates or otherwise act as fully and freely as though it were not the Warrant Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. SECTION 6.04. Warrant Agent's Disclaimer'. The Warrant Agent shall --------------------------- not be responsible for and makes no representation as to the validity or adequacy of this Agreement or the Warrant Certificates and it shall not be responsible for any statement in this Agreement or the Warrant Certificates other than its countersignature thereon. SECTION 6.05. Compensation and Indemnity. The Company and the -------------------------- Warrant Agent have entered into an agreement pursuant to which the Company agrees to pay the Warrant Agent from time to time reasonable compensation for its services and to reimburse the Warrant Agent upon request for all reasonable out-of-pocket expenses incurred by it, including the reasonable compensation and expenses of the Warrant Agent's agents and counsel. The Company shall indemnify the Warrant Agent against any loss, liability or expense (including agents' and attorneys' fees and expenses) incurred by it without negligence or bad faith on its part arising out of or in connection with the acceptance or performance of its duties under this Agreement. The Warrant Agent shall notify the Company promptly of any claim for which it may seek indemnity. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Warrant Agent through willful misconduct, negligence or bad faith. The Company's payment obligations pursuant to this Section 6.05 shall survive the termination of this Agreement. To secure the Company's payment obligations under this Agreement, the Warrant Agent shall have a lien prior to the Holders on all money or property held or collected by the Warrant Agent. SECTION 6.06. Successor Warrant Agent. (a) The Company to Provide ----------------------- ---------------------- Warrant Agent. The Company agrees for the benefit of the Holders that there - ------------- shall at all times be a Warrant Agent hereunder until all the Warrants have been exercised or are no longer exercisable. 27 (b) Resignation and Removal. The Warrant Agent may at any time resign ----------------------- by giving written notice to the Company of such intention on its part, specifying the date on which its desired resignation shall become effective; provided, however, that such date shall not be less than 60 days after the date on which such notice is given unless the Company otherwise agrees. The Warrant Agent hereunder may be removed at any time by the filing with it of an instrument in writing signed by or on behalf of the Company and specifying such removal and the date when it shall become effective, which date shall not be less than 60 days after such notice is given unless the Warrant Agent otherwise agrees. Any removal under this Section 6.06 shall take effect upon the appointment by the Company as hereinafter provided of a successor Warrant Agent (which shall be a bank or trust company authorized under the laws of the jurisdiction of its organization to exercise corporate trust powers) and the acceptance of such appointment by such successor Warrant Agent. (c) The Company to Appoint Successor. In the event that at any time -------------------------------- the Warrant Agent shall resign, or shall be removed, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or shall commence a voluntary case under Federal bankruptcy laws, as now or hereafter constituted, or under any other applicable Federal or state bankruptcy, insolvency or similar law, or shall consent to the appointment of or taking possession by a receiver, custodian, liquidator, assignee, trustee, sequestrator (or other similar official) of the Warrant Agent or its property or affairs, or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due, or shall take corporate action in furtherance of any such action, or a decree or order for relief by a court having jurisdiction in the premises shall have been entered in respect of the Warrant Agent in an involuntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or State bankruptcy, insolvency or similar law, or a decree order by a court having jurisdiction in the premises shall have been entered for the appointment of a receiver, custodian, liquidator, assignee, trustee, sequestrator (or similar official) of the Warrant Agent or of its property or affairs, or any public officer shall take charge or control of the Warrant Agent or of its property or affairs for the purpose of rehabilitation, conservation, winding up or liquidation, a successor Warrant Agent, qualified as aforesaid, shall be appointed by the Company by an instrument in writing filed with the successor Warrant Agent. Upon the appointment as aforesaid of a successor Warrant Agent and acceptance by the successor Warrant Agent of such appointment, the Warrant Agent shall cease to be the Warrant Agent hereunder; provided, however, that in the event of the resignation of the Warrant Agent hereunder, such resignation shall be effective on the earlier of (i) the date specified in the Warrant Agent's notice of resignation and (ii) the appointment and acceptance of a successor Warrant Agent hereunder. (d) Successor To Expressly Assume Duties. Any successor Warrant Agent ------------------------------------ appointed hereunder shall execute, acknowledge and deliver to its predecessor and to the Company an instrument accepting such appointment hereunder, and thereupon such successor Warrant Agent, without any further act, deed or conveyance, shall become vested with all the rights and obligations of such predecessor with like effect as if originally named as Warrant Agent hereunder, and such predecessor, upon payment of its charges and disbursements then unpaid, shall thereupon become obligated to transfer, deliver and pay over, and such successor 28 Warrant Agent shall be entitled to receive, all monies, securities and other property on deposit with or held by such predecessor, as Warrant Agent hereunder. (e) Successor by Merger. Any corporation into which the Warrant Agent ------------------- hereunder may be merged or consolidated, or any corporation resulting from any merger or consolidation to which the Warrant Agent shall be a party, or any corporation to which the Warrant Agent shall sell or otherwise transfer all or substantially all the assets and business of the Warrant Agent, provided that it shall be qualified as aforesaid, shall be the successor Warrant Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto. ARTICLE 7 MISCELLANEOUS ------------- SECTION 7.01. SEC Resorts and Other Information. Notwithstanding --------------------------------- that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, for so long as any Warrants remain outstanding, the Company shall file with the SEC at the times specified under Sections 13 and 15(d) of the Exchange Act such annual reports and such information, documents and other reports as are specified in such Sections of the Exchange Act and applicable to a U.S. corporation subject to such Sections, shall provide such reports and information to the Warrant Agent as promptly as practicable thereafter and shall provide such reports and information to the registered Holders of any outstanding Warrants at the same time and in the same manner as provided generally to the shareholders of the Company. SECTION 7.02. Persons Benefiting. Except as set forth in Section ------------------ 5.05 of this Warrant Agreement, nothing in this Warrant Agreement is intended or shall be construed to confer upon any Person other than the Company, the Warrant Agent and the Holders any right, remedy or claim under or by reason of this agreement or any part hereof. SECTION 7.03. Rights of Holders. Holders of unexercised Warrants are ----------------- not entitled to (i) receive dividends or other distributions, (ii) receive notice of or vote at any meeting of the stockholders, (iii) consent to any action of the stockholders, (iv) receive notice as stockholders of any other proceedings of the Company, (v) exercise any preemptive rights or (vi) exercise any other rights whatsoever as stockholders of the Company. SECTION 7.04. Amendment. This Warrant Agreement may be amended by --------- the parties hereto without the consent of any Holder for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained herein or adding or changing any other provisions with respect to matters or questions arising under this Warrant Agreement as the Company and the Warrant Agent may deem necessary or desirable (including without limitation any addition or modification to provide for compliance with the transfer restrictions set forth herein); provided, however, that such action shall not adversely affect the rights of any of the Holders. Any amendment or supplement to this Warrant Agreement that has an adverse effect on the interests of the Holders shall require the written consent of the Holders 29 of a majority of the then outstanding Warrants. The consent of each Holder affected shall be required for any amendment pursuant to which the Exercise Price would be increased or the number of Warrant Shares issuable upon exercise of Warrants would be decreased (other than pursuant to adjustments provided herein). In determining whether the Holders of the required number of Warrants have concurred in any direction, waiver or consent, Warrants owned by the Company or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Warrant Agent shall be protected in relying on any such direction, waiver or consent, only Warrants which the Warrant Agent knows are so owned shall be so disregarded. Also, subject to the foregoing, only Warrants outstanding at the time shall be considered in any such determination. SECTION 7.05. Notices. Any notice or communication shall be in ------- writing and delivered in Person or mailed by first-class mail addressed as follows: if to the Company: One City Centre 515 N. Sixth Street St. Louis, Missouri 63101 Attention: President with a copy (which shall not constitute notice) to: Smith, Gambrell & Russell Suite 3100, Promenade II 1230 Peachtree Street, N.E. Atlanta, Georgia 30309-3592 Attention: Howard Turner, Esq. if to the Warrant Agent: American Stock Transfer & Trust Company 40 Wall Street New York, NY 10005 The Company or the Warrant Agent by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Holder shall be mailed to the Holder at the Holder's address as it appears on the Certificate Register and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. 30 SECTION 7.06. Governing Law. The laws of the State of New York shall ------------- govern this Agreement and the Warrant Certificates. SECTION 7.07. Successors. All agreements of the Company in this ---------- Agreement and the Warrant Certificates shall bind its successors. All agreements of the Warrant Agent in this Agreement shall bind its successors. SECTION 7.08. Multiple Originals. The parties may sign any number of ------------------ copies of this Warrant Agreement. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 7.09. Table of Contents. The table of contents and headings ----------------- of the Articles and Sections of this Agreement have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. SECTION 7.10. Severability. The provisions of this Agreement are ------------ severable, and if any clause or provision shall be held invalid, illegal or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect in that jurisdiction only such clause or provision, or part thereof, and shall not in any manner affect such clause or provision in any other jurisdiction or any other clause or provision of this Agreement in any jurisdiction. IN WITNESS WHEREOF, the parties have caused this Warrant Agreement to be duly executed as of the date first written above. TRANS WORLD AIRLINES, INC. by /s/ Michael J. Lichty ------------------------------- Name: Title: AMERICAN STOCK TRANSFER & TRUST COMPANY, as Warrant Agent, by /s/ H.J. Lemmer -------------------------------- Name: H.J. Lemmer Title: Vice President 31 EXHIBIT A [FORM OF FACE OF WARRANT CERTIFICATE] THE WARRANTS REPRESENTED BY THIS CERTIFICATE WERE INITIALLY ISSUED AS PART OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF $1,000 PRINCIPAL AMOUNT AT MATURITY OF 12% SENIOR SECURED NOTES DUE 2002 OF TRANS WORLD AIRLINES, INC. (THE "NOTES") AND ONE WARRANT. PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EARLIEST OF (i) JUNE 29, 1997, (ii) THE DATE ON WHICH AN EXCHANGE OFFER REGISTRATION STATEMENT OR OF A SHELF REGISTRATION STATEMENT FOR THE NOTES IS DECLARED EFFECTIVE BY THE SECURITIES AND EXCHANGE COMMISSION OR (iii) OR SUCH EARLIER DATE, AS PAINEWEBBER INCORPORATED MAY, IN ITS DISCRETION, DEEM APPROPRIATE, THE WARRANTS REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, THE NOTES. THE COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF THE COMPANY FOR WHICH THIS WARRANT IS EXERCISABLE MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES ABSENT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ANY APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. ACCORDINGLY, NO HOLDER SHALL BE ENTITLED TO EXERCISE SUCH HOLDER'S WARRANTS AT ANY TIME UNLESS, AT THE TIME OF EXERCISE, (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT RELATING TO THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAS BEEN FILED WITH, AND DECLARED EFFECTIVE BY, THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), AND NO STOP ORDER SUSPENDING THE EFFECTIVENESS OF SUCH REGISTRATION STATEMENT HAS BEEN ISSUED BY THE SEC, OR (ii) THE ISSUANCE OF SUCH SHARES IS PERMITTED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. [UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] 32 [TRANSFERS OF THIS GLOBAL WARRANT SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.] THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT, OR ANY STATE SECURITIES LAWS. NEITHER THESE SECURITIES NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THESE SECURITIES BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL, OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE RESALE RESTRICTION TERMINATION DATE WHICH IS THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE DATE OF ORIGINAL ISSUANCE AND THE LAST DATE ON WHICH THE CORPORATION OR ANY AFFILIATE OF THE CORPORATION WAS THE OWNER OF THESE SECURITIES (OR ANY PREDECESSOR OF THESE SECURITIES) ONLY (A) TO THE CORPORATION, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE CORPORATION'S AND THE TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE, OR TRANSFER (i) PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND 33 OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THESE SECURITIES IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS. BY ITS ACQUISITION HEREOF, THE HOLDER REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S. No. [ ] Certificate for ____ Warrants REDEEMABLE WARRANTS TO PURCHASE COMMON STOCK OF TRANS WORLD AIRLINES, INC. THIS CERTIFIES THAT [ ], or its registered assigns, is the registered holder of the number of Warrants set forth above (the "Warrants"). Each Warrant entitles the holder thereof (the "Holder"), at its option and subject to the provisions contained herein and in the Warrant Agreement referred to below, to purchase from Trans World Airlines, Inc., a Delaware corporation ("the Company"), 126.26 shares of Common Stock, par value of $0.01 per share, of the Company (the "Common Stock") at the per share exercise price of $7.92 (the "Exercise Price"). This Warrant Certificate shall terminate and become void as of the close of business on April 1, 2002 (the "Expiration Date") or upon the exercise hereof as to all the shares of Common Stock subject hereto. The number of shares issuable upon exercise of the Warrants and the Exercise Price per share shall be subject to adjustment from time to time as set forth in the Warrant Agreement. This Warrant Certificate is issued under and in accordance with a Warrant Agreement dated as of March 31, 1997 (the "Warrant Agreement"), between the Company and American Stock Transfer & Trust Company (the "Warrant Agent", which term includes any successor Warrant Agent under the Warrant Agreement), and is subject to the terms and provisions contained in the Warrant Agreement, to all of which terms and provisions the Holder of this Warrant Certificate consents by acceptance hereof. The Warrant Agreement is hereby incorporated herein by reference and made a part hereof. Reference is hereby made to the 34 Warrant Agreement for a full statement of the respective rights, limitations of rights, duties and obligations of the Company, the Warrant Agent and the Holders of the Warrants. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Warrant Agreement. A copy of the Warrant Agreement may be obtained for inspection by the Holder hereof upon written request to the Warrant Agent at 40 Wall Street, New York, New York 10005, attention Corporate Trust Department. Subject to the terms of the Warrant Agreement, the Warrants may be exercised in whole or in part by presentation of this Warrant Certificate with the Election to Purchase attached hereto duly executed and with the simultaneous payment of the Exercise Price (subject to adjustment) to the Warrant Agent for the account of the Company at the office of the Warrant Agent. At the option of the Holder, payment of the Exercise Price may be made either (i) in cash or by certified or official bank check payable to the order of the Company or by wire transfer of funds to an account designated by the Company for such purpose or (ii) prior to the maturity of the Notes, by the surrender to the Company for cancellation of Notes with a principal amount equal to the aggregate Exercise Price for all shares issuable upon exercise of such Warrant. If payment of the Exercise Price is to be made by the cancellation of Notes, the holder of such Note shall not be entitled to receive or otherwise be credited with, and by surrendering such Note for cancellation expressly waives any and all rights to receive or otherwise be credited with, any accrued but unpaid interest on, or liquidated damages with respect to, such tendered Note. As provided in the Warrant Agreement and subject to the terms and conditions therein set forth, the Warrants shall be exercisable at any time on or after March 31, 1998; provided, however, that Holders of Warrants will be able to exercise their Warrants only if a Shelf Registration Statement relating to the Warrant Shares is effective or the exercise of such Warrants is exempt from the registration requirements of the Securities Act of 1933 and such securities are qualified for sale or exempt from qualification under the applicable securities laws of the states or other jurisdictions in which such Holders reside; provided further, however, that no Warrant shall be exercisable after the Expiration Date. Commencing April 1, 2000, the Company may, under certain circumstances set forth in the Warrant Agreement, redeem outstanding Warrants, in whole or in part, upon not less than 20 nor more than 60 days' prior written notice to the registered Holder hereof, at a price of $.01 per Warrant. Payment of such Redemption Price will be made by the Warrant Agent upon presentation and surrender of this Warrant Certificate to the Warrant Agent in the City of New York, New York. If fewer than all Warrants represented by this Warrant Certificate are redeemed, the Warrant Agent will issue a new Warrant Certificate representing the number of Warrants remaining in the name of the registered Holder hereof following such redemption. Any Warrants which are not exercised by 5:00 p.m., New York time on the Redemption Date shall no longer be deemed to be outstanding and the Holders thereof will be entitled to receive only the Redemption Price with respect to such Warrants without interest. In the event the Company enters into a Combination, the Holder hereof will be entitled to receive upon exercise of the Warrants the kind and amount of shares of capital stock or other securities or other property of such surviving entity as the Holder would have been 35 entitled to receive upon or as a result of the combination had the Holder exercised its Warrants immediately prior to such Combination; provided, however, that in the event that, in connection with such Combination, consideration to holders of Common Stock in exchange for their shares is payable solely in cash or in the event of the dissolution, liquidation or winding-up of the Company, the Holder hereof will be entitled to receive such cash distributions as the Holder would have received had the Holder exercised its Warrants immediately prior to such Combination, less the Exercise Price. As provided in the Warrant Agreement, the number of shares of Common Stock issuable upon the exercise of the Warrants and the Exercise Price are subject to adjustment upon the happening of certain events. The Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with the transfer or exchange of the Warrant Certificates pursuant to Section 2.06 of the Warrant Agreement, but not for any exchange or original issuance (not involving a transfer) with respect to temporary Warrant Certificates, the exercise of the Warrants or the Warrant Shares. Upon any partial exercise of the Warrants, there shall be countersigned and issued to the Holder hereof a new Warrant Certificate representing those Warrants which were not exercised. This Warrant Certificate may be exchanged at the office of the Warrant Agent by presenting this Warrant Certificate properly endorsed with a request to exchange this Warrant Certificate for other Warrant Certificates evidencing an equal number of Warrants. No fractional Warrant Shares will be issued upon the exercise of the Warrants, but the Company shall pay an amount in cash equal to the Current Market Value per Warrant Share on the day immediately preceding the date the Warrant is exercised, multiplied by the fraction of a Warrant Share that would be issuable on the exercise of any Warrant. All shares of Common Stock issuable by the Company upon the exercise of the Warrants shall, upon such issue, be duly and validly issued and fully paid and non-assessable. The holder in whose name the Warrant Certificate is registered may be deemed and treated by the Company and the Warrant Agent as the absolute owner of the Warrant Certificate for all purposes whatsoever and neither the Company nor the Warrant Agent shall be affected by notice to the contrary. Holders of unexercised Warrants are not entitled to (i) receive dividends or other distributions, (ii) receive notice of or vote at any meeting of the Company's stockholders, (iii) consent to any action of the Company's stockholders, (iv) receive notice as stockholders of any other proceedings of the Company, (v) exercise any preemptive rights or (vi) exercise any other rights whatsoever as stockholders of the Company. 36 This Warrant Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Warrant Agent. TRANS WORLD AIRLINES, INC. By ------------------------------ Title: [SEAL] Attest: --------------------------- Secretary DATED: Countersigned: AMERICAN STOCK TRANSFER & TRUST COMPANY, as Warrant Agent, By --------------------------------- Authorized Signatory 37 FORM OF ELECTION TO PURCHASE WARRANT CERTIFICATES (to be executed only upon exercise of Warrants) TRANS WORLD AIRLINES, INC. The undersigned hereby irrevocably elects to exercise [ ] Warrants at an exercise price per Warrant (subject to adjustment) of $ to acquire [ ] shares of Common Stock, par value $0.01 per share, of Trans World Airlines, Inc. on the terms and conditions specified within the Warrant Certificate and the Warrant Agreement therein referred to, surrenders this Warrant Certificate and all right, title and interest therein to Trans World Airlines, Inc. and directs that the shares of Common Stock deliverable upon the exercise of such Warrants be registered or placed in the name and at the address specified below and delivered thereto. Date: __________, ____ ________________________________/1/ (Signature of Owner) ________________________________ (Street Address) ________________________________ (City) (State) (Zip Code) Signature Guaranteed by: ________________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION(Banks, Stock Brokers, Savings and Loan Associations, and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO S.E.C. RULE 17A-15 - -------------- 1. The signature must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever, and must be guaranteed by a national bank or trust company or by a member firm of any national securities exchange. 38 Securities and/or check to be issued to: Please insert social security or identifying number: Name: Street Address: City, State and Zip Code: Any unexercised Warrants represented by the Warrant Certificate to be issued to: Please insert social security or identifying number: Name: Street Address: City, State and Zip Code: 39 EXHIBIT A CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF WARRANTS Re: Warrants to Purchase Common Stock (the "Warrants") of Trans World Airlines, Inc. (the "Company") This Certificate relates to Warrants held in definitive form by _______________ (the "Transferor"). The Transferor has requested the Warrant Agent by written order to exchange or register the transfer of a Warrant or Warrants. In connection with such request and in respect of each such Warrant, the Transferor does hereby certify that the Transferor is familiar with the Warrant Agreement relating to the above captioned Warrants and that the transfer of this Warrant does not require registration under the Securities Act of 1933, (the "Securities Act") because/*/: [ ] Such Warrant is being transferred to the Company. [ ] Such Warrant is being transferred pursuant to an effective Registration Statement under the Securities Act. [ ] Such Warrant is being transferred to a qualified institutional buyer (as defined in Rule 144A under the Securities Act) in reliance on Rule 144A. [ ] Such Warrant is being transferred pursuant to an offshore transaction in accordance with Rule 904 under the Securities Act. [ ] Such Warrant is being transferred to an Institutional "Accredited Investor" within the meaning of Subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act. [ ] Such Warrant is being transferred in a transaction meeting the requirements of Rule 144 under the Securities Act. The Warrant Agent and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. -------------------------------- [INSERT NAME OF TRANSFEROR] by ----------------------------- Date: ------------------------- - ------------ /*/ Please check applicable box. 40 EXHIBIT B ASSIGNMENT FORM For value received __________ hereby sells, assigns and transfers unto ________________________________________________________________________________ PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF REGISTERED ASSIGNEE +---------------------------------------+ | | +---------------------------------------+ ________________________________________________________________________________ (Please print name and address including zip code of assignee) ________________________________________________________________________________ ________________________________________________________________________________ the within Warrant Certificate together with all right, title and interest in the Warrant evidenced thereby, and does hereby irrevocably constitute and appoint _______________ attorney, to transfer Warrant Certificate number _____ of Trans World Airlines, Inc., on the books of Trans World Airlines, Inc., with full power of substitution in the premises. Dated this _____ day of __________, 19__ Signature:______________________________ Signature Guaranteed by: THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (Banks, Stock Brokers, Savings and Loan Associations, and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO S.E.C. RULE 17A-15 Note: The above signature must correspond with the name as written upon the face of this Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. 41 EX-12 7 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 TRANS WORLD AIRLINES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
PRIOR PREDECESSOR COMPANY PREDECESSOR COMPANY ------------------------ -------------------------------------- TEN MONTHS TWO MONTHS EIGHT MONTHS YEAR ENDED ENDED ENDED YEAR ENDED ENDED ------------ ----------- ------------ ------------ ------------ DECEMBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, AUGUST 31, 1992 1993 1993 1994 1995 ------------ ----------- ------------ ------------ ------------ (AMOUNTS IN THOUSANDS, EXCEPT FOR RATIO) Loss from operations before income taxes..... $(314,292) $(362,620) $(88,140) $(432,869) $(338,309) Add: Interest on indebtedness(1). 110,096 91,877 31,204 195,352 123,247 Portion of rents represntative of the interest factor(3)....... 67,700 57,821 12,198 87,122 60,849 --------- --------- -------- --------- --------- Income as adjusted........ $(136,496) $(212,922) $(44,738) $(150,395) $(154,212) --------- --------- -------- --------- --------- Fixed charges: Interest on indebtedness.... $ 110,096 $ 91,877 $ 31,204 $ 195,352 $ 123,247 Capitalization interest........ 3,099 2,104 267 2,133 -- Portion of rents representative of the interest factor.......... 67,700 57,821 12,198 87,122 60,849 --------- --------- -------- --------- --------- Fixed charges... $ 108,895 $ 151,802 $ 43,669 $ 284,607 $ 184,096 --------- --------- -------- --------- --------- Ratio of earnings to Fixed charges... (0.75) (1.40) (1.02) (0.53) (0.84) --------- --------- -------- --------- --------- Deficiency....... $ 317,391 $ 364,724 $ 88,407 $ 435,002 $ 338,309 --------- --------- -------- --------- ---------
REORGANIZED COMPANY --------------------------------------------------- FOUR MONTHS THREE MONTHS THREE MONTHS ENDED YEAR ENDED ENDED ENDED ------------ ------------ ------------ ------------ DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31, 1995 1996 1996 1997 ------------ ------------ ------------ ------------ (AMOUNTS IN THOUSANDS, EXCEPT FOR RATIO) Loss from operations before income taxes..... $(32,268) $(274,577) $(74,278) $(105,193) Add: Interest on indebtedness(1). 45,917 126,822 33,547 28,397 Portion of rents represntative of the interest factor(3)....... 32,131 100,997 23,435 28,608 -------- --------- --------- --------- Income as adjusted........ $ 45,780 $ (46,758) $ (17,296) $ (48,188) -------- --------- --------- --------- Fixed charges: Interest on indebtedness.... $ 45,917 $ 126,822 $ 33,547 $ 28,397 Capitalization interest........ -- 5,463 650 1,853 Portion of rents representative of the interest factor.......... 32,131 100,997 23,435 28,608 -------- --------- --------- --------- Fixed charges... $ 78,048 $ 233,282 $ 57,632 $ 58,858 -------- --------- --------- --------- Ratio of earnings to Fixed charges... 0.59 (0.20) (0.30) (0.82) -------- --------- --------- --------- Deficiency....... $ 32,268 $ 280,040 $ 74,928 $ 107,046 -------- --------- --------- ---------
EX-23.1 8 CONSENT OF KPMG PEAT MARWICK LLP EXHIBIT 23.1 AUDITORS' CONSENT ----------------- The Board of Directors Trans World Airlines, Inc.: We consent to the use of our reports included herein and incorporated herein by reference and to the reference to our firm under the heading "Experts" in the prospectus. Our reports, dated March 24, 1997, contain an explanatory paragraph that states that the Company's recurring losses from operations and its limited sources of additional liquidity raise substantial doubt about the Company's ability to continue as a going concern. In addition, our reports refer to the application of fresh start reporting as of September 1, 1995. KPMG PEAT MARWICK LLP Kansas City, Missouri June 27, 1997 EX-25 9 FORM T-1 EXHIBIT 25 FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) FIRST SECURITY BANK, NATIONAL ASSOCIATION (EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER) NOT APPLICABLE 87-0131890 (JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IF NOT A U.S. NATIONAL BANK) IDENTIFICATION NO.) 79 SOUTH MAIN STREET SALT LAKE CITY, UTAH 84111 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) NOT APPLICABLE (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) TRAN WORLD AIRLINES, INC. (EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER) DELAWARE 43-1145889 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) ONE CITY CENTRE, 515 N. SIXTH STREET ST. LOUIS, MISSOURI 63101 (ADDRESS OR PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) OFFER TO EXCHANGE 12% SENIOR SECURED NOTES DUE 2002, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL OUTSTANDING 12% SENIOR SECURED NOTES DUE 2002 (TITLE OF THE INDENTURE SECURITIES) Item 1. General Information. Furnish the following information as to the ------------------- trustee: (a) Name and address of each examining or supervising authority to which it is subject. Comptroller of the Currency, Washington, D.C. 20230; Federal Reserve Bank of San Francisco, San Francisco, CA 94120; Federal Deposit Insurance Corporation, Washington, D.C. 20429. (b) Whether it is authorized to exercise corporate trust powers. The Trustee is authorized to exercise corporate trust powers. Item 2. Affiliations With The Obligor. If the obligor is an ----------------------------- affiliate of the trustee, describe each such affiliation. Neither the obligor nor any underwriter for the obligor is an affiliate of the Trustee. Item 16. List of Exhibits. List below all exhibits filed as part of this ---------------- statement of eligibility and qualification. Exhibit 1: copy of the articles of association as now in effect Exhibit 2: certificate of authority to commence business including a certificate of the Comptroller of the Currency evidencing the change of the Trustee's name Exhibit 3: copy of the authorization of the trustee to exercise corporate trust powers Exhibit 4: copy of the bylaws of the trustee Exhibit 5: Not applicable Exhibit 6: Not applicable Exhibit 7: A copy of the latest report published pursuant to law or its supervising or examining authority Exhibit 8: Not applicable Exhibit 9: Not applicable Signature Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, First Security Bank, National Association, a national banking association organized and existing under the laws of the United States, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned thereunder duly authorized, all in the City of Salt Lake City, and State of Utah, on the 16th day of June, 1997. FIRST SECURITY BANK, NATIONAL ASSOCIATION, Trustee By: /s/ Nancy M. Dahl ----------------- Nancy M. Dahl Vice President EXHIBIT 1 ARTICLES OF ASSOCIATION OF FIRST SECURITY BANK NATIONAL ASSOCIATION (As Amended) FIRST. The title of this Association, which shall carry on the business of banking under the laws of the United States, shall be "First Security Bank, National Association." SECOND. The place where the main banking house or office of this Association shall be located shall be Ogden, County of Weber, State of Utah. Its general business and its operations of discount and deposit shall also be carried on in said city, and the branch or branches established or maintained by it in accordance with the provisions of Section 36 of Title 12, United States Code. The Board of Directors shall the power to change the location of the main office of this Association (i) to any other authorized branch location within the limits of Ogden, Utah, without the approval of the shareholders of this Association and upon notice to the Comptroller of the Currency or, (ii) to any other place within Ogden, Utah, or within thirty (30) miles of Ogden, Utah, with the approval of the shareholders and the Comptroller of the Currency. The Board of Directors shall have the power to change the location of any branch or branches of this Association to any other location, without the approval of the shareholders of this Association but subject to the approval of the Comptroller of the Currency. THIRD. The Board of Directors of the consolidated association shall consist of not less than five (5) nor more than twenty-five (25) of its shareholders. FOURTH. There shall be an annual meeting of the shareholders the purpose of which shall be the election of Directors and the transaction of whatever other business may be brought before said meeting. It shall be held at the main office of the Bank or other convenient place as the Board of Directors may designate, on the third Monday of March of each year, but if no election is held on that day, it may be held on any subsequent day according to such lawful rules as may be prescribed by the Board of Directors. Nominations for election to the Board of Directors may be made by the Board of Directors or by any stockholder of any outstanding class of capital stock of the Bank entitled to vote for election of directors. Nominations, other than those made by or on behalf of the existing management of the Bank, shall be made in writing and shall be delivered or mailed to the President of the Bank and to the Comptroller of the Currency, Washington, D.C., not less than 14 days nor more than 50 days prior to any meeting of stockholders called for the election of directors, provided, however, that if less than 21 days notice of the meeting is given to - ----------------- shareholders, such nomination shall be mailed or delivered to the President of the Bank and to the Comptroller of the Currency not later than the close of business on the seventh day following the day on which the notice of meeting was mailed. Such notification shall contain the following information to the extent known to the notifying shareholder: (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the total number of shares of capital stock of the Bank that will be voted for each proposed nominee; (d) the name and residence address of the notifying shareholder; and (e) the number of shares of capital stock of the Bank owned by the notifying shareholder. Nominations not made in accordance herewith may, in his discretion, be disregarded by the Chairman of the meeting, and upon his instructions, the voting inspectors may disregard all votes cast for each such nominee. FIFTH. The authorized amount of capital stock of this Association shall be One Hundred Million Dollars ($100,000,000.00), divided into 4,000,000 shares of common stock of the par value of Twenty-five Dollars ($25.00) each; provided, however, that said capital stock may be increased or decreased from time to time, in accordance with the provision of the laws of the United States. The shareholders of this Association shall not have any pre-emptive rights to acquire unissued shares of this Association. SIXTH. (1) The Board of Directors shall appoint one of its members President of this Association. It may also appoint a Chairman of the Board, and one or more Vice Chairman. The Board of Directors shall have the power to appoint one or more Vice Presidents, at least one of whom shall also be a member of the Board of Directors, and who shall be authorized, in the absence of the President, to perform all acts and duties pertaining to the office of the President; to appoint a Cashier and such other officers and employees as may be required to transact the business of this Association; to fix the salaries to be paid to such officers or employees and appoint others to take their place. (2) The Board of Directors shall have the power to define the duties of officers and employees of this Association and to require adequate bonds from them for the faithful performance of their duties; to make all By-Laws that may be lawful for the general regulation of the business of this Association and the management of its affairs, and generally to do and perform all acts that may be lawful for a Board of Directors to do and perform. (3) Each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, administrative or investigative (other than an action by or in the right of the Association) by reason of the fact that he is or was a director, officer, employee or agent of the Association or is or was serving at the request of the Association as a director, officer, employee, fiduciary or agent of another corporation, partnership, joint venture, trust, estate or other enterprise or was acting in furtherance of the Association's business shall be indemnified against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Association; provided, however, no indemnification shall be given to a person adjudged guilty of, or liable for, willful misconduct, gross neglect of duty, or criminal acts or where there is a final order assessing civil money penalties or requiring affirmative action by such person in the form of payments to the Association. The termination of any action, suit or proceeding by judgment, order, settlement, or its equivalent, shall not of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Association. (4) Each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Association (such action or suit being known as a "derivative proceeding") to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Association or is or was serving at the request of the Association as a director, officer, employee, fiduciary or agent of another corporation, partnership, joint venture, trust, estate or other enterprise shall be indemnified against expenses (including attorney's fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Association; provided, however, that no indemnification shall be given where there is a final order assessing civil money penalties or requiring affirmative action by such person in the form of payments to the Association; and provided further that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Association, unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. (5) To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in (3) or (4) of this Article or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorney's fees) actually and reasonably incurred by him in connection therewith. (6) Any indemnification under (3) or (4) of this Article (unless ordered by a court) shall be made by the Association only as authorized in the specific case upon a reasonable determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in (3) or (4) of this Article. Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in written opinion, or (c) by the stockholders. (7) Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Association in advance of the final disposition of such action, suit or proceeding as authorized in the manner provided in (6) of this Article (i) if the Board of Directors determines, in writing, that (1) the director, officer, employee or agent has a substantial likelihood or prevailing on the merits; (2) in the event the director, officer, employee or agent does not prevail, he or she will have the financial capability or reimburse the Association; and (3) payment of expenses by the Association will not adversely affect its safety and soundness; and (ii) upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Association as authorized in this Article. (8) The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any By-Law, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors, successors in interest, and administrators of such a person. SEVENTH. This Association shall have succession from the date of its organization certificate until such time as it be dissolved by the act of its shareholders in accordance with the provisions of the banking laws of the United States, or until its franchise becomes forfeited by reason of violation of law, or until terminated by either a general or a special act of Congress, or until its affairs be placed in the hands of a receiver and finally wound up by him. EIGHTH. The Board of Directors of this Association, or any three or more shareholders owning, in the aggregate, not less than ten per centum of the stock of this Association, may call a special meeting of shareholders at any time: Provided, however, that unless otherwise provided by law, not less than ten days prior to the date fixed for any such meeting, a notice of the time, place and purpose of the meeting shall be given by first-class mail, postage prepaid, to all shareholders of record of this Association. These Articles of Association may be amended at any regular or special meeting of the Shareholders by the affirmative vote of the shareholders owning at least a majority of the stock of this Association, subject to the provisions of the banking laws of the United States. The notice of any shareholders' meeting, at which an amendment to the Articles of Association of this Association is to be considered shall be given as hereinabove set forth. EXHIBIT 2 CERTIFICATE TREASURY DEPARTMENT ) Office of ) ss: Comptroller of the Currency ) I, Thomas G. DeShazo, Deputy Comptroller of the Currency, do hereby certify that: Pursuant to Revised Statutes 324, et seq., as amended, 12 U.S.C. 1, et seq., the Comptroller of the Currency charters and exercises regulatory and supervisory authority over all national banking associations; On December 9, 1881, The First National Bank of Ogden, Ogden, Utah was chartered as a National Banking Association under the laws of the United States and under Charter No. 2597; The document hereto attached is a true and complete copy of the Comptroller Certificate issued to The First National Bank of Ogden, Ogden, Utah, the original of which certificate was issued by this Office on December 9, 1881; On October 2, 1922, in connection with a consolidation of The First Bank of Ogden, Ogden, Utah, and The Utah National Bank of Ogden, Ogden, Utah, the title was charged to "The First & Utah National Bank of Ogden"; on January 18, 1923, The First & Utah National Bank of Ogden changed its title to "First Utah National Bank of Ogden"; on January 19, 1926, the title was changed to "First National Bank of Ogden"; and on February 24, 1934, the title was changed to "First Security Bank of Utah, National Association"; and First Security Bank of Utah, National Association, Ogden, Utah, continues to hold a valid certificate to do business as a National Banking Association. IN TESTIMONY WHEREOF, I have hereunto subscribed my name and caused the seal of Office of the Comptroller of the Currency to be affixed to these presents at the Treasury Department, in the City of Washington and District of Columbia, this fourth day of April, A.D. 1972. Thomas G. DeShazo ---------------------------------- Deputy Comptroller of the Currency TREASURY DEPARTMENT Comptroller of the Currency, Washington, December 9th, 1881 WHEREAS, by satisfactory evidence presented to the undersigned it has been made to appear that "The First National Bank of Ogden" in Ogden City in the County of Weber, and Territory of Utah has complied with all the provisions of the Revised Statutes of the United States, required to be complied with before an association shall be authorized to commence the business of Banking. Now, therefore, I, John Jay Knox, Comptroller of the Currency, do hereby certify that "The First National Bank of Ogden" in Ogden City in the County of Weber, and Territory of Utah is authorized to commence the business of Banking, as provided in Section Fifty-one hundred and sixty-nine of the Revised Statutes of the United States. In testimony whereof, witness my hand and seal of office this 9th day of December, 1881. John Jay Knox --------------------------- Comptroller of the Currency EXHIBIT 3 FEDERAL RESERVE BOARD WASHINGTON, D.C. I, S.R. Carpenter, Assistant Secretary of the Federal Reserve Board, do hereby certify that it appears from the records of the Federal Reserve Board that: (1) Pursuant to authority vested in the Federal Reserve Board by an Act of Congress approved December 23, 1913, known as the Federal Reserve Act, as amended, the Federal Reserve Board has heretofore granted to the First National Bank of Ogden, Ogden, Utah, the right to act when not in contravention of State or local law, as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, committee of estates of lunatics, or in any other fiduciary capacity in which State banks, trust companies or other corporations which come into competition with national banks are permitted to act under the laws of the State of Utah; (2) On February 24, 1934, the First National Bank of Ogden, Ogden, Utah, changed its title to First Security Bank of Utah, National Association, under the provisions of an Act of Congress approved May 1, 1886, whereby all of the rights, liabilities and powers of such national bank under its old name devolved upon and inured to the bank under its new name; and (3) Pursuant to the permission heretofore granted by the Federal Reserve Board to the First National Bank of Ogden, Ogden, Utah, as aforesaid, and by virtue of the change in the title of such bank, the First Security Bank of Utah, National Association has authority to act, when not in contravention of State or local law, as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates of lunatics, or in any other fiduciary capacity in which State banks, trust companies or other corporations which come into competition with national banks are permitted to act under the laws of the State of Utah, subject to regulations prescribed by the Federal Reserve Board. IN WITNESS WHEREOF, I have hereunto subscribed my name and caused the seal of the Federal Reserve Board to be affixed at the City of Washington, in the District of Columbia, on the 1st day of March, 1934. S.R. Carpenter ------------------------------------------- Assistant Secretary, Federal Reserve Board. FEDERAL RESERVE BOARD WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE TO THE FEDERAL RESERVE BOARD March 1, 1934. First Security Bank of Utah, National Association, Ogden, Utah. Dear Sirs: Reference is made to the change in the name of the First National Bank of Ogden, Ogden, Utah, pursuant to the provisions of the Act of May 1, 1886, to First Security Bank of Utah, National Association, and there is inclosed a certificate issued by the Federal Reserve Board showing the trust powers heretofore granted to the bank under its former name and that it is authorized to exercise such powers under its new name. Very truly yours, /s/ S.R. Carpenter -------------------- S.R. Carpenter, Assistant Secretary. Enclosure [LOGO OF THE COMPTROLLER OF THE CURRENCY APPEARS HERE] ================================================================================ Comptroller of the Currency Administrator of National Banks ================================================================================ LICENSING UNIT (APPLICATIONS) 50 Fremont Street, Suite 3900 San Francisco, CA 94105 (415) 545-5900, FAX (415) 545-5925 June 20, 1996 Board of Directors FIRST SECURITY BANK OF UTAH, N.A. c/o First Security Corporation Attn: Brad D. Hardy, EVP Post Office Box 30006 Salt Lake City, Utah 84130 RE: MERGER - FIRST SECURITY BANK OF IDAHO, N.A., BOISE, IDAHO INTO FIRST SECURITY BANK OF UTAH, N.A., OGDEN, UTAH, UNDER THE TITLE OF FIRST SECURITY BANK, N.A., OGDEN, UTAH. CONTROL NO: 96-WE-02-010 Dear Members of the Board: This letter is the OFFICIAL CERTIFICATION of the Comptroller of the Currency to merge First Security Bank of Idaho, National Association, Boise, Idaho into First Security Bank of Utah, National Association, Ogden, Utah, EFFECTIVE AS OF JUNE 21, 1996. THE RESULTING BANK TITLE IS FIRST SECURITY BANK, NATIONAL ASSOCIATION AND CHARTER NUMBER IS 2597. This is also the official authorization given to First Security Bank, National Association to operate the branches of the target institution and to operate the main office of the target institution as a branch. Branches of a national bank target are not listed since they are automatically carried over to the resulting bank and retain their current OCC branch numbers. Please be advised that the Charter Certificate for the merged bank, First Security Bank of Idaho, National Association, MUST BE RETURNED TO THE WESTERN DISTRICT OFFICE for cancellation. Very truly yours, /s/ Robert G. Tornborg - ---------------------- Robert G. Tornborg Acting Director of Bank Supervision - Compliance and Analysis EXHIBIT 4 BY-LAWS OF THE FIRST SECURITY BANK, NATIONAL ASSOCIATION Organized under the National Banking laws of the United States. MEETINGS -------- SECTION 1. Unless otherwise provided by the articles of association a notice of each shareholder's meeting, setting forth clearly the time, place and purpose of the meeting, shall be given, by mail, to each shareholder of record of this bank at lease 10 days prior to the date of such meeting. Any failure to mail such notice or any irregularity therein, shall not affect the validity of such meeting or of any of the proceedings thereat. SECTION 2. A record shall be made of the shareholders represented in person and by proxy, after which the shareholders shall proceed to the transaction of any business that may properly come before the meeting. A record of the shareholder's meeting, giving the names of the shareholders present and the number of shares of stock held by each, the names of the shareholders represented by proxy and the number of shares held by each, and the names of the proxies, shall be entered in the records of the meeting in the minute book of the bank. This record shall show the names of the shareholders and the number of shares voted for each resolution or voted for each candidate for director. Proxies shall be secured for the annual meeting alone, shall be dated, and shall be filed with the records of the meeting. No officer, director, employee, or attorney for the bank may act as proxy. The chairman or Secretary of the meeting shall notify the directors-elect of their election and of the time at which they are required to meet at the banking house for the purpose of organizing the new board. At the appointed time, which as closely as possible shall follow their election, the directors-elect shall convene and organize. The president or cashier shall then forward to the office of the Comptroller of the Currency a letter stating that a meeting of the shareholders was held in accordance with these by-laws, stating the number of shares represented in person and the number of shares represented by proxy, together with a list of the directors elected and the report of the appointment and signatures of officers. OFFICERS -------- SECTION 3. Each officer and employee of this bank shall be responsible for all such moneys, funds, valuables, and property of every kind as may be entrusted to his care or otherwise come into his possession, and shall faithfully and honestly discharge his duties and apply and account for all such moneys, funds, valuables and other property that may come into his hands as such officer or employee and pay over and deliver the same to the order of the Board of Directors or to such person or persons as may be authorized to demand and receive same. SECTION 4. If the Board of Directors shall not require separate bonds, it shall require a blanket bond in an amount deemed by it to be sufficient. SECTION 5. The following is an impression of the seal adopted by the Board of Directors of this bank: (Here in the original resolution was imprinted the Association's seal). SECTION 6. The various branches of this bank shall be open for business during such hours as shall be customary in the vicinity, or as shall be fixed, as to any branch, by the clearing house association of which such branch shall be a member. SECTION 7. The regular meeting of the board of directors shall be held on the first Wednesday after the first Tuesday of each month. When any regular meeting of the board of directors falls upon a holiday, the meeting shall be held on such other day as the board may previously designate. Special meetings may be called by the president, any vice-president, the secretary or the cashier, or at the request of three or more directors. MINUTE BOOK ----------- SECTION 8. The organization papers of this bank, the returns of the elections, the proceedings of all regular and special meetings of the directors and of the shareholders, the by-laws and any amendments thereto, and reports of the committees of directors shall be recorded in the minute book; and the minutes of each meeting shall be signed by the chairman and attest by the secretary of the meeting. TRANSFERS OF STOCK ------------------ SECTION 9. The stock of this bank shall be assignable and transferable only on the books of this bank, subject to the restrictions and provisions of the national banking laws; and a transfer book shall be provided in which all assignments and transfers of stock shall be made. SECTION 10. Certificates of stock, signed by the president or vice-president, and the secretary or the cashier or any assistant cashier, may be issued to shareholders, and when stock is transferred the certificates thereof shall be returned to the association, cancelled, preserved, and new certificates issued. Certificates of stock shall state upon the face thereof that the stock is transferable only upon the books of the association, and shall meet the requirements of section 5139, United States Revised Statutes, as amended. EXPENSES -------- SECTION 11. All the current expenses of the bank shall be paid by the cashier, except that the current expenses of each branch shall be paid by the manager thereof; and such officer shall, every six months, or more often if required, make to the board a report thereof. EXAMINATIONS ------------ SECTION 12. There shall be appointed by the board of directors a committee of three members, exclusive of the active officers of the bank, whose duty it shall be to examine, at least once in each period of eighteen months, the affairs of each branch as well as the head office of the association, count its cash, and compare its assets and liabilities with the accounts of the general ledgers, ascertain whether the accounts are correctly kept and that the condition of the bank corresponds therewith, and whether the bank is in a sound and solvent condition, and to recommend to the board such changes in the manner of doing business, etc., as shall seem to be desirable, the result of which examination shall be reported in writing to the board at the next regular meeting thereafter, provided that the appointment of such committee and the examinations by it may be dispensed with if the board shall cause such examination to be made and reported to the board by accountants approved by it. CHANGES IN BY-LAWS ------------------ SECTION 13. These by-laws may be changed or amended by the vote of a majority of the directors at any regular or special meeting of the board, provided, however, that the directors shall have been given 10 days notice of the intention to change or offer an amended thereto. REPEAL ------ SECTION 14. All by-laws heretofore adopted are repealed. EXHIBIT 7 CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1997 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding as of the last business day of the quarter. SCHEDULE RC - BALANCE SHEET
Dollar Amounts in Thousands - --------------------------------------------------------------------------------------------------------------------------- ASSETS 1. Cash and balances due from depository institutions (from Schedule RC-A): RCFD ---- a. Noninterest-bearing balances and currency in coin (1)______________________ 0081. . 655,052 1.a b. Interest-bearing balances (2)______________________________________________ 0071. . 67 1.b 2. Securities: a. Held-to-maturity securities (from Schedule RC-B, column A)_________________ 1754. . 0 2.a b. Available-for-sale securities (from Schedule RC-B, column D)_______________ 1773. . 2,180,112 2.b 3. Federal funds sold and securities purchased under agreements to resell_________ 1350. . 66,178 3. 4. Loans and lease financing receivables: a. Loans and leases, net of unearned income RCFD ---- (from Schedule RC-C)_________________________________ 2122. . 7,516,685 . . . . . 4.a b. LESS: Allowance for loan and lease losses___________ 3123. . 99,148 . . . . . 4.b c. LESS: Allocated transfer risk reserve_______________ 3128. . 0 . . . . . 4.c d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b and 4.c)________________________ 2125. . 7,417,537 4.d 5. Trading assets (from Schedule RC-D)____________________________________________ 3545. . 388,486 5. 6. Premises and fixed assets (including capitalized leases)_______________________ 2145. . 174,816 6. 7. Other real estate owned (from Schedule RC-M)___________________________________ 2150. . 825 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M)_________________________________________________________________ 2130. . 0 8. 9. Customers' liability to this bank on acceptances outstanding___________________ 2155. . 803 9. 10. Intangible assets (from Schedule RC-M)_________________________________________ 2143. . 157,257 10. 11. Other assets (from Schedule RC-F)______________________________________________ 2160. . 332,647 11. 12. Total assets (sum of items 1 through 11)_______________________________________ 2170. . 11,373,780 12.
- ---------- (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held for trading. EXHIBIT 7 SCHEDULE RC - CONTINUED
Dollar Amounts in Thousands - --------------------------------------------------------------------------------------------------------------------------- LIABILITIES 13. Deposits: RCOM a. In domestic offices (sum of totals of ---- columns A and C from Schedule RC-E, part I)________________________________ 2200. . 7,079,084 13.a RCOM ---- (1) Noninterest-bearing (1)__________________________ 6631. . 1,582,595 . . . . . 13.a.1 (2) Interest-bearing_________________________________ 6636. . 5,496,489 . . . . . 13.a.2 RCFN ---- b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, part II)____________________________________________________ 2200 51,656 13.b RCFN ---- (1) Noninterest-bearing______________________________ 6631. . 0 . . . . . 13.b.1 (2) Interest-bearing_________________________________ 6636. . 551,656 . . . . . 13.b.2 RCFD ---- 14. Federal funds purchased and securities sold under agreements to repurchase_____ 2800. . 1,987,674 14. RCOM ---- 15. a. Demand notes issued to the U.S. Treasury____________________________________ 2840. . 20,244 15.a RCFD ---- b. Trading liabilities (from Schedule RC-D)____________________________________ 3548. . 130 15.b 16. Other borrowed money (includes mortgage indebtedness and obligations under capitalized leases: a. With a remaining maturity of one year or less______________________________ 2332. . 552,757 16.a b. With a remaining maturity of more than one year____________________________ 2333. . 353,202 16.b 17. Not applicable. 18. Bank's Liability on acceptances executed and outstanding_______________________ 2920. . 803 18. 19. Subordinated notes and debentures (2)__________________________________________ 3200. . 45,000 19. 20. Other Liabilities (from Schedule RC-G)_________________________________________ 2930. . 362,343 20. 21. Total Liabilities (sum of items 13 through 20)_________________________________ 2948. . 10,452,893 21. 22. Not applicable. EQUITY CAPITAL RCFD ---- 23. Perpetual preferred stock and related surplus__________________________________ 3838. . 0 23. 24. Common stock___________________________________________________________________ 3230. . 59,270 24. 25. Surplus (exclude all surplus related to preferred stock)_______________________ 3839. . 285,944 25. 26. a. Undivided profits and capital reserves_____________________________________ 3632. . 590,530 26.a b. Net unrealized holding gains (losses) on available-for-sale securities_____ 8434. . ( 14,857) 26.b 27. Cumulative foreign currency translation adjustments____________________________ 3284. . 0 27. 28. Total equity capital (sum of items 23 through 27)______________________________ 3210. . 920,887 28. 29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21 and 28)_______________________________________________________________ 3300. . 11,373,780 29. MEMORANDUM TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION. 1. Indicated in the box at the right the number of the statement below that best RCFD Number describes the most comprehensive level of auditing work performed for the bank ---- ------ by independent external auditors as of any date during 1996_____________________ 6724. . 2 M.1 1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other with generally accepted auditing standards by a certified external auditors (may be required by state chartering public accounting firm which submits a report on the bank authority) 2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external conducted in accordance with generally accepted auditing auditors standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by submits a report on the consolidated holding company (but external auditors not on the bank separately) 7 = Other audit procedures (excluding tax preparation work) 3 = Directors' examination of the bank conducted in accordance 8 = No external audit work with generally accepted auditing standards by a certified public accounting firm (may be required by state charter- ing authority)
- ---------- (1) Includes total demand deposits and noninterest-bearing time and savings deposits. (2) Includes Limited-Life preferred stock and related surplus. EX-99.1 10 LETTER OF TRANSMITTAL LETTER OF TRANSMITTAL (INCLUDING FORM W-9 AND GUIDELINES) TRANS WORLD AIRLINES, INC. OFFER TO EXCHANGE ITS 12% SENIOR SECURED NOTES DUE 2002, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL OF ITS OUTSTANDING 12% SENIOR SECURED NOTES DUE 2002 PURSUANT TO THE PROSPECTUS DATED , 1997 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN BEFORE 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. The Exchange Agent: FIRST SECURITY BANK, NATIONAL ASSOCIATION By Mail, Overnight Courier or Hand: FIRST SECURITY BANK, NATIONAL ASSOCIATION CORPORATE TRUST SERVICES 79 SOUTH MAIN STREET SALT LAKE CITY, UTAH 84111 TELEPHONE: 801/246-5630 FACSIMILE: 801/246-5053 Delivery of the Letter of Transmittal and Old Note Certificates (as defined below) to an address other than as set forth above, or transmission of instructions via facsimile to a number other than as set forth above, will not constitute a valid delivery. No Letters of Transmittal and no Old Note Certificates should be sent to the Company. PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE EXECUTION. THE EXCHANGE AGENT CAN ASSIST YOU IN COMPLETING THIS FORM AND PROVIDING ADDITIONAL COPIES OF THE LETTER OF TRANSMITTAL. THE INSTRUCTIONS TO THE LETTER OF TRANSMITTAL MUST BE FOLLOWED. PLEASE DIRECT ANY QUESTIONS TO THE EXCHANGE AGENT. DESCRIPTION OF SURRENDERED OLD NOTE CERTIFICATES TENDERED PLEASE FILL IN (SEE INSTRUCTIONS 3 AND 4)* - --------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (IF BLANK, OLD NOTE PLEASE FILL IN CERTIFICATE(S) EXACTLY AS ENCLOSED NAME (ATTACH APPEAR(S) ON ADDITIONAL OLD NOTE SIGNED LIST IF CERTIFICATE(S) NECESSARY) - ------------------------------- TOTAL PRINCIPAL AMOUNT OLD NOTE OF OLD NOTES CERTIFICATE(S) REPRESENTED BY OLD NUMBERS NOTE CERTIFICATE(S) - ---------------------------------------- - ---------------------------------------- - ---------------------------------------- - ---------------------------------------- - ---------------------------------------- TOTAL PRINCIPAL AMOUNT OF NOTES
* Need not be completed if Old Notes are being tendered by book-entry transfer. Unless you indicate otherwise, you will be deemed to have tendered the entire aggregate principal amount represented by the column labeled "Total Principal Amount of Notes Represented by Old Note Certificate(s)." [_] Check here if Tendered Old Notes are being delivered by The Depository Trust Company ("DTC") to the Exchange Agent's account at DTC and complete the following: Name of Tendering Institution: ____________________________________________ DTC Book-Entry Account No. ________________________________________________ Transaction Code No.: _____________________________________________________ [_] Check here if Tendered Old Notes are being delivered pursuant to a Notice of Guaranteed Delivery previously sent to the Exchange Agent and complete the following: Name(s) of Registered Holder(s): __________________________________________ Window Ticket Number (if any): ____________________________________________ Date of Execution of Notice of Guaranteed Delivery: _______________________ Name of Institution which guaranteed delivery: ____________________________ If delivery by book-entry transfer, complete the following: Account Number: Transaction Code Number: [_] Check here if you are a broker-dealer and wish to receive 10 additional copies of the Prospectus and 10 copies of any amendments or supplements thereto. Name: _____________________________________________________________________ Address: __________________________________________________________________ 2 Dear Noteholder: The Letter of Transmittal (the "Letter of Transmittal") is being sent to you, along with the Prospectus dated , 1997 (the "Prospectus") of Trans World Airlines, Inc., a Delaware corporation (the "Company"). Together, the Prospectus and the Letter of Transmittal constitute the Company's offer (the "Exchange Offer") to exchange its 12% Senior Secured Notes due 2002 (the "New Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which the Prospectus is a part, for an equal principal amount at maturity of its outstanding 12% Senior Secured Notes due 2002 (the "Old Notes," and collectively with the New Notes, the "Notes"). The Exchange Offer is being effected in accordance with the terms and conditions specified in the Registration Rights Agreement dated as of March 31, 1997 between the Company and the Initial Purchaser of the Old Notes (the "Registration Rights Agreement"). Capitalized terms used and not otherwise defined herein have the meaning given to them in the Prospectus. Under the terms of the Exchange Offer, the holder of each Old Note accepted for exchange will receive a New Note having a principal amount at maturity equal to that of the surrendered Old Note. The form and terms of the New Notes are generally the same as the form and terms of the Old Notes, except that the New Notes have been registered under the Securities Act and therefore will not bear legends restricting their transfer. The New Notes will mature on October 1, 2002 and will accrue cash interest at a rate of 12% per annum, with interest payable on April 1 and October 1 of each year commencing October 1, 1997. If (i) the Exchange Offer is not consummated on or before July 29, 1997 or (ii) the Registration Statement becomes effective and later ceases to be effective or usable (subject to certain exceptions) in the resale of New Notes according to and during the periods specified in the Registration Rights Agreement (each such event referred to in (i) or (ii) above, a "Registration Default"), the Company will pay liquidated damages ("Liquidated Damages") to each holder of Notes that are, at the time of the Registration Default, subject to certain transfer restrictions under the Securities Act ("Transfer Restricted Notes"), as more fully described in the Registration Rights Agreement. During the first 90-day period immediately following a Registration Default, each holder of Transfer Restricted Notes will be entitled to Liquidated Damages of $0.05 per week per Transfer Restricted Note held by such Holder. Following the initial 90-day period following a Registration Default, Liquidated Damages will increase by an additional $0.05 per week per Transfer Restricted Note for each subsequent 90-day period until the Registration Statement is declared effective or again becomes effective, up to maximum Liquidated Damages of $0.25 per week per Transfer Restricted Note with respect to any Registration Default. The Company will be entitled to close the Exchange Offer 30 days after its commencement, provided that it has accepted all Notes theretofore validly tendered in accordance with the terms of the Exchange Offer. The Company reserves the right, at any time or from time to time and in its sole discretion, to extend the Exchange Offer, in which case the term "Expiration Date" shall mean the latest time and date to which the Exchange Offer is extended. The Company will notify the Exchange Agent of any extension of the Exchange Offer by oral or written notice and will mail to the registered holders an announcement thereof, before 5:00 P.M., New York City time, on the next business day after the then Expiration Date. You may exchange Old Notes by (i) completing and signing the Letter of Transmittal or a facsimile thereof, with the signatures thereon guaranteed as required, and mail or otherwise deliver such Letter of Transmittal or such facsimile, together with certificates representing Old Notes ("Old Note Certificates") and any other required documents to First Security Bank, National Association as the "Exchange Agent," at the address set forth above or (ii) requesting your broker, dealer, commercial bank, trust company or other nominee to effect the transaction for you. You must use the Letter of Transmittal to exchange Notes (i) if you are physically delivering Old Note Certificates with the Letter of Transmittal; (ii) if you are a DTC participant whose name appears on a security position that lists you as the owner of Old Notes, and you are tendering Old Notes by book-entry transfer to the Exchange Agent's DTC account; or (iii) if you are tendering Old Notes according to the guaranteed delivery procedures set forth in the Prospectus under "The Exchange Offer--Guaranteed Delivery Procedures." Please note that delivery of documents to DTC does not constitute delivery to the Exchange Agent. 3 The term "holder" with respect to the Exchange Offer means any person (i) in whose name Old Notes are registered on the books of the Company or any other person who has obtained a properly completed bond power from the registered holder; or (ii) whose Old Notes are held of record by DTC and who desires to deliver such Old Notes by book-entry transfer at DTC. The undersigned has completed, executed and delivered the Letter of Transmittal to indicate the action the undersigned desires to take regarding the Exchange Offer. Holders who wish to tender their Old Notes must complete the Letter of Transmittal in its entirety. Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby acknowledges receipt of the Letter of Transmittal and surrenders to the Exchange Agent the principal amount of Old Notes indicated above. The undersigned agrees that full execution of the Letter of Transmittal will constitute surrender of all Old Notes indicated herein. Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company the aggregate principal amount of Old Notes indicated above. Subject to, and effective upon, the acceptance for exchange of Old Notes tendered hereby, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to the Old Notes being tendered hereby. The tender of Old Notes by a holder as set forth in the Letter of Transmittal will constitute an agreement between such holder and the Company in accordance with the terms and subject to the conditions set forth in the Prospectus, the Letter of Transmittal and the Registration Rights Agreement. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Old Notes tendered hereby and that the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim when the Company accepts the same. The undersigned hereby further represents that any New Notes acquired in exchange for Old Notes tendered hereby will have been acquired in the ordinary course of business of the person receiving such New Notes, whether or not such person is the undersigned, that neither the holder of such Old Notes nor any such other person has an arrangement or understanding with any person to participate in the distribution of such New Notes and that neither the holder of such Old Notes nor any such other person is an "affiliate" within the meaning of Rule 405 of the Securities Act ("Rule 405"). The undersigned also acknowledges that this Exchange Offer is being made in reliance on interpretations by the staff of the Securities and Exchange Commission that holders (other than Rule 405 "affiliates") may offer for resale, resell and otherwise transfer of the New Notes issued in exchange for the Old Notes pursuant to the Exchange Offer without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the holders acquire such New Notes in the ordinary course of business and the holders have no arrangement or understanding with any person to participate in the distribution of the New Notes. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of New Notes. If the undersigned is a broker-dealer that will receive New Notes for its own account in exchange for Old Notes, it represents that it acquired the Old Notes to be exchanged for the New Notes as a result of market-making activities or other trading activities and acknowledges that it will deliver a prospectus in connection with any resale of such New Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The undersigned will, upon request, execute and deliver any additional documents the Company deems to be necessary or desirable to complete the sale, assignment and transfer of the Old Notes tendered by the Letter of Transmittal. All authority conferred or agreed to be conferred in, and every obligation of the undersigned under, the Letter of Transmittal shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. This tender may be withdrawn only in accordance with the procedures set forth in the Prospectus under "The Exchange Offer--Withdrawal of Tenders." 4 SPECIAL ISSUANCE INSTRUCTIONS* (SEE INSTRUCTIONS 1, 4, 5 AND 6) To be completed ONLY if New Notes are to be issued in a name other than the name of the registered holder of the Old Notes. ISSUE NEW NOTES TO: Name____________________________________________________________________________ (Please Type or Print) Address_________________________________________________________________________ - -------------------------------------------------------------------------------- (Include Zip Code) ________________________________________________________________________________ (Taxpayer ID Or Social Security Number(s)) (See Substitute Form W-9 below) SPECIAL DELIVERY INSTRUCTIONS* (SEE INSTRUCTIONS 1, 4, 5 AND 6) To be completed ONLY if New Notes are to be sent to someone other than the undersigned, or the undersigned at an address other than the address shown in the space indicated under the box entitled "Description of Surrendered Old Note Certificates Tendered." MAIL NEW NOTES TO: Name____________________________________________________________________________ Address_________________________________________________________________________ - -------------------------------------------------------------------------------- (Include Zip Code) 5 TO BE COMPLETED BY ALL SURRENDERING HOLDERS OF OLD NOTES (SEE "IMPORTANT TAX INFORMATION") PAYER'S NAME: FIRST SECURITY BANK, NATIONAL ASSOCIATION SUBSTITUTE PART I -- PLEASE PROVIDE YOUR TIN IN THE BOX AT THE RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. FORM W-9 _______________________ Social Security Number DEPARTMENT OF THE TREASURY INTERNAL REVENUE or SERVICE _______________________ PAYER'S REQUEST FOR Employer TAXPAYER IDENTIFICATION Identification Number NUMBER (TIN) - -------------------------------------------------------------------------------- PART II - -------------------------------------------------------------------------------- CERTIFICATION -- Under penalties of perjury, I certify that: (1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me); and (2) I am not subject to backup withholding because (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out such item (2). - -------------------------------------------------------------------------------- SIGNATURE ______________________________ DATE ________________ PART III NAME (PLEASE PRINT) __________________________________________ Awaiting TIN [_] NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF THE PRINCIPAL AMOUNT OF NEW NOTES ISSUED TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9 6 CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate IRS Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all reportable payments made to me will be withheld, but that such amounts will be refunded to me if I then provide a Taxpayer Identification Number within sixty (60) days. Signature _________________________________________________Date Name (Please Print) _______________________________________________________ Unless otherwise indicated under the box entitled "Special Payment Instructions" above, please deliver the New Notes (and, if applicable, substitute certificates representing Old Notes for any Old Notes not exchanged) in the name of the undersigned or, in the case of a book-entry delivery of Old Notes, please credit the account indicated above maintained at DTC. Similarly, unless otherwise indicated under the box entitled "Special Delivery Instructions" above, please send the New Notes (and, if applicable, substitute certificates representing Old Notes for any Old Notes not exchanged) to the undersigned at the address shown above in the box entitled "Description of Surrendered Old Note Certificates Tendered." INSTRUCTIONS FOR LETTER OF TRANSMITTAL The following instructions form part of the terms and conditions of the Exchange Offer to exchange registered 12% Senior Secured Notes of Trans World Airlines, Inc. for any and all outstanding 12% Senior Secured Notes of Trans World Airlines, Inc. 1. DELIVERY OF LETTER OF TRANSMITTAL AND OLD NOTES; GUARANTEED DELIVERY PROCEDURES. Holders of Old Notes must use the Letter of Transmittal either if Old Note Certificates are to be forwarded with the Letter of Transmittal or if tenders are to be made according to the procedures for delivery by book-entry transfer set forth in the Prospectus under "The Exchange Offer--Book-Entry Transfer." On or before the Expiration Date, tendering holders must either (a) mail or deliver to the Exchange Agent at the address set forth above Old Note Certificates for all physically tendered Old Notes, or confirmation of book- entry transfer, as the case may be, as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other documents required by the Letter of Transmittal or (b) comply with the guaranteed delivery procedures set forth below. Tenders of Old Notes must be made in denominations of principal amount of maturity of $1,000 and integral multiples of $1,000. Until all necessary steps have been taken to surrender the Old Notes, no certificates representing New Notes ("New Note Certificates") will be issued. Holders whose Old Note Certificates are not immediately available or who cannot deliver their certificates and all other required documents to the Exchange Agent on or before the Expiration Date, or who cannot complete the procedure for book-entry transfer on or before the Expiration Date, may tender their Old Notes pursuant to the guaranteed delivery procedures set forth in the Prospectus under "The Exchange Offer--Guaranteed Delivery Procedures." Pursuant to such procedures, (i) such tender must be 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 the Exchange Act of 1934, as amended (the "Exchange Act") (an "Eligible Institution"), (ii) on or before the Expiration Date the Exchange Agent must receive (by facsimile transmission, mail or hand delivery) from such Eligible Institution a properly completed and duly executed notice of guaranteed delivery substantially in the form provided by the Company (the "Notice of Guaranteed Delivery"), setting forth the holder's name and address, the relevant Old Note Certificate number(s) (if possible) and the principal amount at maturity of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that, within five business trading days after the Expiration 7 Date (A) the Eligible Institution will deposit with the Exchange Agent the Letter of Transmittal (or facsimile thereof), together with the certificate(s) representing the Old Notes and any other documents required by the Letter of Transmittal, or (B) that book-entry transfer of such Old Notes into the Exchange Agent's account at DTC will be effected and confirmation of such book-entry transfer will be delivered to the Exchange Agent; and (iii) the Exchange Agent receives within five business trading days after the Expiration Date, such properly completed and executed Letter of Transmittal (or facsimile thereof), as well as the certificate(s) representing all tendered Old Notes in proper form for transfer and all other documents required by the Letter of Transmittal, or confirmation of book-entry transfer of the Old Notes into the Exchange Agent's account at DTC. THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING OLD NOTE CERTIFICATES AND THE LETTER OF TRANSMITTAL, TO THE EXCHANGE AGENT IS AT THE HOLDER'S ELECTION AND RISK. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, HOLDERS SHOULD ALLOW SUFFICIENT TIME TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. DO NOTE SEND LETTERS OF TRANSMITTAL OR OLD NOTE CERTIFICATES TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS ON THEIR BEHALF. See "The Exchange Offer" section of the Prospectus. 2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS OF OLD NOTES WHO TENDER BY BOOK-ENTRY TRANSFER). If less than all of the Old Notes evidenced by a submitted Old Note Certificate are to be tendered, the tendering holder(s) should fill in the aggregate principal amount of Old Notes to be tendered in the box above entitled "Description of Surrendered Old Note Certificates Tendered; Total Principal Amount of Old Notes Represented by Old Note Certificates Tendered." A reissued certificate representing the balance of nontendered Old Notes will be sent to such tendering holder, unless otherwise provided in the appropriate box on the Letter of Transmittal, promptly after the Expiration Date. ALL OLD NOTE CERTIFICATES DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED. 3. INADEQUATE SPACE. If the space provided is inadequate, please list on a separately attached, signed schedule the Old Notes Certificates numbers and principal amount of the Old Notes tendered thereby. 4. SIGNATURES ON LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. (a) If the registered holder of the Old Notes tendered hereby signs the Letter of Transmittal, the signature must correspond exactly with the name as written on the face of such Old Note Certificates without any change whatsoever. (b) If any tendered Old Notes are owned of record by two or more joint owners, all such owners must sign the Letter of Transmittal. (c) If any tendered Old Notes are registered in different names on several Old Note Certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of Old Notes. (d) When the registered holder of the Old Notes listed signs and transmits the Letter of Transmittal, no endorsements of Old Note Certificates or separate bond powers are required unless New Note Certificates are to be issued, or any untendered Old Notes are to be reissued, to a person other than the registered holders. An Eligible Institution must guarantee the signatures on such Old Note Certificates. However, if a person other than the registered holder of the Old Notes listed signs the Letter of Transmittal, the Old Notes must be endorsed by the registered holder(s) or accompanied by a written instrument or instruments of transfer or exchange in form, in either case signed exactly as the name or names of the registered holder or holders appear on the Old Note Certificates. An Eligible Institution must guarantee the signatures on such Old Note Certificates or bond powers. See Instruction 1 hereto. 8 (e) If the Letter of Transmittal is signed by a person other than the registered holder of any Old Note Certificates specified herein, such Old Note Certificates must be endorsed or accompanied by appropriate bond powers, in either case signed exactly as the name of the registered holder(s) appears on the Old Note Certificates, and an Eligible Institution must guarantee the signatures on such Old Note Certificates. (f) If the Letter of Transmittal or any Old Note Certificates or bond power are signed by trustees, executors, administrators, guardians, attorneys-in- fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, must submit to the Company proper and evidence satisfactory of their authority to so act. ENDORSEMENTS ON OLD NOTE CERTIFICATES OR SIGNATURES ON BOND POWERS REQUIRED BY THIS INSTRUCTION 4 MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION. SIGNATURES ON THE LETTER OF TRANSMITTAL NEED NOT BE GUARANTEED BY AN ELIGIBLE INSTITUTION, PROVIDED THE OLD NOTES ARE TENDERED: (i) BY A REGISTERED HOLDER OF OLD NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY PARTICIPANT IN THE TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A SECURITY POSITION LISTING AS THE HOLDER OF SUCH OLD NOTES) WHO HAS NOT COMPLETED THE BOX ENTITLED "SPECIAL PAYMENT INSTRUCTIONS" OR "SPECIAL DELIVERY INSTRUCTIONS" ON THE LETTER OF TRANSMITTAL OR (ii) FOR THE ACCOUNT OF AN ELIGIBLE INSTITUTION. 5. SPECIAL ISSUANCE PAYMENT, AND DELIVERY INSTRUCTIONS. If New Note Certificates are to be issued in the name of a person other than the signer of the Letter of Transmittal, or if such New Note Certificates are to be sent to someone other than the signer of the Letter of Transmittal or to the signer at a different address, the appropriate boxes on the Letter of Transmittal should be completed. 6. TAXPAYER IDENTIFICATION NUMBER. Federal income tax laws generally require that a tendering holder whose Old Notes are accepted for exchange to provide Exchange Agent with such holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9 above. For individuals, the TIN is the holder's social security number. If the Exchange Agent is not provided with the current TIN or an adequate basis for an exemption, the Internal Revenue Service may impose a $50 penalty on the holder. In addition, delivery of New Notes to such tendering holder may be subject to backup withholding in an amount equal to 31% of all reportable payments made after the exchange. If withholding results in an overpayment of taxes, a refund may be obtained. Exempt holders of Old Notes (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. See the enclosed Guidelines of Certification of Taxpayer Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for additional instructions. To prevent backup withholding, each tendering holder of Old Notes must notify the Exchange Agent of its correct TIN by completing the "Substitute Form W-9" set forth above, certifying that the TIN provided is correct (or that such holder is awaiting a TIN) and that (i) the holder is exempt from backup withholding, (ii) the Internal Revenue Service has not notified such Noteholder that such Noteholder is subject to a backup withholding as a result of a failure to report all interest or dividends or (iii) the Internal Revenue Service has notified the holder that such holder is no longer subject to backup withholding. If the tendering holder of Old Notes is a nonresident alien or foreign entity not subject to backup withholding, such holder must give the Company a completed Form W-8, Certificate of Foreign Status. These forms may be obtained from the Exchange Agent. If the Old Notes are in more than one name or are not in the name of the actual owner, such holder should consult the W-9 Guidelines for information on which TIN to report. If such holder does not have a TIN, such holder should consult the W-9 Guidelines for instructions on applying for a TIN, check the box in Part 2 of the Substitute Form W-9 and write "applied for" in lieu of its TIN. Note: checking this box and writing "applied for" on the form means that such holder has already applied for a TIN or that such holder intends to apply for one in the near future. If such holder does not provide its TIN to the Company within 60 days, backup withholding will begin and continue until such holder furnishes its TIN to the Company. 9 7. TRANSFER TAXES. Except as set forth in this Instruction 7, the Company will pay any and all transfer taxes payable on the surrender of Old Notes and the issuance of New Note Certificates. If, however, New Note Certificates and/or substitute Old Note Certificates not exchanged are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Old Notes tendered hereby, or if tendered Old Notes are registered in the name of any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the transfer of Old Notes to the Company or its order pursuant to the Exchange Offer, satisfactory evidence of the payment of the amount of any such transfer taxes must be submitted with the Letter of Transmittal (whether imposed on the registered holder or such other person). New Note Certificates will not be issued to such persons until satisfactory evidence of the payment of such taxes, or an exemption therefrom, is submitted. EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTE CERTIFICATES DELIVERED WITH THE LETTER OF TRANSMITTAL. 8. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive satisfaction of any or all conditions enumerated in the Prospectus. 9. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or contingent tenders will be accepted. All tendering holders of Old Notes, by execution of the Letter of Transmittal, shall waive any right to receive notice of the acceptance of their Old Notes for exchange. Neither the Company, the Exchange Agent nor any other person is obligated to give notice of any defect or irregularity with respect to any tender of Old Notes nor shall any of them incur any liability for failure to give any such notice. 10. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any holder whose Old Note Certificates have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated above for further instructions. 11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance and requests for additional copies of the Prospectus or the Letter of Transmittal may be directed to the Exchange Agent at the address set forth above. Holders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offer. 12. VALIDITY OF SURRENDER; IRREGULARITIES. All questions as to the form of all documents and the validity (including time of receipt), eligibility, acceptance and withdrawal of surrendered Old Notes will be determined by the Company, in its sole discretion, which determination shall be final and binding. The Company reserves the absolute right to reject any or all attempted surrenders not in proper form or the acceptance of which would, in the opinion of Company's counsel, be unlawful. The Company also reserves the absolute right, subject to applicable law, to waive any of the conditions contained herein or any defect or irregularity in the surrender of any of the Old Notes without making a public announcement thereof and permitting the withdrawal of Old Notes surrendered to the extent required by applicable law. Neither the Company, the Exchange Agent, nor any other person will be under any duty to give notification of any defects or irregularities in surrenders or will incur any liability for failure to give any such notification. As soon as practicable, the Exchange Agent will return to the appropriate surrendering holder of Old Notes any Old Notes received by the Exchange Agent that are not properly surrendered and as to which irregularities have not be cured or waived. The Company's interpretation of the terms and conditions of the Letter of Transmittal and these instructions will be final and binding on all parties. 10 -----END PRIVACY-ENHANCED MESSAGE-----