-----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, Rl+3HHsU0e06sQOfWsywLpklsj3NznR8iFllfJyCIyGwKbXhcQR8BCgRXkLjlDpR JcvxVSs7BDvDvHs8yqtjCA== 0000950103-98-000457.txt : 19980504 0000950103-98-000457.hdr.sgml : 19980504 ACCESSION NUMBER: 0000950103-98-000457 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19980501 SROS: AMEX 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 SEC ACT: SEC FILE NUMBER: 333-51581 FILM NUMBER: 98608291 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 1 As filed with the Securities and Exchange Commission on May 1, 1998 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------- Trans World Airlines, Inc. (Exact name of Registrant as specified in its charter) Delaware 4512 43-1145889 (State or jurisdiction of in- (Primary Standard Industrial (I.R.S. Employer corporation or organization) Classification Code Number) Identification No.) 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) ---------- Gerald L. Gitner Chairman and Chief Executive Officer Trans World Airlines, Inc. One City Centre, 515 N. Sixth Street St. Louis, Missouri 63101 (314) 589-3000 (Name, address, including zip code, and telephone number, including area code, of agent for service) ---------- Copies to: Joseph P. Hadley, Esq. Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 ---------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the Registration Statement becomes effective. ---------- If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earliest effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE Proposed Proposed Maximum Maximum Amount Offering Aggregate Amount of Title of Each Class of to be Price Offering Registration Securities to be Registered(1) Registered(1) Per Unit Price(2) Fee - ------------------------------ ------------- -------- ----------- ---------- 11 3/8% Senior Notes due 2006... $150,000,000 100% $150,000,000 $44,250 - ---------- (1) Plus accrued interest, if any, from the date of issuance. (2) Calculated pursuant to Rule 457(f). The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. SUBJECT TO COMPLETION, DATED ____________, 1998 PROSPECTUS TRANS WORLD AIRLINES, INC. OFFER TO EXCHANGE 11 3/8% SENIOR NOTES DUE 2006 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL OUTSTANDING 11 3/8% SENIOR NOTES 2006 ---------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED. Trans World Airlines, Inc., a Delaware corporation (the "Company" or "TWA"), hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and the accompanying letter of transmittal (the "Letter of Transmittal" and, together with this Prospectus, the "Exchange Offer"), to exchange its 11 3/8% Senior Notes due 2006 (the "Exchange Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which this Prospectus is a part (including all amendments, including post-effective amendments, and exhibits thereto, the "Registration Statement"), for an equal principal amount at maturity of its outstanding 11 3/8% Senior Notes due 2006 (the "Old Notes," and together with the Exchange Notes, the "Notes"), of which $150 million aggregate principal amount at maturity is outstanding as of the date hereof. The Company will accept for exchange any and all Old Notes that are validly tendered and not withdrawn on or prior to 5:00 P.M., New York City time, on the date the Exchange Offer expires (the "Expiration Date"), which will be ____________, 1998 (30 days following the commencement of the Exchange Offer), unless the Exchange Offer is extended. Tenders of Old Notes may be withdrawn at any time prior to 5:00 P.M., New York City time, on the Expiration Date. The Exchange Offer is not conditioned upon any minimum principal amount of Old Notes being tendered for exchange Old Notes may be tendered only in integral multiples at maturity of $1,000. See "The Exchange Offer." The Exchange Notes will bear interest at the rate of 11 3/8% per annum, payable semi-annually in arrears on each March 1 and September 1, commencing on September 1, 1998. The Exchange Notes will mature on March 1, 2006. The Exchange Notes will be redeemable, in whole or in part, at the option of TWA, at any time on or after March 1, 2002 at the redemption prices set forth herein, plus accrued and unpaid interest and Special Interest, if any, to the redemption date. In addition, prior to March 1, 2001, TWA may, at its option, use the Net Cash Proceeds from one or more Public Equity Offerings to redeem up to $52.5 million aggregate principal amount of the Notes at a price equal to 111.375% of the principal amount thereof, plus accrued and unpaid interest and Special Interest, if any, to the redemption date; provided, that at least $____ million aggregate principal amount of the Notes is outstanding immediately following each such redemption. Upon entering into certain merger or acquisition agreements, TWA shall have the right, without the consent of holders of the Exchange Notes, to redeem the Exchange Notes in whole, but not in part, at a redemption price equal to 100% of the outstanding principal amount of the Exchange Notes plus Applicable Premium and accrued and unpaid interest and Special Interest, if any. Upon a Change in Control, each holder of Exchange Notes shall have the right to require TWA to purchase all, or any part of, such holder's Exchange Notes at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest and Special Interest, if any, to the purchase date. Upon the incurrence of Acquired Indebtedness, each holder of Exchange Notes shall have the right to require TWA to purchase all, or any part of, such holder's Exchange Notes at a purchase price equal to 100% of the principal amount thereof, plus Applicable Premium and accrued and unpaid interest and Special Interest, if any, to the purchase date. In addition, upon the occurrence of an Asset Disposition, the Company will, under certain circumstances, make an Offer to Purchase the Exchange Notes at 100% of their principal amount plus accrued and unpaid interest and Special Interest, if any. See "Description of Notes." The Exchange Notes will represent senior unsecured obligations of the Company and will rank senior in right of payment to all existing and future subordinated indebtedness of the Company and will rank pari passu in right of payment with all other senior obligations of the Company. The Notes are not secured and, therefore, will be effectively subordinated to all existing and future secured indebtedness of the Company to the extent of the value of the assets securing such indebtedness. THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL ARE FIRST BEING MAILED TO HOLDERS OF OLD NOTES ON OR ABOUT , 1998. The Exchange Notes will be obligations of the Company evidencing the same indebtedness as the Old Notes. The Exchange Notes will be issued under and entitled to the benefits of the same Indenture (as defined) pursuant to which the Old Notes were issued such that the Exchange Notes and Old Notes will be treated as a single class of debt securities under the Indenture. The form and terms of the Exchange Notes are generally the same as the form and terms of the Old Notes, except that (i) the exchange will be registered under the Securities Act and, therefore, the Exchange Notes will not bear legends restricting the transfer thereof, and (ii) holders of the Exchange Notes will not be entitled to any of the registration rights of holders of Old Notes under the Registration Rights Agreement (as defined), which rights will terminate upon the consummation of the Exchange Offer. See "Description of the Notes." THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE PAGE 19, "RISK FACTORS," FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PARTICIPANTS IN THE EXCHANGE OFFER. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 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 THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. Based on interpretations by the staff of the Securities and Exchange Commission (the "Commission"), as set forth in no-action letters issued to Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley & Co. Incorporated (available June 5, 1991), Mary Kay Cosmetics, Inc. (available June 5, 1991) and Warnaco, Inc. (available October 11, 1991), the Company believes that a holder who exchanges Old Notes for Exchange Notes pursuant to the Exchange Offer may offer for resale, resell and otherwise transfer such Exchange Notes without compliance with the registration and prospectus delivery requirements of the Securities Act, provided, that (i) such Exchange Notes are acquired in the ordinary course of such holder's business, (ii) such holder is not engaged in, and does not intend to engage in, a distribution of such Exchange Notes and has no arrangement with any person to participate in the distribution of such Exchange Notes, and (iii) such holder is not an affiliate of the Company (as defined under Rule 405 of the Securities Act). However, the staff of the Commission has not considered the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the Commission would make a similar determination with respect to the Exchange Offer as in such other circumstances. A holder who exchanges Old Notes for Exchange Notes pursuant to the Exchange Offer with the intention to participate in a distribution of the Exchange Notes may not rely on the staff's position enunciated in the Exxon Capital Letter, the Morgan Stanley Letter or similar letters and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives Exchange Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." EXCEPT AS DESCRIBED IN THIS PARAGRAPH, THIS PROSPECTUS MAY NOT BE USED FOR ANY OFFER, SALE OR OTHER TRANSFER OF EXCHANGE NOTES. Prior to this Exchange Offer, there has been no public market for the Old Notes or Exchange Notes. The Old Notes have traded in the National Association of Securities Dealers, Inc. Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") market. If a public market were to develop, the Exchange Notes could trade at prices that may be higher or lower than their principal amount at maturity. The Company intends to apply for listing of the Exchange Notes on the American Stock Exchange. However, there can be no assurance that an active public market for the Exchange Notes will develop. See "Risk Factors--Risk Factors Relating to the Notes and the Exchange Offer--Absence of Public Trading Market." THE COMPANY WILL NOT RECEIVE ANY PROCEEDS FROM THIS EXCHANGE OFFER. THE COMPANY HAS AGREED TO PAY THE EXPENSES OF THE EXCHANGE OFFER. NO UNDERWRITER IS BEING USED IN CONNECTION WITH THIS EXCHANGE OFFER. No person has been authorized to give any information or to make any representations not contained in this Prospectus in connection with the offer of securities made by this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or by any underwriter, dealer or agent. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than those to which it relates. Neither the delivery of this Prospectus nor any sale of, or offer to sell, the securities offered hereby shall, under any circumstances, create an implication that 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 currently subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Commission. Reports, proxy statements and other information filed by the Company with the Commission may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices located at Room 1400, 75 Park Place, New York, New York 10007 and Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661-2511. Copies of such materials may be obtained from the Public Reference Section of the Commission at Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549 at prescribed rates, and such reports, proxy statements and other information regarding the Company can also be inspected at the offices of the American Stock Exchange, 86 Trinity Place, New York, New York 1006-1881, on which the Company's Common Stock, $.01 par value per share (the "Common Stock") is listed. The Commission maintains a Web site that contains reports, proxy and information statements and other materials that are filed through the Commission's Electronic Data Gathering, Analysis and Retrieval System. This Web site can be accessed at http://www.sec.gov. This Prospectus contains summaries, believed to be accurate in all material respects, of certain terms of certain agreements, however, in each such case, reference is made to the actual agreements (copies of which will be made available upon request to the Company) for complete information with respect thereto, and all such summaries are qualified in their entirety by this reference. This Prospectus forms a part of the Registration Statement which the Company has filed under the Securities Act with respect to the securities offered hereby. This Prospectus does not contain all the information otherwise set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information, reference is made to the Registration Statement and the exhibits filed as part thereof. The Registration Statement may be inspected at the public reference facilities maintained by the Commission at the addresses set forth above. Statements contained herein concerning any document filed as an exhibit are not necessarily complete and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Company hereby incorporates by reference in this Prospectus the following documents filed with the Commission pursuant to the requirements of the Exchange Act (File No. 001-07815): (i) the Company's Annual Report on Form 10-K (the "1997 10-K") for the fiscal year ended December 31, 1997; (ii) the description of the Common Stock contained in the Company's Form 8-A dated August 1, 1995 filed under the Exchange Act, including any amendment or reports filed for the purpose of updating such description; and (iii) the Company's Proxy Statement and Notice of Meeting relating to the Annual Meeting of Stockholders to be held on May 19, 1998. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering of the securities offered hereby shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the respective dates of filing such document. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. This prospectus incorporates documents by reference which are not presented herein or delivered herewith. These documents are available without charge upon the written or oral request of each person, including any beneficial owner, to whom this Prospectus is delivered. Requests should be made to the Corporate Secretary of Trans World Airlines, Inc., One City Centre, 515 N. Sixth Street, St. Louis, Missouri 63101, telephone (314) 589-3285. In order to ensure timely delivery of the documents, any request should be made at least five business days before the Expiration Date of the Exchange Offer. FORWARD-LOOKING STATEMENTS CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS UNDER "PROSPECTUS SUMMARY", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS", IN ADDITION TO CERTAIN STATEMENTS CONTAINED ELSEWHERE IN THIS PROSPECTUS, ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND ARE THUS PROSPECTIVE. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE MOST SIGNIFICANT OF SUCH RISKS, UNCERTAINTIES AND OTHER FACTORS ARE DISCUSSED UNDER THE HEADING "RISK FACTORS" IN THIS PROSPECTUS AND HOLDERS OF THE OLD NOTES AND PROSPECTIVE INVESTORS IN THE EXCHANGE NOTES ARE URGED TO CAREFULLY CONSIDER SUCH FACTORS. PROSPECTUS SUMMARY This summary does not purport to be complete and is qualified by reference to the detailed information and financial statements appearing elsewhere in this Prospectus or incorporated by reference herein. Terms not defined in this summary are defined elsewhere herein. The Company TWA is the eighth largest U.S. air carrier (based on revenue passenger miles ("RPMs") for the full year 1997), whose primary business is transporting passengers, cargo and mail. During 1997, the Company carried approximately 23.4 million passengers and flew approximately 25.1 billion RPMs. As of December 31, 1997, TWA provided regularly scheduled jet service to 89 cities in the United States, Mexico, Europe, the Middle East, Canada and the Caribbean. As of December 31, 1997, the Company operated a fleet of 185 jet aircraft. TWA's North American operations have a primarily domestic hub in St. Louis at Lambert International Airport ("St. Louis") and a domestic-international hub at New York's John F. Kennedy International Airport ("JFK"). TWA is the predominant carrier at St. Louis, with approximately 365 scheduled daily departures as of December 31, 1997 and approximately a 74.5% share of airline passenger enplanements in St. Louis for the full year 1997. Given its location in the center of the country, St. Louis is well-suited to function as an omni-directional hub for both north-south and east-west transcontinental traffic. Therefore, TWA believes it can offer more frequencies and connecting opportunities to many travelers in its key Midwestern markets than competing airlines. TWA's international operations are concentrated at JFK, from which TWA currently serves 26 domestic and international cities with approximately 40 daily departures. JFK is both the Company's and the industry's largest international gateway from North America. As of December 31, 1997, the Company offers non-stop flights from JFK to 8 cities in Europe and the Middle East as well as 17 destinations in the U.S. and the Caribbean. As described below, during 1997, the Company implemented certain steps to refocus and improve the operating and financial performance of its JFK operations. TWA is a Delaware corporation organized in 1978 and is the successor to the business of its predecessor corporation, Transcontinental & Western Air, Inc., originally formed in 1934. The Company's principal executive offices are located at One City Centre, 515 N. Sixth Street, St. Louis, Missouri 63101 and its telephone number is (314) 589-3000. Recent Financial and Operating Results On April 22, 1998, the Company reported financial results for the first quarter 1998 reflecting an operating loss of $68.7 million and a net loss before extraordinary items of $54.1 million for the three months ended March 31, 1998, including a non-cash operating expense of $26.5 million relating to the distribution in July 1998 of Common Stock to employee stock plans. These results compare with an operating loss of $99.5 million and a net loss before extraordinary items of $70.0 million in the first quarter 1997. Excluding the effect of non-cash expense associated with earned stock compensation, the first quarter 1998 operating loss was $42.2 million compared to the first quarter 1997 operating loss of $98.2 million. Similarly calculated, the net loss before extraordinary items for the first quarter 1998 and 1997 were $38.0 million and $69.3 million, respectively. Operating revenue for the first quarter 1998 was $765.4 million versus $762.3 million in the first quarter 1997 despite a slight reduction in capacity from the first quarter 1997 to 1998 resulting from the replacement of B747 and L-1011 aircraft with smaller B767, B757 and MD-80 aircraft. The Company's operating statistics, for scheduled passengers only and excluding TWE, for the three month periods ended March 31, 1998 and 1997 and for the years ended December 31, 1997 and 1996 were as follows:
Three Months Ended March 31, Year Ended December 31, ------------------------------------- ------------------------------------- 1998 1997 1997 1996 ---------------- ------------------ ------------------ -------------- Revenue passenger miles (millions)................ 5,764 5,673 25,100 27,111 Available seat miles (millions)................... 8,467 8,539 36,464 40,594 Passenger load factor............................. 68.1% 66.4% 68.8% 66.8% Passenger yield (cents)........................... 11.74 Cents 11.84 Cents 11.65 Cents 11.35 Cents Passenger revenue per available seat mile (cents). 7.99 Cents 7.87 Cents 8.02 Cents 7.58 Cents Operating cost per available seat mile (cents).... 9.36 Cents 9.88 Cents 8.97 Cents 8.76 Cents
For definitions of the above items see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations." TWA has significantly enhanced its operational reliability and schedule integrity since the first quarter of 1997. According to statistics reported to the U.S. Department of Transportation (the "DOT"), TWA improved from tenth among the 10 largest U.S. scheduled commercial airlines in domestic on-time performance in 1996 to second in 1997. TWA also canceled 5,413 fewer flights in 1997 than in 1996, improving its percentage of scheduled flights completed to 98.0% compared to 96.2% for 1996. In the first quarter 1998, TWA completed 96.7% of its scheduled flights, compared to 96.4% in the first quarter 1997. Recent Strategic Initiatives Management believes that certain strategic initiatives undertaken by the Company beginning in late 1996 have contributed to the improved financial and operating results described above. TWA's management began to implement such strategic initiatives in response to a significant deterioration in the Company's operating performance and financial condition during the second half of 1996. This deterioration was primarily caused by (i) an overly aggressive expansion of TWA's capacity and planned flight schedule, particularly during the 1996 summer season, which forced the Company to rely disproportionately on lower-yield feed traffic and bulk ticket sales to fill the increased capacity of its system; (ii) the delayed delivery of four older 747s intended to increase capacity for incremental international operations during the summer of 1996; and (iii) unexpected maintenance delays due to the capacity increase, higher levels of scheduled narrow-body heavy maintenance and increased contract maintenance performed for third parties. These factors caused excessive levels of flight cancellations, poor on-time performance, increased pilot training costs and higher maintenance expenditures and adversely affected the Company's yields and unit costs. In addition, the crash of TWA Flight 800 on July 17, 1996 distracted management's attention from core operating issues and led to lost bookings and revenues. The Company also experienced a 27.6% increase in fuel costs in 1996 versus 1995, primarily due to a 22.3% increase in the average fuel price paid per gallon during the year. The primary focus of the Company's new strategic initiatives is to reestablish TWA's operational reliability and schedule integrity and overall product quality in order to attract higher-yield passengers and enhance overall productivity, which should improve the Company's financial results. As the initial steps in implementing this strategy, the Company temporarily reduced its flight schedule during the first quarter of 1997 to more closely match aircraft available for active service and worked to reduce the number of aircraft in maintenance backlog by increasing overtime and utilizing maintenance capacity made available by the termination of an unprofitable aircraft maintenance contract with the U.S. government. Other new strategic initiatives being pursued by TWA are: Accelerated Fleet Renewal. In the first quarter of 1997, as part of its efforts to improve near-term operational performance, TWA announced plans to accelerate the retirement of the 14 747s and 11 L-1011s remaining in its fleet. As a result, TWA's last L-1011 was retired in September 1997 and its last three 747s were retired in February 1998. Under its fleet renewal plan, the Company has replaced these older, less reliable and less efficient wide-body aircraft with new or later-model used 757, 767 and MD-80 aircraft. Management believes that these smaller aircraft are more appropriately sized to the routes served, and, by reducing the Company's reliance on lower-yield feed traffic to fill capacity, have resulted in higher load factors and improved yields. Further, these newer, twin-engine, two-pilot aircraft are expected to provide efficiencies in fuel, flight crew and maintenance expenses, while reducing long-term pilot training costs by enabling TWA to have fewer aircraft types in the fleet. TWA also expects to retire eight 727s during 1998. As of March 31, 1998, TWA had retired two of the eight 727s. As a result of this fleet restructuring, the Company's mix of narrow-body and wide-body aircraft shifted to approximately 90%/10% as of December 31, 1997 versus approximately 80%/20% as of year-end 1996, and the average number of seats per aircraft declined to 141 from 161 over the same period. As of December 31, 1997, the average age of the Company's fleet had decreased to 16.9 years from 19.0 years at year-end 1996. In April 1998, the Company entered into an agreement to purchase from the manufacturer 24 new MD-83 aircraft with deliveries in 1999. The Company has obtained financing commitments for long-term debt and lease financing for such aircraft. If TWA takes delivery of all of these aircraft, and assuming no other changes in the composition of the Company's fleet, the average age of its fleet as of December 31, 1999 would decrease to 12.4 years. TWA also entered into an agreement with a third-party aircraft lessor for the sale and leaseback of 15 Boeing 727-200A aircraft owned by the Company. The aircraft were delivered on March 31 and April 1, 1998 and leased to TWA under leases which expire in 1999 and 2000. The Company believes that this rationalization of fleet size, together with the decrease in international operations described below, will help deseasonalize TWA's business, with the difference between TWA's seasonal average daily peak and trough capacities anticipated to be approximately 4.2% in 1998, versus 16.9% in 1997 and 20.5% in 1996. As a result, the Company expects the seasonal variability of its financial performance will be reduced; however, there can be no assurance that such deseasonalization will occur. Restructuring of JFK Operations. As part of its efforts to position the Company for sustained profitability, TWA restructured its operations at JFK during 1997 by eliminating certain unprofitable international destinations (such as Frankfurt and Athens), as well as certain low-yield domestic feed service into JFK. The Company also consolidated for the near term most of its JFK operations from two terminals into a single terminal in order to reduce operating costs, increase facility utilization and improve passenger service. In addition to enhancing yields and load factors, the substitution of 757s and 767s for 747s and L-1011s on international routes also has increased operating efficiencies at JFK, since these smaller aircraft are better suited to the physical limitations of TWA's terminals. As a result of these changes, TWA's international scheduled capacity (as measured by ASMs) decreased 32.3% in 1997 compared to 1996 and represented 19.5% of total scheduled capacity for the full year 1997 versus 25.6% for the full year 1996. Productivity Enhancements. The Company has sought to improve its financial performance through productivity enhancements. During 1997, TWA realized cost efficiencies in maintenance, reflecting the elimination of TWA's maintenance backlog during the first quarter of 1997, as well as the reduced maintenance requirements for the newer aircraft added to TWA's fleet. In addition, as described above, the Company's fleet renewal plan is expected to provide efficiencies in fuel, flight crew and training expenses, while the JFK restructuring has eliminated certain unprofitable routes and reduced certain operating costs. TWA's average number of employees per aircraft has decreased from 131.0 as of December 31, 1996 to 120.7 as of December 31, 1997, which is generally consistent with industry standards. Marketing Initiatives. The Company has also begun to introduce a series of marketing initiatives designed, in combination with its enhanced operational reliability and schedule integrity, to attract a greater percentage of higher-yield business passengers. These initiatives include branded service products such as an improved international business class, Trans World One[SM] ("Trans World One"), expanded first class cabins in the domestic narrow-body fleet (launched with an enhanced service package as Trans World First in January 1998), and a branded short-haul business market service, TWQ, launched in March 1998. The Company has also enhanced its frequent flier program by introducing a Platinum level for its highest mileage customers and, for certain travelers, a system for recognizing dollar amounts paid as well as miles flown, and by joining the American Express Membership Rewards Program, which allows members to earn additional frequent flier miles on TWA. The Company is also in the early phases of a series of facilities upgrades, including a newly opened Ambassadors Club in St. Louis, a renovated club at LaGuardia, a completely refurbished club in its JFK terminal and improved new check-in counters and backwalls. The Company's advertising features the improved on-time and operational performance, new aircraft, and the programs outlined above. Employee Initiatives. Through certain programs, TWA has sought to institutionalize throughout all levels of its organization the importance of running an airline with operational reliability. These programs provide certain operating and procedural guidelines for enhancing performance and improving overall product quality. In addition, in 1996 the Company introduced Flight Plan 97, which paid eligible employees a $65 bonus for each month that TWA finished in the top five in all three performance categories tracked by the DOT (on-time performance, customer complaints and baggage handling) and a total of $100 if TWA also ranked first in at least one of such categories. Based on the Company's performance in September 1997, eligible employees earned their first bonus under this program, a $100 payment for ranking first in on-time performance, fourth in customer complaints and fifth in baggage handling. This program has been enhanced as Flight Plan 98 and now provides that in any quarter where the Company places first in the DOT-tracked on-time performance category for the entire quarter (and assuming that no bonus over $100 was paid to employees during that quarter) the eligible employees would receive a $100 bonus. Changes to Management Team On February 12, 1997, the Company's Board of Directors (the "Board of Directors" or the "Board") named Gerald L. Gitner, a member of the Board since 1993, as Chairman and Chief Executive Officer of the Company. Mr. Gitner, who had been named acting Chief Executive Officer in December 1996, replaced Jeffrey H. Erickson, who on October 24, 1996 announced his intention to leave as the Company's President and Chief Executive Officer. On December 3, 1997, the Board named William F. Compton, a TWA pilot and a director of the Company since November 1993, as President and Chief Operating Officer of the Company. Mr. Compton had been appointed Executive Vice President, Operations in March 1997. He had been acting in such position since December 14, 1996. On May 29, 1997 the Board elected Donald M. Casey as Executive Vice President, Marketing. On October 29, 1997 James F. Martin was elected as Senior Vice President, Human Resources. On December 31, 1997, Roden A. Brandt resigned as Senior Vice President, Planning, but will remain as a consultant to the Company through April 30, 1998. On January 28, 1998, the Board appointed Kathleen A. Soled, Esq. to serve as the Company's Senior Vice President and General Counsel replacing Richard P. Magurno, Esq. who resigned on January 28, 1998. Ms. Soled had been the Company's Vice President, Legal and Corporate Secretary. See "Risk Factors--Risk Factors Related to the Company--Changes to Management Team." Labor Matters On March 6, 1997, the International Association of Machinists and Aerospace Workers (the "IAM") was certified to replace the Independent Federation of Flight Attendants ("IFFA") as the bargaining representative for the Company's flight attendants. Negotiations on a new collective bargaining agreement with the IAM with regard to the flight attendants commenced in July 1997 and are currently ongoing. At the request of the IAM, a mediator was appointed on March 27, 1998 in connection with the negotiation on the collective bargaining agreement covering the flight attendants. Negotiations regarding the Company's ground employees represented by the IAM commenced in February 1997 and are also currently ongoing. At the request of the IAM, a mediator was appointed on August 6, 1997 in connection with the negotiation on the collective bargaining agreement covering the ground employees. Negotiations on a new collective bargaining agreement with the Air Line Pilots Association ("ALPA") commenced in June 1997 and are currently ongoing. See "Certain Provisions of the Certificate of Incorporation, the By-laws and Delaware Law--Board of Directors" and "Risk Factors--Risk Factors Related to the Company--'94 Labor Agreements." Recent Securities Offerings On December 2, 1997, the Company consummated a Rule 144A/Regulation S private placement offering of 1,725,000 shares of 9 1/4% Cumulative Convertible Exchangeable Preferred Stock (the "1997 Preferred Stock") which raised net proceeds of approximately $82.2 million (the "1997 Preferred Stock Offering"). On December 9, 1997, the Company consummated a Rule 144A/Regulation S offering of $140.0 million aggregate principal amount of 11 1/2% Senior Secured Notes due 2004 (the "11 1/2% Notes") which raised net proceeds of approximately $133.5 million (the "11 1/2% Notes Offering"). On December 30, 1997, a wholly-owned, bankruptcy remote subsidiary of the Company consummated a Rule 144A/Regulation S private placement offering of $100.0 million aggregate principal amount of 9.80% Airline Receivable Asset Backed Notes due 2001 (the "Receivables Securitization Notes") which raised net proceeds of approximately $97.0 million (the "Receivables Securitization Offering"). A portion of the net proceeds from the 11 1/2% Notes Offering and the Receivables Securitization Offering was used to repay existing indebtedness. On March 3, 1998 the Company consummated a Rule 144A/Regulation S offering of $150.0 million aggregate principal amount of Old Notes which raised net proceeds of approximately $144.9 million (the "11 3/8% Notes Offering"). On April 21, 1998, the Company consummated a private placement of $43.2 million aggregate principal amount of 11 3/8% Senior Secured Notes due 2003 (the "11 3/8% Secured Notes") and $31.8 million principal amount of Mandatory Conversion Equity Notes due 1999 (the "Equity Notes"). See "Capitalization." The Old Note Offering Old Notes........................... On March 3, 1998, the Company issued and sold $150,000,000 aggregate principal amount of its Old Notes to Lazard Freres & Co. LLC as initial purchaser (the "Initial Purchaser"). The Initial Purchaser subsequently offered and resold the Old Notes to Qualified Institutional Buyers (as defined in Rule 144A under the Securities Act) pursuant to Rule 144A under the Securities Act, to a limited number of institutional investors that are Accredited Investors (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and in offshore transactions complying with Rule 903 or Rule 904 of Regulation S under the Securities Act (the "Old Note Offering"). Exchange Offer Exchange Notes...................... Up to $150,000,000 aggregate principal amount of 11 3/8% Senior Notes due 2006 (the "Exchange Notes") of the Company. The terms of the Exchange Notes and the Old Notes are identical in all respects, except that the offer of the Exchange Notes will have been registered under the Securities Act and therefore, the Exchange Notes will not be subject to certain transfer restrictions and registration rights and related provisions for an increase in the interest rate payable on the Old Notes under certain circumstances if the Company defaults with respect to its registration requirements under the Registration Rights Agreement applicable to the Old Notes. Exchange Offer...................... The Company is offering, upon the terms and subject to the conditions of the Exchange Offer, to exchange $1,000 principal amount of Exchange Notes for each $1,000 principal amount of Old Notes. See "The Exchange Offer" for a description of the procedures for tendering Old Notes. In connection with the Old Note Offering, the Company entered into the Registration Rights Agreement (the "Registration Rights Agreement") dated as of March 3, 1998 among the Company and the Initial Purchaser, which grants holders of the Old Notes certain exchange and registration rights. The Exchange Offer is intended to satisfy obligations of the Company under the Registration Rights Agreement. The date of acceptance for exchange of the Exchange Notes will be the first business day following the Expiration Date. Tenders, Expiration Date; Withdrawal.......................... The Exchange Offer will expire at 5:00 p.m., New York City time, on , 1998, or such later date and time to which it is extended. The tender of Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. Any Old Notes not accepted for exchange for any reasons will be returned without expense to the tendering Holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. Accounting Treatment................ No gain or loss for accounting purposes will be recognized by the Company upon the consummation of the Exchange Offer. See "The Exchange Offer--Accounting Treatment." Federal Income Tax Consequences..... The exchange pursuant to the Exchange Offer will not result in any income, gain or loss to the Holders of the Notes or the Company for federal income tax purposes. See "Certain Federal Income Tax Considerations -- Tax Consequences to U.S. Holders -- Exchange Offer." Use of Proceeds..................... There will be no proceeds to the Company from the issuance of the Exchange Notes pursuant to the Exchange Offer. Exchange Agent...................... The First Security Bank, National Association is serving as exchange agent (the "Exchange Agent") in connection with the Exchange Offer. Consequences of Exchanging Old Notes Pursuant to the Exchange Offer The Company has not requested, and does not intend to request, an interpretation by the staff of the Commission with respect to whether the Exchange Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be offered for sale, resold or otherwise transferred by any holder without compliance with the registration and prospectus delivery provisions of the Securities Act. Based on interpretations by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by any holder of such Exchange Notes, other than broker-dealers which must sell in accordance with the provisions set forth below and other than any holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act, without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and such holder has no arrangement or understanding with any person to participate in the distribution of such Exchange Notes. Any holder who tenders in the Exchange Offer for the purpose of participating in a distribution of the Exchange Notes or who is an affiliate of the Company may not rely on such interpretations by the staff of the Commission and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction. Each broker-dealer (whether or not it is also an "affiliate" of the Company) that receives Exchange Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." By executing the Letter of Transmittal, each holder of Old Notes will represent to the Company that, among other things, (i) the Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is such holder, (ii) neither the holder of Old Notes, nor any such other person has an arrangement or understanding with any person to participate in the distribution of such Exchange Notes, (iii) if the holder is not a broker-dealer, or is a broker-dealer but will not receive Exchange Notes for its own account in exchange for Old Notes, neither the holder nor any such other person is engaged in or intends to participate in the distribution of such Exchange Notes and (iv) neither the holder nor any such other person is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act or, if such Holder is an "affiliate," that such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If the tendering Holder is a broker-dealer (whether or not it is also an "affiliate") that will receive Exchange Notes for its own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities, it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution". To comply with the securities laws of certain jurisdictions, it may be necessary to qualify for sale or register the Exchange Notes prior to offering or selling such Exchange Notes. The Company does not currently intend to take any action to register or qualify the Exchange Notes for resale in any such jurisdictions. Following the consummation of the Exchange Offer, holders of Old Notes not tendered will not have any further registration rights and the Old Notes will continue to be subject to certain restrictions on transfer. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Failure to comply with such requirements in such instance may result in such Holder incurring liability under the Securities Act for which such Holder is not indemnified by the Company. See "The Exchange Offer--Consequences of Failure to Exchange." Summary Description of the Notes The terms of the Exchange Notes and the Old Notes are identical in all respects, except that the offer of the Exchange Notes is registered under the Securities Act and, therefore, the Exchange Notes will not be subject to certain transfer restrictions, registration rights and related provisions requiring an increase in the interest rate on the Old Notes under certain circumstances if the Company defaults with respect to its registration requirements under the Registration Rights Agreement applicable to the Old Notes. Exchange Notes Offered.............. Up to $150,000,000 aggregate principal amount of Exchange Notes of the Company. Maturity Date....................... March 1, 2006. Interest Payment Dates.............. March 1 and September 1, beginning September 1, 1998. The Exchange Notes will bear interest from March 3, 1998. Holders of Old Notes whose Old Notes are accepted for exchange will be deemed to have waived the right to receive any payment in respect of interest on such Old Notes accrued from March 3, 1998 to the date of the issuance of the Exchange Notes. Consequently, holders who exchange their Old Notes for Exchange Notes will receive the same interest payment on September 1, 1998 (the first interest payment date with respect to the Old Notes and the Exchange Notes) that they would have received had they not accepted the Exchange Offer. Mandatory Repurchases............... The Company will be required to make an Offer to Purchase the Notes in the case of (i) the incurrence of certain Acquired Indebtedness (as defined) or (ii) certain Asset Dispositions (as defined). See "Description of Notes--Repurchase of Notes in Connection with Incurrence of Acquired Indebtedness" and "--Certain Covenants --Limitation on Sales of Assets and Subsidiary Stock." Optional Redemption................. The Notes will be redeemable prior to March 1, 2002 only in the event that on or before March 1, 2001 the Company uses the Net Cash Proceeds (as defined) of one or more Public Equity Offerings (as defined) to redeem up to $52.5 million aggregate principal amount of the Notes at a price equal to 111.375% of the principal amount thereof, plus accrued and unpaid interest and Special Interest, if any, to the redemption date. On or after March 1, 2002, the Notes will be redeemable on at least 30 days' prior notice to the Holders, in whole or in part, at any time, at the applicable redemption price as set forth herein, in each case together with accrued and unpaid interest and Special Interest, if any, to the redemption date. See "Description of Notes--Redemptions." The Notes will also be redeemable in whole, but not in part, in the event the Company enters into any merger or acquisition agreement which is prohibited by the terms of the indenture governing the Notes (the "Indenture"). See "Description of Notes--Certain Covenants--Merger and Consolidation." Change in Control................... Upon a Change in Control, each holder of Notes shall have the right for a limited period to require the Company to repurchase all or any part of such holder's Notes at a price, in cash, equal to 101% of the principal amount thereof, plus accrued and unpaid interest and Special Interest, if any, to the date fixed for repurchase. Ranking............................. The Notes will represent senior unsecured obligations of the Company. The notes will rank senior in right of payment to all existing and future subordinated indebtedness of the Company and will rank pari passu in right of payment with all other senior obligations of the Company. The Notes are not secured and, therefore, will be effectively subordinated to all existing and future secured indebtedness of the Company to the extent of the value of the assets such indebtedness. Certain Covenants................... The Indenture contains certain covenants, which, among other things, limit (i) the incurrence of additional indebtedness by the Company and its Restricted Subsidiaries (as defined) and the issuance of preferred stock by the Company's Restricted Subsidiaries, (ii) the payment of dividends on capital stock of the Company and the purchase, redemption or retirement of capital stock or subordinated indebtedness, (iii) certain investments, (iv) certain transactions with affiliates, (v) the incurrence of liens and sale and leaseback transactions, (vi) sale of assets, including the capital stock of subsidiaries, (vii) certain consolidations and mergers and certain guarantees by Restricted Subsidiaries and (viii) distributions from Restricted Subsidiaries. These limitations are subject to a number of important qualifications. See "Description of Notes--Certain Covenants." Exchange Offer; Registration Rights............................. In the event that applicable law or interpretations of the staff of the Commission do not permit the Company to effect this Exchange Offer or if certain holders of the Old Notes notify the Company that they are not permitted to participate in, or would not receive freely transferable Exchange Notes pursuant to, the Exchange Offer, or upon the request of an Initial Purchaser (as defined herein) under certain circumstances, the Company will use its best efforts to cause to become effective a registration statement (the "Shelf Registration Statement") with respect to the resale of the Old Notes and to keep the Shelf Registration Statement effective for a period of two years from the date of original issuance of the Old Notes or such shorter period that will terminate when Old Notes covered by the Shelf Registration Statement have been sold pursuant thereto or can be sold pursuant to Rule 144(k). The interest rate on the Old Notes is subject to increase under certain circumstances if the Company defaults with respect to its registration obligations under the Registration Rights Agreement. See "The Exchange Offer." Lack of Prior Market for the Exchange Notes............................... The Exchange Notes are being offered to holders of the Old Notes. The Old Notes were resold by the Initial Purchaser to Qualified Institutional Buyers (as defined in Rule 144A of the Securities Act), to a limited number of institutional accredited investors within the meaning of Rule 501(a)(1), (2), (3) or (7) of the Securities Act and in offshore transactions, complying with Rule 903 or Rule 904 of Regulation S under the Securities Act and are eligible for trading in the PORTAL Market. The Exchange Notes will be new securities for which there is currently no established trading market, and none may develop. Although the Initial Purchaser is making a market in the Old Notes and has indicated to the Company that it currently intends to make a market in the Exchange Notes, as permitted by applicable laws and regulations, it is under no obligation to do so; and such market-making could be discontinued at any time without notice, at the sole discretion of the Initial Purchaser. In addition, such market making activities may be limited during the Exchange Offer and the pendency of a Shelf Registration Statement. Accordingly, no assurance can be given that an active trading market for the Exchange Notes will develop or, if such a market develops, as to the liquidity of such market. The Company intends to apply for listing of the Exchange Notes on the American Stock Exchange. If the Exchange Notes, are traded after their initial issuance, they may trade at a discount from their initial offering price, depending upon prevailing interest rates, the market for similar securities, the performance of the Company and certain other factors. Risk Factors See "Risk Factors" for a discussion of certain factors which should be considered in connection with the Exchange Offer or an investment in the Exchange Notes. Summary Consolidated Financial and Operating Data The summary consolidated financial and operating data presented below relates to periods in the years ended December 31, 1997 and 1996, the four months ended December 31, 1995, the eight months ended August 31, 1995, the year ended December 31, 1994, the two months ended December 31, 1993 and the ten months ended October 31, 1993. This data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements. The consolidated financial data for the above periods was derived from the audited consolidated financial statements of the Company. Certain amounts have been reclassified to conform with presentations adopted in 1997. During the period from 1992 through 1995, TWA underwent two separate Chapter 11 reorganizations, the first in 1992-93 and the second in 1995. In connection with the '95 Reorganization, TWA has applied fresh start reporting in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), which has resulted in the creation of a new reporting entity for accounting purposes and the Company's assets and liabilities being adjusted to reflect fair values on the '95 Effective Date. A description of the adjustments to the financial statements arising from the consummation of the '95 Reorganization and the application of fresh start reporting is contained in Note 19 to the Consolidated Financial Statements. For accounting purposes, the '95 Effective Date is deemed to be September 1, 1995. Because of the application of fresh start reporting, the financial statements for periods after the '95 Reorganization are not comparable in all respects to the financial statements for periods prior to the reorganization. Similarly, the Consolidated Financial Statements for the periods prior to the '93 Reorganization are not consistent with periods subsequent to the '93 Reorganization. Accordingly, a vertical black line separates these periods. Preferred stock dividend requirements and earnings per share of the predecessor companies have not been presented as these amounts are not meaningful.
Prior Predecessor Reorganized Company Predecessor Company Company ------------------------------------------ ---------------------------------------- ------------ Four Months Two Months Ten Months Year Ended Year Ended Ended Eight Months Year Ended Ended Ended December 31, December 31, December 31, Ended August December 31, December 31, October 31, 1997 1996 1995 31, 1995 1994 1993 1993 ------------ -------------- ------------ ------------ ------------ ------------ ------------ (Dollars in thousands, except per share amounts) Statement of Operations Data: Operating Revenues ............. $ 3,327,952 $ 3,554,407 $1,098,474 $2,218,355 $ 3,407,702 $ 520,821 $ 2,633,937 Operating income (loss)(1) ..... (29,260) (198,527) 10,446 14,642 (279,494) (58,251) (225,729) Loss before income taxes and extraordinary items(2) ....... (89,335) (274,577) (32,268) (338,309) (432,869) (88,140) (362,620) Provision (credit) for income taxes ........................ 527 450 1,370 (96) 960 (248) 1,312 Loss before extraordinary items......................... (89,862) (275,027) (33,638) (338,213) (433,829) (87,892) (363,932) Extraordinary items, net of income taxes(3) .............. (20,973) (9,788) 3,500 140,898 (2,005) -- 1,075,581 Net income (loss) .............. (110,835) (284,815) (30,138) (197,315) (435,834) (87,892) 711,649 Per share amounts(4): Loss before extraordinary items ...................... $(1.98) $(6.60) $(1.15) Net loss ..................... (2.37) (7.27) (1.05)
Reorganized Company Predecessor Company -------------------------------------------- ----------------------------- December 31, ------------------------------------------------------------------------------ 1997 1996 1995 1994 1993 ------------ ------------ ----------- ------------ ------------ Selected Balance Sheet Data: Cash and cash equivalents(5).............. $ 237,765 $ 181,586 $ 304,340 $ 138,531 $ 187,717 Current assets............................ 632,957 625,745 737,301 603,806 728,303 Net working capital (deficiency).......... (303,988) (336,416) (81,913) (1,238,216) (106,703) Flight equipment, net..................... 626,382 472,495 455,434 508,625 660,797 Total property and equipment, net......... 741,765 614,207 600,066 693,045 886,116 Intangible assets, net.................... 1,118,864 1,184,786 1,275,995 921,659 1,024,846 Total assets.............................. 2,773,848 2,681,939 2,868,211 2,512,435 2,958,862 Current maturities of long-term debt and capital leases(6)....................... 88,460 134,948 110,401 1,149,739 108,345 Long-term debt, less current maturities(6)........................... 736,540 608,485 764,031 -- 1,053,644 Long-term obligations under capital leases, less current maturities......... 182,922 220,790 259,630 339,895 376,646 Shareholders' equity (deficiency)(7)...... 268,284 238,105 302,855 (417,476) 18,358
- ---------- (1) Includes special charges of $85.9 million in 1996, $1.7 million in the eight months ended August 31, 1995 and $138.8 million in 1994. For a discussion of these and other non-recurring items, see Note 16 to the Consolidated Financial Statements. (2) The eight months ended August 31, 1995 includes charges of $242.2 million related to reorganization items. The ten months ended October 31, 1993 includes a charge of $342.4 million related to the settlement of pension obligations and income of $268.1 million related to reorganization items. (3) The extraordinary items in 1997 and 1996 are the result of the early extinguishment of certain debt. The extraordinary item in the four months ended December 31, 1995 was the result of the settlement of a debt of a subsidiary, while the extraordinary item in the eight months ended August 31, 1995 represents the gain on the discharge of indebtedness pursuant to the consummation of the '95 Reorganization. The extraordinary item in 1994 represents the charge for a prepayment premium related to the sale and lease back of four McDonnell Douglas MD-80 aircraft. The extraordinary item in 1993 represents the gain on discharge of indebtedness pursuant to the consummation of the '93 Reorganization. (4) No effect has been given to stock options, warrants, convertible preferred stock or potential issuances of additional Employee Preferred Stock as the impact would have been anti-dilutive. (5) Includes cash and cash equivalents held in international operations and by subsidiaries which, based upon foreign monetary regulations and other factors, might not be immediately available to the Company. (6) Long-term debt in 1994 was reclassified to current maturities as a result of certain alleged defaults and payment defaults. (7) No dividends were paid on the Company's outstanding common stock during the periods presented above. RISK FACTORS In addition to the other information appearing in this Prospectus, the following risk factors should be considered carefully in evaluating the Company and its business before participating in the Exchange Offer or investing in the Exchange Notes. Risk Factors Related to the Company Liquidity; Substantial Indebtedness; Capital Expenditure Requirements The Company believes that continued improvement in its operating results is necessary for TWA to maintain adequate liquidity to meet its obligations. The Company is highly leveraged and has and will continue to have significant debt service obligations. As of December 31, 1997, the Company's ratio of long-term debt and capital leases (including current maturities) to shareholders' equity was 3.76 to 1. As of December 31, 1997, after giving effect to the issuance of the Old Notes, the 11 3/8% Secured Notes and the Equity Notes, the aggregate principal amount of the Company's total outstanding indebtedness would be approximately $1,233.0 million, and the ratio of such long-term debt and capital leases (including current maturities) to shareholders' equity would have been 4.6 to 1. TWA's estimated minimum payment obligations under noncancellable operating leases in effect at December 31, 1997 were approximately $393.7 million for 1998 and approximately $3,144.0 million for periods thereafter. These amounts exclude payment obligations of the Company that will arise from financing arrangements relating to the 24 MD-83 aircraft that are more fully described under "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Commitments." Over the last several years, the Company's earnings have not been sufficient to cover fixed charges. The Company's earnings were not sufficient to cover fixed charges by $94.1 million for the year ended December 31, 1997, $280.0 million for the year ended December 31, 1996, $32.3 million for the four months ended December 31, 1995, $338.3 million for the eight months ended August 31, 1995, $435.0 million for the year ended December 31, 1994, $88.4 million for the two months ended December 31, 1993, $364.7 million for the ten months ended October 31, 1993, and $317.4 million for the year ended December 31, 1992. See "Capitalization," "Selected Consolidated Financial Data," "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 Exchange Notes offered hereby, including the following: (i) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be impaired; (ii) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of principal and interest on the Company's existing indebtedness; (iii) the Company is placed at a relative competitive disadvantage to its less highly leveraged competitors and is more vulnerable to economic downturns; and (iv) such indebtedness contains restrictive and other covenants, which, if not complied with, may result in an event of default which, if not cured or waived, could have a material adverse effect on the Company (including, under certain circumstances, a cross-default of other debt). The Company's capital expenditures for 1998 are currently anticipated to total approximately $90.4 million compared to capital expenditures totaling approximately $100.1 million for 1997. The Company's capital expenditures budget for 1998 includes $60.0 million for flight equipment related expenditures (including pre-delivery deposits for aircraft and the purchase of aircraft engines and spare parts). See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Certain Other Capital Requirements" for a discussion of the potential additional expenditures that may be required by the Company in order to address the year 2000-related technology issues. While the Company is seeking financing for certain of its planned capital expenditures, a substantial portion of such expenditures are expected to utilize internally generated funds. The inability to finance or otherwise fund such expenditures could have a material adverse effect on the ability of the Company to continue to implement its strategic plan. On December 31, 1997, the Company's total cash and cash equivalents balance was approximately $237.8 million (including amounts held in TWA's international operations and by subsidiaries which, based upon various monetary regulations and other factors, might not be immediately available to the Company). This balance represented an increase of approximately $56.2 million from the Company's corresponding cash balance at December 31, 1996. This increase in the Company's cash balance resulted primarily from the proceeds from various capital markets offerings during 1997 and asset dispositions offset by capital expenditures and debt repayments. Due to improvements in operating results experienced by the Company, cash used by operations in 1997 was reduced from the prior year. On March 31, 1998, the Company had total cash and cash equivalents of $346.1 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Liquidity." TWA has no unused credit lines and must satisfy all of its working capital and capital expenditure requirements from cash provided by operating activities, from external capital sources or from the sale of assets. See "The Company--Business Strategy" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Liquidity" for a description of the actions taken by the Company to improve its liquidity during 1997. As a result of the financings consummated in the fourth quarter of 1997 and the repayment of certain debt in connection therewith, assets with an approximate appraised value of $165.0 million were released from collateral liens and are currently unencumbered. Substantially all of TWA's other strategic assets, have been pledged to secure various issues of outstanding indebtedness of the Company. To the extent that pledged assets are sold, the applicable financing agreements generally require the sale proceeds to be applied to repay the corresponding indebtedness. To the extent that the Company's access to capital is constrained, the Company may not be able to make certain capital expenditures or to continue to implement certain other aspects of its strategic plan, and the Company may therefore be unable to achieve the full benefits expected therefrom. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Availability of NOLs" for a discussion of the status of the Company's net operating loss carryforwards. The Company's long-term viability as well as its ability to meet its existing debt and other obligations and future capital commitments depends upon the Company's financial and operating performance, which in turn is subject to, among other things, prevailing economic conditions and to certain other financial, business and other factors beyond the Company's control. As discussed elsewhere herein, in late 1996 and early 1997, the Company began implementing certain operational changes which are intended to improve the Company's financial results through, among other things, improved operational reliability; higher yields and load factors; increased fuel, pilot and other aircraft operating efficiencies; and a decrease in maintenance-related expenditures, employee headcount and JFK-related operating costs. Although management believes that such operational changes will be successful and that the Company's cash flow from its operations and financing activities should therefore be sufficient in the foreseeable future to meet the Company's debt and other obligations and future capital commitments, the airline industry in general and the Company in particular are subject to significant risks and uncertainties referred to in this Prospectus including under these Risk Factors and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- General" and " -- Liquidity and Capital Resources." Therefore, there can be no assurance that the Company's operating results and financing activities will be sufficient in the foreseeable future to meet its debt and other obligations and future capital commitments. Prior Operating Losses and Future Uncertainties Relating to Results of Operations; Results for First Quarter 1998 TWA's long-term viability depends on its ability to achieve and maintain profitable operations. Although the airline industry has generally seen strengthened performance in recent years, particularly since 1995 when many airlines reported record profits, the Company has reported significant net losses. For example, the Company reported a net loss of $227.5 million for the combined 12-month period ended December 31, 1995 (including extraordinary gains related to the '95 Reorganization), while reporting an operating profit of $25.1 million (including $58.0 million of non-cash expense relating to the distribution of stock to employees as part of the '95 Reorganization), which represented the Company's first operating profit since 1989. The Company's reported net loss of $284.8 million for 1996 represented a $57.3 million increase over the 1995 net loss, while the Company reported a $198.5 million operating loss for 1996 (including special charges of $85.9 million), which represented a $223.6 million decline from its operating profit in 1995. The Company's 1997 financial results reflected a net loss of $110.8 million, which represented an improvement of $174.0 million over the $284.8 million net loss for the full year 1996, and a $29.3 million operating loss, which represented a $169.2 million improvement over the $198.5 million operating loss reported for the full year 1996. 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 " - -- Liquidity; Substantial Indebtedness; Capital Expenditure Requirements" and "The Company--Business Strategy." On April 22, 1998, the Company reported financial results for the first quarter 1998 reflecting an operating loss of $68.7 million and a net loss before extraordinary items of $54.1 million for the three months ended March 31, 1998, including a non-cash operating expense of $26.5 million relating to the distribution in July 1998 of Common Stock to employee stock plans. These results compare with an operating loss of $99.5 million and a net loss before extraordinary items of $70.0 million in the first quarter 1997. Excluding the effect of non-cash expense associated with earned stock compensation, the first quarter 1998 operating loss was $42.2 million compared to the first quarter 1997 operating loss of $98.2 million. Similarly calculated, the net loss before extraordinary items for the first quarter 1998 and 1997 were $38.0 million and $69.3 million, respectively. Operating revenue for the first quarter 1998 was $765.4 million versus $762.3 million in the first quarter 1997 despite a slight reduction in capacity from the first quarter 1997 to 1998 resulting from the replacement of B747 and L-1011 aircraft with smaller B767, B757 and MD-80 aircraft. TWA has historically experienced significant variations in quarterly and annual operating revenues and operating expenses and expects such variations to continue. Due to the greater demand for air travel during the summer months, airline industry revenues for the third quarter of the year are generally significantly greater than revenues in the first and fourth quarters of the year and moderately greater than revenues in the second quarter of the year. In the past, given the Company's historical dependence on summer leisure travel, TWA's results of operations have been particularly sensitive to such seasonality. While the Company, through an acceleration of its fleet renewal program and restructuring of its JFK operations, anticipates that the deseasonalization of operations affected thereby will reduce quarter to quarter fluctuations in the future, there can be no assurance that such deseasonalization will occur. The Company's results of operations have also been impacted by numerous other factors that are not necessarily seasonal. Among the uncertainties that might adversely impact TWA's future results of operations are: (i) competitive pricing and scheduling initiatives; (ii) the availability and cost of capital; (iii) increases in fuel and other operating costs; (iv) insufficient levels of air passenger traffic resulting from, among other things, war, threat of war, terrorism or changes in the economy; (v) governmental limitations on the ability of TWA to service certain airports and/or foreign markets; (vi) regulatory requirements necessitating additional capital or operating expenditures; (vii) the outcome of certain ongoing labor negotiations (see "--'94 Labor Agreements"); and (viii) the reduction in yield due to the continued implementation of a discount ticket program entered into between the Company and Karabu Corporation ("Karabu"), a Delaware corporation controlled by Carl Icahn, in connection with the '95 Reorganization, on the terms currently sought to be applied by Karabu, which terms are, in the opinion of the Company, inconsistent with, and in violation of, the agreement governing such program (see "Management's Discussion and Analysis of Financial Condition and Results of Operations--General" and "Business--Legal Proceedings--Icahn Litigation"). The Company is unable to predict the potential impact of any such uncertainties upon its future results of operations. Crash of Flight 800 On July 17, 1996, TWA Flight 800 crashed shortly after departure from JFK en route to Paris, France. There were no survivors among the 230 passengers and crew members aboard the Boeing 747 aircraft. The Company is cooperating fully with all federal, state and local regulatory and investigatory agencies to ascertain the cause of the crash, which to date has not been determined. The National Transportation Safety Board held hearings relating to the crash in December 1997 and is continuing its investigation. While TWA is currently a defendant in a number of lawsuits relating to the crash, it is unable to predict the amount of claims which may ultimately be made against the Company or how those claims might be resolved. TWA maintains substantial insurance coverage and, at this time, management has no reason to believe that such insurance coverage will not be sufficient to cover the claims arising from the crash. Therefore, TWA believes that the resolution of such claims will not have a material adverse effect on its financial condition or results of operations. The Company is unable to identify or predict the extent of any adverse effect on its revenues, yields, or results of operations which has resulted or may result from the public perception of the crash or from any future findings by the National Transportation Safety Board. See "Business--Legal Proceedings." Changes to Management Team Commencing in June 1996, the Company experienced a substantial number of changes in its executive management team. In June 1996, the Company announced the separation of Messrs. Robert A. Peiser and Mark J. Coleman, Executive Vice President and Chief Financial Officer and Senior Vice President, Marketing, respectively, from the Company. Messrs. Peiser and Coleman differed with the determination of the Board of Directors, as expressed by its unanimous vote, to continue the management approach of the Company's President and Chief Executive Officer at that time relating to the Company's rebuilding process. On August 21, 1996, Edward Soule was elected to the position of Executive Vice President and Chief Financial Officer. On September 3, 1996, Roden A. Brandt was elected to the position of Senior Vice President, Planning. On October 24, 1996, the Company announced that Jeffery H. Erickson, President and Chief Executive Officer, had informed the Board of his intention to leave the Company in January 1997. On December 14, 1996, the Board appointed Gerald L. Gitner, a member of the Board, to serve as Vice Chairman and Acting Chief Executive Officer; David M. Kennedy, a member of the Board, to serve as Acting Executive Vice President and Chief Operating Officer; and William F. Compton, also a member of the Board, to serve as Acting Executive Vice President, Operations. On December 20, 1996, Michael J. Palumbo was appointed as Senior Vice President and Chief Financial Officer, succeeding Mr. Soule, who had resigned from the positions of Executive Vice President and Chief Financial Officer on December 19, 1996. On February 12, 1997, the Board of Directors elected Mr. Gitner to serve as Chairman and Chief Executive Officer. On February 14, 1997, Don Monteath, who had served as the Company's Senior Vice President, Operations, left the Company. On March 27, 1997, the Board elected Mr. Compton to serve as Executive Vice President, Operations. On May 29, 1997, Donald M. Casey was elected to serve as the Company's Executive Vice President, Marketing. It was also announced on May 29, 1997 that Mr. Kennedy would leave his interim position as Acting Executive Vice President and Chief Operating Officer. Mr. Kennedy, whose services have been retained on a consulting basis, will also remain as a director and as chairman of the Finance Committee of the Board of Directors. On October 29, 1997 James F. Martin was elected to the office of Senior Vice President, Human Resources, replacing Charles J. Thibaudeau who retired effective October 1, 1997. In addition, on December 3, 1997, the Board elected Mr. Compton to serve as the Company's President and Chief Operating Officer. On December 31, 1997, Mr. Brandt resigned as Senior Vice President, Planning, but he will remain as a consultant to the Company through April 30, 1998. On January 28, 1998, the Board appointed Kathleen A. Soled, Esq. to serve as the Company's Senior Vice President and General Counsel replacing Richard P. Magurno, Esq. who resigned on January 28, 1998. Ms. Soled had been the Company's Vice President, Legal and Corporate Secretary. The Company does not believe that such changes have unduly affected its ongoing operations or implementation of the Company's business strategy, although there can be no assurance that such changes will not have a material adverse effect on future operations. '94 Labor Agreements As of December 31, 1997, the Company had approximately 22,321 full-time employees (based upon full-time equivalents which include part-time employees). Of these, approximately 84.6% were represented by ALPA and the IAM. On March 6, 1997, the IAM was certified to replace IFFA as the bargaining representative of the Company's flight attendants. The Company's currently effective collective bargaining agreement with each such union (collectively the " '94 Labor Agreements") contain more favorable work rules than in prior contracts and wage levels which the Company believes to be below many other U.S. airlines. The '94 Labor Agreements are three year agreements which became amendable as of August 31, 1997. Negotiations on a new collective bargaining agreement with the IAM with regard to the flight attendants commenced in July 1997 and are currently ongoing and negotiations regarding the Company's ground employees represented by the IAM commenced in February 1997 and are also currently ongoing. Negotiations on a new collective bargaining agreement with ALPA commenced in June 1997 and are currently ongoing. Under the Railway Labor Act (the "RLA"), workers whose contracts have become amendable are required to continue to work under the "status quo" (i.e., under the terms of employment antedating the amendable date) until the RLA's procedures are exhausted. Under the RLA, the Company and its unions are obligated to continue to bargain until agreement is reached or until a mediator is appointed and concludes that negotiations are deadlocked and mediation efforts have failed. The mediator must then further attempt to induce the parties to agree to arbitrate the dispute. If either party refuses to arbitrate, then the mediator must notify the parties that his efforts have failed and, after a 30-day cooling-off period, a strike or other direct action may be taken by the parties. At the request of the IAM, a mediator was appointed on August 6, 1997 with respect to ground employees represented by the IAM. On March 27, 1998, at the request of the IAM, a mediator was appointed with respect to the flight attendants represented by the IAM. In the opinion of management, the Company's financial resources are not as great as those of most of its competitors, and, therefore, management believes that any substantial increase in its labor costs as a result of any new labor agreements or any cessation or disruption of operations due to any strike or work action could be particularly damaging to the Company. See "Business--Employees." Age of Fleet; Noise At December 31, 1997, the average age of TWA's operating aircraft fleet was 16.9 years, making TWA's fleet one of the oldest of U.S. air carriers. As a result, TWA has incurred increased overall operating costs due to the higher maintenance, fuel and other operating costs associated with older aircraft. During 1997, TWA acquired 27 new or later-model used aircraft. The Company expects to continue the process of acquiring a number of new and later-model used aircraft. As of December 31, 1997, TWA's fleet included 69 aircraft which did not meet the noise reduction requirements under the Airport Noise and Capacity Act of 1990 (the "Noise Act") and must therefore be retired or substantially modified by the end of 1999. Although the Company has plans to meet the Noise Act's noise reduction requirement, there can be no assurance that such plans will be achieved. In addition, in 1990, the FAA issued several Airworthiness Directives ("ADs") mandating changes to maintenance programs for older aircraft to ensure that the oldest portion of the nation's fleet remains airworthy. Many of the Company's aircraft are currently affected by these aging aircraft ADs. In 1996 and 1997, TWA spent approximately $3.4 million and $4.2 million, respectively, to comply with aging aircraft maintenance requirements. Based on information currently available to TWA and its current fleet plan, TWA estimates that costs associated with complying with these aging aircraft maintenance requirements will aggregate an additional approximately $19.8 million through the year 2001. These cost estimates assume, among other things, that newer aircraft will replace certain of TWA's existing aircraft and that as a result certain aircraft will be retired by the Company before TWA would be required to make certain aging aircraft maintenance expenditures. There can be no assurance that TWA will be able to implement fully its fleet plan or that the cost of complying with aging aircraft maintenance requirements will not be significantly increased. See "--Liquidity; Substantial Indebtedness; Capital Expenditure Requirements," "Business--Regulatory Matters--Noise Abatement" and "--Aging Aircraft Maintenance." Corporate Governance Provisions; Special Voting Arrangements As a result of provisions of the '94 Labor Agreements, the Company's Third Amended and Restated Certificate of Incorporation (the "Certificate of Incorporation") and Amended and Restated By-laws (the "By-laws") contain provisions (the "Blocking Coalition Provisions") which allow certain corporate actions requiring board approval, including mergers, consolidations and sale of all or substantially all the assets of the Company, to be blocked by a vote of six (four union elected directors and two other directors) of the Company's fifteen directors, which together constitute a "Blocking Coalition". Actions subject to disapproval by the Blocking Coalition include: (a) any sale, transfer or disposition, in a single or series of transactions, of at least 20% of the Company's assets, except for transactions in the ordinary course of business including aircraft transactions as part of a fleet management plan; (b) any merger of the Company into or with, or consolidation of the Company with any other entity; (c) any business combination within the meaning of Section 203 of the Delaware General Corporation Law (the "DGCL"); (d) any dissolution or liquidation of the Company; (e) any filing of a petition for bankruptcy, reorganization or receivership under any state or federal bankruptcy, reorganization or insolvency law; (f) any repurchase, retirement or redemption of the Company's capital stock or other equity securities prior to their scheduled maturity or expiration, except for redemptions out of the proceeds of any substantially concurrent offering of comparable or junior securities and mandatory redemptions of any redeemable preferred stock of the Company; (g) any acquisition of assets, not related to the Company's current business as an air carrier, in a single transaction or a series of related transactions exceeding $50 million adjusted annually by the consumer price index; or (h) any sale of the Company's capital stock or securities convertible into capital stock of the Company to any person if (i) at the time of issuance or (ii) assuming conversion of all outstanding securities of the Company convertible into capital stock, such person or entity would beneficially own at least 20% of the capital stock of the Company. Anti-takeover Provisions in Certificate of Incorporation and By-laws; Rights Plan The Certificate of Incorporation and By-laws contain provisions which authorize the Board of Directors to issue preferred stock without stockholder approval, prohibit action by written consent of the stockholders, authorize only the Chairman of the Board of Directors or a majority of the Board of Directors to call special meetings of the stockholders and require advance notice for director nominations. These provisions of the Certificate of Incorporation and By-laws and the Blocking Coalition Provisions, as well as federal laws limiting foreign ownership of U.S. flag carriers and the prohibition on certain business combinations contained in Section 203 of the DGCL, could have the effect of delaying, deferring or preventing a change in control or the removal of existing management. In addition, the Board of Directors declared a dividend distribution of one Right for each outstanding share of Common Stock and Employee Preferred Stock payable to holders of record as of the close of business on January 12, 1996 and, thereafter all Common Stock issued by the Company has had an equivalent number of rights attendant to it. The Rights are intended to protect TWA's shareholders from certain non-negotiated takeover attempts which present the risk of a change of control on terms which may be less favorable to TWA's stockholders than would be available in a transaction negotiated with and approved by the Board of Directors of the Company. See "Certain Provisions of the Certificate of Incorporation, the By-laws and Delaware Law" and "Business--Regulatory Matters--Foreign Ownership of Shares" and "Description of Capital Stock--Rights Plan." Certain Potential Future Earnings Charges There are a number of uncertainties relating to agreements with employees of the Company, the resolution of which could result in significant non-cash charges to TWA's future operating results. Shares granted or purchased at a discount under the employee stock incentive plan (the "ESIP") will generally result in a charge equal to the fair market value of shares granted plus the discount for shares purchased at the time when such shares are earned. If the ESIP's target prices for the Common Stock are realized, the minimum aggregate charge for the years 1997 to 2002 (the 1997 and 1998 target prices having been met) would be approximately $108.8 million based upon such target prices and the number of shares of Common Stock and Employee Preferred Stock outstanding at January 30, 1998. The charge for any year, however, could be substantially higher if the then market price of the Common Stock exceeds certain target prices. On February 17, 1998, the first target price of $11.00 was realized and a grant of 2.0% of the outstanding Common Stock and Employee Preferred Stock will be made on July 15, 1998. Based on the current number of outstanding shares of Common Stock and Employee Preferred Stock and taking into account a credit with respect to the Company's required contribution, the net contribution will be 1,109,722 shares and the non-cash charge in the first quarter of 1998 will be approximately $12.3 million. In addition, on March 4, 1998 the market price of the Company's Common Stock exceeded the $12.10 target price for the 30-day period necessary to earn the 1998 grant. As a result, on July 15, 1998 the Company will be required to make an additional contribution to the relevant employee trusts of 1.5% of its Common Stock and Employee Preferred Stock. Based on the current number of outstanding shares of Common Stock and Employee Preferred Stock, that contribution would be 1,172,354 shares. As a result of the grants earned in 1998, the Company expects to issue a combined total of 2,282,076 shares of Common Stock and Employee Preferred Stock on July 15, 1998 and the aggregate non-cash charge in connection with such issuance was recorded in the first quarter of 1998 in the amount of $26.5 million. See "Business--Employees." Fresh Start Reporting In connection with the '95 Reorganization, the Company adopted fresh start reporting in accordance with the American Institute of Certified Public Accountants' Statement of Position 90-7 "--Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). The fresh start reporting common equity value of the Company was determined by the Company, with the assistance of its financial advisors, to be approximately $270.0 million based, in part, on assumptions as to future results of operations. The carrying value of the Company's assets does not reflect historical cost but rather reflects current values determined by the Company as of the August 23, 1995 effective date (the "'95 Effective Date") of the '95 Reorganization (including values for intangible assets such as routes, gates and slots of approximately $458.4 million). The difference between (i) the equity valuation of the Company plus the estimated fair market value of the Company's liabilities and (ii) the estimated fair market value of its identifiable assets was allocated to "reorganization value in excess of amounts allocable to identifiable assets" in the amount of approximately $839.1 million. In future periods, these intangible assets will be evaluated for recoverability based upon estimated future cash flows. If expectations are not substantially achieved, charges to future operations for impairment of these assets might be required and such charges could be material. Due to the significant adjustments relating to the '95 Reorganization and the adoption of fresh start reporting, the pre-reorganization consolidated financial statements are not comparable to the post-reorganization consolidated financial statements. A vertical black line is shown in the Consolidated Financial Statements and Selected Consolidated Financial Data presented herein to separate TWA's post-reorganization Consolidated Financial Statements from its pre-'95 Reorganization consolidated financial statements since they have not been prepared on a consistent basis of accounting. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 19 to the Consolidated Financial Statements. In the fourth quarter of 1996, the Company reported a special charge of $26.7 million relating to the write-down of the carrying value of TWA's JFK-Athens route authority, reflecting the Company's decision to terminate service on such route after April 18, 1997. Risk Factors Related to the Industry Competition The airline industry operates in an intensely competitive environment. TWA competes with one or more major airlines on most of its routes (including on all routes between major cities) and with various forms of surface transportation. The airline industry is also cyclical due to, among other things, a close relationship of yields and traffic to general U.S. and worldwide economic conditions. Small fluctuations in RASM and cost per available seat mile ("CASM") can have a significant impact on the Company's financial results. Airline profit levels are highly sensitive to, and during recent years have been adversely affected by, among other things, changes in fuel costs, fare levels and passenger demand. Vigorous price competition exists, and TWA and its competitors have frequently offered sharply reduced discount fares in many markets. Airlines, including TWA, use discount fares and other promotions to stimulate traffic during normally slack travel periods, to generate cash flow and to increase relative market share in selected markets. TWA has often elected to initiate or match discount or promotional fares in certain markets in order to compete vigorously in those discounted markets or to stimulate traffic. Passenger demand and fare levels have also been affected adversely by, among other factors, the state of the economy and international events. The airline industry has consolidated as a result of mergers and liquidations and more recently through alliances, and further consolidation may occur in the future. This consolidation has, among other things, enabled certain of the Company's major competitors to expand their international operations and increase their domestic market presence. In addition, certain of the Company's competitors have in recent years established alliances with one or more large foreign carriers, allowing those competitors to strengthen their overall operations by, among other things, transporting passengers connecting with or otherwise traveling on the alliance carriers. Although the Company has established a code share arrangement with one foreign carrier and has filed an application with the DOT to establish an alliance with another foreign carrier, it does not have an alliance with a large foreign carrier. The emergence and growth of low cost, low fare carriers in domestic markets represents an intense competitive challenge for the Company, which has higher operating costs than many of such low fare carriers and fewer financial resources than many of its major competitors. In many cases, such low cost carriers have initiated or triggered price discounting. In part as a result of the industry consolidation referred to above, aircraft, skilled labor and gates at most airports continue to be readily available to start-up carriers. To the extent new carriers or other lower cost competitors enter markets in which the Company operates, such competition could have a material adverse effect on the Company. Certain of the traditional carriers that compete with TWA have implemented, or are in the process of implementing, measures to reduce their operating costs including the creation of low cost regional jet airline affiliates. In addition, the Company is more highly leveraged and has significantly less liquidity (and in certain cases, a higher cost structure) than certain of its competitors, several of whom have available lines of credit, significant unencumbered assets and/or greater access to capital markets. Accordingly, TWA may be less able than certain of its competitors to withstand a prolonged recession in the airline industry or prolonged periods of competitive pressure. Demand for air transportation has historically tended to mirror general economic conditions. During the most recent economic recession in the United States, the change in industry capacity failed to mirror the reduction in demand for domestic air transportation due primarily to continued delivery of new aircraft. While in the period following such recession, industry capacity leveled off, such capacity has again begun to expand. TWA expects that the airline industry will remain extremely competitive for the foreseeable future. Aircraft Fuel Since fuel costs constitute a significant portion of the Company's operating costs (approximately 15.6% in 1996 and approximately 14.3% in 1997), significant increases in fuel costs would materially and adversely affect the Company's operating results. Fuel prices continue to be susceptible to, among other factors, political events and market factors beyond the Company's control, and the Company cannot predict near or longer-term fuel prices. In the event of a fuel supply shortage resulting from a disruption of oil imports or otherwise, higher fuel prices or curtailment of scheduled service could result. During 1996, the Company's average per gallon cost of fuel increased approximately 22.3% versus 1995, from approximately 57.0 Cents per gallon to approximately 69.8 Cents per gallon. During 1997, the Company's average per gallon cost of fuel decreased approximately 5.6%, from approximately 69.8 Cents per gallon to approximately 65.9 Cents per gallon. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." A one cent change in the cost per gallon of fuel (based on consumption during 1997) impacts operating expense by approximately $609,000 per month. Increases in fuel prices may have a greater proportionate and more immediate impact on TWA than many of its competitors because of the composition of its fleet and because the Company does not presently maintain substantial reserves of fuel required for its operations or otherwise hedge the cost of anticipated purchases of fuel. See "Business--Aircraft Fuel." Regulatory Matters The airline industry is subject to extensive federal and international government regulations relating to airline safety, security and scheduling, as well as to local, state, federal, and international environmental laws. Adoption of newly proposed regulations relating to these matters could increase the Company's cost of compliance with governmental regulations, and could therefore increase operating expenses and in some cases restrict the operations of airlines, including TWA, thereby adversely affecting TWA's results of operations. During the last several years, the FAA has issued a number of maintenance directives and other regulations relating to, among other things, collision avoidance systems, airborne windshear avoidance systems, noise abatement and increased inspection requirements, including added requirements for aging aircraft. TWA believes, based on its current fleet, that it will incur substantial capital expenditures to comply with the aging aircraft and noise abatement regulations. The Company expects that a number of aircraft will be retired before major aging aircraft modifications and noise compliance will be required; however, required capital expenditures will vary depending upon changes in TWA's fleet composition. Management expects that the cost of compliance will be funded through a combination of internally generated funds and utilization of cost sharing and/or funding provisions under certain lease agreements and loan agreements. See "--Risk Factors Related to the Company--Liquidity; Substantial Indebtedness; Capital Expenditure Requirements." Additional laws and regulations have been proposed from time to time which could significantly increase the cost of airline operations by, for instance, imposing additional requirements or restrictions on operations. For example, several airports have recently sought to increase substantially the rates charged to airlines, and the ability of airlines to contest such increases has been restricted by federal legislation, DOT resolutions and judicial decisions. In addition, laws and regulations have also been considered from time to time that would prohibit or restrict the ownership and/or transfer of airline routes or takeoff and landing slots. Also, the award of international routes to U.S. carriers (and their retention) is regulated by treaties and related agreements between the United States and foreign governments which are amended from time to time. The Company cannot predict what laws and regulations will be adopted or what changes to international air transportation treaties will be effected, if any, or how they will affect TWA. See "Business--Regulatory Matters." Management believes that the Company benefitted from the expiration on December 31, 1995 of the aviation trust fund tax (the "Ticket Tax"), which imposed certain taxes including a 10% air passenger tax on tickets for domestic flights, a 6.25% air cargo tax and a $6 per person international departure tax. The Ticket Tax was reinstated on August 27, 1996 and expired again on December 31, 1996. At the end of February 1997, the Ticket Tax was reinstated effective March 7, 1997 through September 30, 1997. Congress recently passed tax legislation reimposing and significantly modifying the Ticket Tax, effective October 1, 1997. The legislation includes the imposition of new excise tax and significant fee tax formulas over a multiple year period, an increase in the international departure tax, the imposition of a new arrivals tax, and the extension of the Ticket Tax to cover items such as the sale of frequent flier miles. Management believes that the reimposition and modification of the Ticket Tax will have a negative impact on the Company, although neither the amount of such negative impact nor the benefit previously realized by its expiration can be precisely determined. However, management believes that the recent tax legislation and any other increases of the Ticket Tax will result in higher costs to the Company and/or, if passed on to consumers in the form of increased ticket prices, might have an adverse effect on passenger traffic, revenue and/or margins. 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. It is also possible that holders of Notes would not ultimately receive repayment, in whole or in part, of the Notes. Ranking of the Notes The Notes are not secured and, therefore, will be effectively subordinated to all existing and future secured indebtedness of the Company to the extent of the value of the assets securing such indebtedness. As of December 31, 1997, the Company had $1,008.0 million of secured indebtedness outstanding. Subject to certain conditions specified therein, the Indenture permits the Company to incur additional secured indebtedness which will effectively rank senior to the Notes to the extent of the value of the assets subject thereto. See "Description of Notes." The Notes will represent senior unsecured obligations of the Company and will rank pari passu in right of payment with other senior obligations of the Company. As of December 31, 1997, after giving effect to the issuance of the Notes and the application of the net proceeds therefrom, the aggregate principal amount of the Company's total outstanding indebtedness would be approximately $1,158.0 million. The Notes are not presently guaranteed by any subsidiary of the Company and as a result will effectively rank junior to all creditors (including trade creditors) of, and holders of preferred stock issued by, subsidiaries of the Company. As of December 31, 1997, the subsidiaries of the Company did not have any outstanding indebtedness or preferred stock, except for the wholly-owned, bankruptcy remote subsidiary that is the issuer of the Receivables Securitization Notes. Although the Notes will contain restrictions on the incurrence of indebtedness by subsidiaries, the amount of indebtedness which is permitted to be incurred could be substantial. The Notes will contain no limitations on the ability of subsidiaries to incur trade credit and other obligations. See "Description of Notes." Fraudulent Conveyance Under certain circumstances, subsidiaries of the Company will be required to guarantee the Company's obligations with respect to the Notes. The Company believes that any such guarantee will be for proper purposes and in good faith. See "Description of Notes--Certain Covenants--Limitation on Guarantees by Restricted Subsidiaries." If a court of competent jurisdiction in a suit by an unpaid creditor or a representative of creditors (such as a trustee in bankruptcy or a debtor-in-possession) were to find that, at the time such subsidiary incurred its obligations under its guarantee, either such subsidiary incurred such obligations with the intent to hinder, delay or defraud its present or future creditors, or that it was insolvent or was rendered insolvent by reason of such incurrence, was engaged or was about to engage in a business or transaction for which its remaining unencumbered assets constituted unreasonably small capital to carry on its business or intended to incur, or believed or reasonably should have believed that it would incur, debts beyond its ability to pay such debts as they matured, and the indebtedness was incurred for less than reasonably equivalent value, such court could avoid such subsidiary's obligations under its guarantee, subordinate such guarantee to any or all other indebtedness of such subsidiary or take other action detrimental to the holders of the Notes. In that event, there can be no assurance that any repayment on such guarantee could ever be recovered by the holders of the Notes. The measure of insolvency for purposes of the foregoing will vary depending upon the law of the jurisdiction in which it is being applied. Generally, however, an entity would be considered insolvent for these purposes if, at the time it incurred indebtedness such as a guaranty obligation, either the sum of its debts was then greater than all of its property at a fair valuation, or the then fair salable value of its assets was less than the amount that was then required to pay its probable liabilities on its existing debts (including contingent liabilities such as guarantee obligations) as they become absolute and matured or if, at any time, it proved unable to satisfy its liabilities immediately due and payable with its current cash flow and available assets. Change in Control; Cross Default Provisions Upon a Change in Control, each holder of Notes will have the right, for a limited period of time, to require the Company to repurchase all or any part of such holder's Notes at a price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest and Special Interest, if any, to the date fixed for repurchase. However, there can be no assurance that upon the occurrence of such a Change in Control, the Company will be able to repurchase the Notes. In the event the Company fails to repurchase the Notes upon a Change in Control, it would be in default under the Indenture and the maturity of substantially all of its long-term debt could be accelerated. See "Description of Notes--Repurchase of Notes Upon a Change in Control." Lack of Prior Market for the Exchange Notes The Exchange Notes are being offered to the holders of the Old Notes. The Old Notes were offered and sold in March 1998 to "Qualified Institutional Buyers" and to a limited number of other institutional "Accredited Investors" (as defined in Rule 144A and Rule 501(a)(1), (2), (3) or (7) under the Securities Act, respectively) and in offshore transactions complying with Rule 903 or Rule 904 of Regulation S under the Securities Act and are eligible for trading in the PORTAL Market. The Exchange Notes will constitute a new issue of securities for which there is currently no established trading market, and the Exchange Notes may not be widely distributed. Although the Initial Purchaser is making a market in the Old Notes and has indicated to the Company that it currently intends to make a market in the Exchange Notes, as permitted by applicable laws and regulations, it 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. In addition, such market making activities may be limited during the Exchange Offer and the tendency of a Shelf Registration Statement. Accordingly, no assurance can be given that an active trading market for the Exchange Notes will develop. If a market for any of the Exchange Notes does develop, the price of such Exchange Notes may fluctuate and liquidity may be limited. If a market for any of the Exchange Notes does not develop, purchasers may be unable to resell such Exchange Notes for an extended period of time, if at all. The Company has agreed to list the Exchange Notes on the American Stock Exchange or on such other stock exchange or market as the Common Stock is then principally traded no later than the earliest to occur of (i) the effectiveness of the this Exchange Offer Registration Statement and (ii) the effectiveness of the Shelf Registration Statement, provided that such Exchange Notes meet the minimum requirements for listing on any such exchange or market, and, if applicable, to maintain such listing for so long as any of the Exchange Notes is outstanding. Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of such securities. There can be no assurance that the market for the Old Notes or the Exchange Notes will not be subject to similar disruptions. Any such disruptions may have an adverse effect on holders of the Old Notes or the Exchange Notes. Consequences of Failure to Exchange Holders of Old Notes who do not exchange their Old Notes for Exchange Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Old Notes as set forth in the legend thereon. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to the Securities Act and applicable state securities laws. The Company does not intend to register the Old Notes under the Securities Act. The Company believes that, based upon interpretations contained in letters issued to third parties by the staff of the SEC, Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold or otherwise transferred by each Holder thereof (other than a broker-dealer, as set forth below, and any such Holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such Exchange Notes are acquired in the ordinary course of such Holder's business and such Holder has no arrangement or understanding with any person to participate in the distribution of such Exchange Notes. Eligible Holders wishing to accept the Exchange Offer must represent to the Company in the Letter of Transmittal that (i) the Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is such holder, (ii) neither the holder of Old Notes nor any such other person has an arrangement or understanding with any person to participate in the distribution of such Exchange Notes, (iii) if the holder is not a broker-dealer or is a broker-dealer but will not receive Exchange Notes for its own account in exchange for Old Notes, neither the holder nor any such other person is engaged in or intends to participate in a distribution of the Exchange Notes and (iv) neither the holder nor any such other person is an "affiliate" of the Company within the meaning of Rule 405 or if such holder is an "affiliate", that such holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. Each broker-dealer (whether or not it is also an "affiliate") that receives Exchange Notes for its own account pursuant to the Exchange Offer must represent that the Old Notes tendered in exchange therefor were acquired as a result of market-making activities or other trading activities and must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with the resales of Exchange Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." However, to comply with the securities laws of certain jurisdictions, if applicable, the Exchange Notes may not be offered or sold unless they have been registered or qualified for sale in such jurisdiction or an exemption from registration or qualification is available and is complied with. The Company does not currently intend to take any action to register or qualify the Exchange Notes for resale in any such jurisdictions. In the event the Exchange Offer is consummated, the Company will not be required to register the transfer of the Old Notes under the Securities Act or any applicable securities laws. In such event, holders of Old Notes seeking liquidity in their investment would have to rely on exemptions to the registration requirements under such laws. The Old Notes currently may be sold to "Qualified Institutional Buyers" and to a limited number of other institutional "Accredited Investors" (as defined in Rule 144A and Rule 501(a) (1), (2), (3) or (7) under the Securities Act, respectively) and in offshore transactions complying with Rule 903 or Rule 904 of Regulation S under the Securities Act or pursuant to another available exemption under the Securities Act without registration under the Securities Act. To the extent that Old Notes are tendered and accepted in the Exchange Offer, the reduction in the principal amount of Old Notes outstanding could have an adverse effect upon, and increase the volatility of the market price for, the untendered and tendered but unaccepted Old Notes. Exchange Offer Procedures To participate in the Exchange Offer, and avoid the restrictions on Old Notes, each holder of Old Notes must transmit a properly completed Letter of Transmittal, including all other documents required by such Letter of Transmittal, to the First Security Bank, National Association (the "Exchange Agent") at the address set forth below under "The Exchange Offer -- Procedures for Tendering -- Exchange Agent" on or prior to the Expiration Date. In addition, (i) certificates for such Old Notes must be received by the Exchange Agent along with the Letter of Transmittal, (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is available, into the Exchange Agent's account at The Depository Trust Company ("DTC" or the "Depositary") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date or (iii) the Holder must comply with the guaranteed delivery procedures. See "The Exchange Offer." USE OF PROCEEDS The Company will not receive any proceeds from the Exchange Offer. The Company has agreed to pay the expenses of the Exchange Offer. No underwriter is being used in connection with the Exchange Offer. THE EXCHANGE OFFER Purpose of the Exchange Offer On March 3, 1998, the Company issued $150 million aggregate principal amount of Old Notes to the 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 3, 1998, the date the Old Notes were issued (the "Issue Date"), (ii) use its best efforts to cause the Registration Statement to become effective within 150 days after the Issue Date, and (iii) consummate the Exchange Offer within 180 days of the Issue Date. A copy of the Registration Rights Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The Exchange Offer is being made pursuant to the Registration Rights Agreement to satisfy the Company's obligations thereunder. Based on interpretations by the staff of the Commission, as set forth in no-action letters issued to Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley & Co. Incorporated (available June 5, 1991), Mary Kay Cosmetics, Inc. (available June 5, 1991) and Warnaco, Inc. (available October 11, 1991), the Company believes that a holder who exchanges Old Notes for Exchange Notes pursuant to the Exchange Offer may offer for resale, resell and otherwise transfer such Exchange Notes without compliance with the registration and prospectus delivery requirements of the Securities Act; provided, that (i) such Exchange Notes are acquired in the ordinary course of such holder's business, (ii) such holder is not engaged in, and does not intend to engage in, a distribution of such Exchange Notes and has no arrangement with any person to participate in the distribution of such Exchange Notes, and (iii) such holder is not an affiliate of the Company (as defined under Rule 405 of the Securities Act). However, the staff of the Commission has not considered the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the Commission would make a similar determination with respect to the Exchange Offer as in such other circumstances. A holder who exchanges Old Notes for Exchange Notes pursuant to the Exchange Offer with the intention to participate in a distribution of the Exchange Notes may not rely on the staff's position enunciated in the Exxon Capital Letter, the Morgan Stanley Letter or similar letters and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives Exchange Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes (other than a resale of an unsold allotment from the original sale of the Notes) received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." Terms of the Exchange Offer Upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal (which together constitute the Exchange Offer), the Company will accept any and all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. The Company will issue a principal amount at maturity of Exchange Notes in exchange for an equal principal amount at maturity of outstanding Old Notes validly tendered pursuant to the Exchange Offer and not withdrawn prior to the Expiration Date. Old Notes may only be tendered in integral multiples at maturity of $1,000. Holders may tender some or all of their Old Notes pursuant to the Exchange Offer. The terms of the Exchange Notes and the Old Notes are substantially identical in all material respects, except that (i) the exchange will be registered under the Securities Act and, therefore, the Exchange Notes will not bear legends restricting the transfer of such Exchange Notes, and (ii) holders of the Exchange Notes will not be entitled to any of the registration rights of holders of Old Notes under the Registration Rights Agreement, which rights will terminate upon the consummation of the Exchange Offer. See "Description of Notes." The Exchange Notes will evidence the same indebtedness as the Old Notes. The Exchange Notes will be issued under and entitled to the benefits of the Indenture pursuant to which the Old Notes were issued such that the Exchange Notes and Old Notes will be treated as a single class of debt securities under the Indenture. As of the date of this Prospectus, $150 million aggregate principal amount at maturity of the Old Notes are outstanding. This Prospectus, together with the Letter of Transmittal, is being sent to all registered holders of the Old Notes. Holders of Old Notes do not have any appraisal or dissenters' rights under the DGCL or the Indenture in connection with the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the provisions of the Registration Rights Agreement and the applicable requirements of the Exchange Act, and the rules and regulations of the Commission thereunder. Old Notes which are not tendered and were not prohibited from being tendered for exchange in the Exchange Offer will remain outstanding and continue to accrue interest and to be subject to transfer restrictions, but will not be entitled to any rights or benefits under the Registration Rights Agreement. Upon satisfaction or waiver of all the conditions to the Exchange Offer, the Company will accept, promptly after the Expiration Date, all Old Notes properly tendered and not withdrawn and will issue Exchange Notes in exchange therefor promptly after acceptance of the Old Notes. For purposes of the Exchange Offer, the Company shall be deemed to have accepted properly tendered Old Notes for exchange when, as and if, the Company has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders for the purposes of receiving the Exchange Notes from the Company. In all cases, issuance of Exchange Notes for Old Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of such Old Notes, a properly completed and duly executed Letter of Transmittal and all other required documents; provided, however, that the Company reserves the absolute right to waive any defects or irregularities in the tender or conditions of the Exchange Offer. If any tendered Old Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if Old Notes are submitted for a greater principal amount at maturity than the holder desires to exchange, such unaccepted or nonexchanged Old Notes or substitute Old Notes evidencing the unaccepted portion, as appropriate, will be returned without expense to the tendering holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. Holders who tender Old Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than certain applicable taxes described below, in connection with the Exchange Offer. See "--Fees and Expenses." Expiration Date; Extension; Amendments The term "Expiration Date" shall mean 5:00 p.m., New York City time, on ___________, 1998 (30 days following the commencement of the Exchange Offer), unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" will mean the latest date and time to which the Exchange Offer is extended. In order to extend the Exchange Offer, the Company will notify the Exchange Agent of any extension by oral or written notice and will mail to the registered holders an announcement thereof, prior to 9:00 a.m., New York City time, on the next business day after the then Expiration Date. The Company reserves the right, in its sole discretion, (i) to delay accepting any Old Notes, to extend the Exchange Offer or to terminate the Exchange Offer if any of the conditions set forth below under "--Conditions" shall not have been satisfied, by giving oral or written notice of such delay, extension or termination to the Exchange Agent or (ii) to amend the terms of the Exchange Offer. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment in a manner reasonably calculated to inform the holders of Old Notes of such amendment. Without limiting the manner in which the Company may choose to make a public announcement of any delay, extension, amendment or termination of the Exchange Offer, the Company shall have no obligation to publish, advertise, or otherwise communicate any such public announcement, other than by making a timely release to an appropriate news agency. Interest on the Exchange Notes The Exchange Notes will bear interest from March 3, 1998 at the rate of 11 3/8% per annum, payable semi-annually in arrears, in cash, on March 1 and September 1 of each year, commencing September 1, 1998. Holders of Old Notes whose Old Notes are accepted for exchange will be deemed to have waived the right to receive any payment in respect of interest on the Old Notes accrued from March 3, 1998 until the date of the issuance of the Exchange Notes. Consequently, holders who exchange their Old Notes for Exchange Notes will receive the same interest payment on September 1, 1998 (the first interest payment date with respect to the Old Notes and the Exchange Notes) that they would have received had they not accepted the Exchange Offer. Conditions Notwithstanding any other term of the Exchange Offer, the Company will not be required to exchange any Exchange Notes for any Old Notes, and may terminate or amend the Exchange Offer before the acceptance of any Old Notes for exchange, if: (a) any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the Exchange Offer which seeks to restrain or prohibit the Exchange Offer or, in the Company's judgment, would materially impair the ability of the Company to proceed with the Exchange Offer, or (b) any law, statute, rule or regulation is proposed, adopted or enacted, or any existing law, statute, rule, order or regulation is interpreted, by any government or governmental authority which, in the Company's judgment, would materially impair the ability of the Company to proceed with the Exchange Offer, or (c) the Exchange Offer or the consummation thereof would otherwise violate or be prohibited by applicable law. If the Company determines in its sole discretion that any of these conditions are not satisfied, the Company may (i) refuse to accept any Old Notes and return all tendered Old Notes to the tendering holders, (ii) extend the Exchange Offer and retain all Old Notes tendered prior to the expiration of the Exchange Offer, subject, however, to the rights of holders who tendered such Old Notes to withdraw their tendered Old Notes, or (iii) waive such unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Old Notes which have not been withdrawn. If the Company's waiver constitutes a material change to the Exchange Offer, the Company will promptly disclose such waiver by means of a prospectus supplement that will be distributed to the registered holders, and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the registered holders, if the Exchange Offer would otherwise expire during such five to ten business day period. The foregoing conditions are for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances giving rise to any such condition or may be waived by the Company in whole or in part at any time and from time to time in its sole discretion. The Company's failure at any time to exercise any of the foregoing rights will not be deemed a waiver of any such right, and each such right will be deemed an ongoing right which may be asserted at any time and from time to time. Any determination by the Company concerning the events described above will be final and binding on all parties. NO VOTE OF THE COMPANY'S SECURITYHOLDERS IS REQUIRED TO EFFECT THE EXCHANGE OFFER AND NO SUCH VOTE (OR PROXY THEREFOR) IS BEING SOUGHT HEREBY. Procedures for Tendering Only a holder of Old Notes may tender such Old Notes in the Exchange Offer. To tender in the Exchange Offer, a holder must (i) complete, sign and date the Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal or such facsimile, together with the Old Notes (unless such tender is being effected pursuant to the procedure for book-entry transfer described below) and any other required documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date, or (ii) comply with the guaranteed delivery procedures described below. Delivery of all documents must be made to the Exchange Agent at its address set forth herein. Each broker-dealer that receives Exchange Notes for its own account in exchange for Old Notes, where such Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with the resale of such Exchange Notes. See "Plan of Distribution." The tender of Old Notes by a holder as set forth below will constitute an agreement between such holder and the Company in accordance with the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal. THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. Any beneficial owner(s) whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contract the registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering such owner's Old Notes, either make appropriate arrangement to register ownership of the Old Notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Signatures on a Letter of Transmittal or a notice of withdrawal (described below), as the case may be, must be guaranteed by an "eligible guarantor institution" (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to Rule 17Ad-15 under the Exchange Act (an "Eligible Institution") unless the Old Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. If a person other than the registered holder of any Old Notes listed therein signs the Letter of Transmittal, such Old Notes must be endorsed or accompanied by a properly completed bond power, signed by such registered holder as such registered holder's name appears on such Old Notes, with the signature thereon guaranteed by an Eligible Institution. If the Letter of Transmittal or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal. The Company will determine, in its sole discretion, all questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes and the Company's determination will be final and binding. The Company reserves the absolute right to reject any and all Old Notes not properly tendered or any Old Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular Old Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as the Company shall determine. Although the Company intends to notify holders of defects or irregularities with respect to tenders of Old Notes, neither the Company, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Old Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. In addition, the Company reserves the right in its sole discretion to purchase or make offers for any Old Notes that remain outstanding subsequent to the Expiration Date or, as set forth above under "Conditions," to terminate the Exchange Offer and, to the extent permitted by applicable law, to purchase Old Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers could differ from the terms of the Exchange Offer. By tendering, each holder will represent to the Company that, among other things, (i) the Notes to be acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of such holder, (ii) such holder has no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes and (iii) such holder is not an "affiliate," as defined in Rule 405 under the Securities Act, of the Company, or that if it is an "affiliate," it will comply with applicable registration and prospectus delivery requirements of the Securities Act. Book-Entry Transfer Within two business days after the date of this Prospectus, the Exchange Agent will make a request to establish an account with respect to the Old Notes at the book-entry transfer facility for the Old Notes, DTC, for purposes of the Exchange Offer. Any financial institution that is a participant in DTC's systems may make book-entry delivery of Old Notes by causing DTC to transfer such Old Notes into the Exchange Agent's account with respect to the Old Notes in accordance with DTC's procedures for such transfer. Although delivery of Old Notes may be effected through book-entry transfer into the Exchange Agent's account at DTC, an appropriate Letter of Transmittal with any required signature guarantee and all other required documents must in each case be transmitted to and received and confirmed by the Exchange Agent at its address set forth below on or prior to the Expiration Date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under such procedures. Guaranteed Delivery Procedures Holders who wish to tender their Old Notes and (i) whose Old Notes are not immediately available, (ii) who cannot deliver their Old Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to the Expiration Date, or (iii) who cannot complete the procedures for book-entry transfer of Old Notes to the Exchange Agent's account with DTC prior to the Expiration Date, may effect a tender if: (a) The tender is made through an Eligible Institution; (b) On or prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution (by facsimile transmission, mail or hand delivery) a properly completed and duly executed notice of guaranteed delivery substantially in the form provided by the Company (the "Notice of Guaranteed Delivery"), setting forth the name and address of the holder, the certificate number(s) of such Old Notes (if possible) and the principal amount at maturity of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that, within five business trading days after the Expiration Date, (i) the Letter of Transmittal (or facsimile thereof) together with the certificate(s) representing the Old Notes and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent, or (ii) that book-entry transfer of such Old Notes into the Exchange Agent's account at DTC will be effected and confirmation of such book-entry transfer will be delivered to the Exchange Agent; and (c) Such properly completed and executed Letter of Transmittal (or facsimile thereof), as well as the certificate(s) representing all tendered Old Notes in proper form for transfer and all other documents required by the Letter of Transmittal, or confirmation of book-entry transfer of the Old Notes into the Exchange Agent's account at DTC, are received by the Exchange Agent within five business trading days after the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to tender their Old Notes according to the guaranteed delivery procedures set forth above. Withdrawal of Tenders Except as otherwise provided herein, tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To withdraw a tender of Old Notes in the Exchange Offer, the Exchange Agent must receive at its address set forth herein a telegram, telex, facsimile transmission or letter indicating notice of withdrawal prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having tendered the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the certificate number or numbers and principal amount at maturity of such Old Notes), (iii) be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Old Notes were tendered (including any required signature guarantees) or be accomplished by documents of transfer sufficient to have the Trustee with respect to the Old Notes register the transfer of such Old Notes into the name of the person withdrawing the tender and (iv) specify the name in which any such Old Notes are to be registered, if different from that of the Depositor. If Old Notes have been tendered pursuant to the procedure for book-entry transfer, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn Old Notes or otherwise comply with DTC's procedures. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Old Notes so withdrawn are validly retendered. Any Old Notes which have been tendered but which are not accepted for payment will be returned to the holder thereof without cost to such holder as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described above under "--Procedures for Tendering" at any time prior to the Expiration Date. Untendered Old Notes Holders of Old Notes whose Old Notes are not tendered or are tendered but not accepted in the Exchange Offer will continue to hold such Old Notes and will be entitled to all the rights and preferences and subject to the limitations applicable thereto under the Indenture. Following consummation of the Exchange Offer, the holders of Old Notes will continue to be subject to the existing restrictions upon transfer contained in the legend thereon. In general, the Old Notes may not be offered for resale or resold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Company will have no further obligations to such holders, other than the Initial Purchaser, to provide for the registration under the Securities Act of the Old Notes held by them after the Expiration Date. To the Extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Old Notes could be adversely affected. Exchange Agent First Securities Bank, National Association, has been appointed as Exchange Agent of the Exchange Offer. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notices of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: By Mail, Overnight Courier or Hand: First Security Bank, National Association 79 South Main Street Salt Lake City, Utah 84111 Attention: Corporate Trust Department (registered or certified mail recommended) Telephone: 801/246-5630 Facsimile: 801/246-5053 Delivery to an address other than as set forth above or transmission of instructions via facsimile to a number other than as set forth above will not constitute a valid delivery. Fees and Expenses The Company will bear the expenses of soliciting tenders. The principal solicitation is being made by mail; however, officers and regular employees of the Company and its affiliates may make additional solicitation by telegraph, facsimile transmission, telephone or in person. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers or other soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The Company will pay the cash expenses to be incurred in connection with the Exchange Offer. Such expenses include registration fees and expenses of the Exchange Agent and Trustee, accounting and legal fees and printing costs, among others. The Company will pay any and all transfer taxes applicable to the exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates representing Exchange Notes or Old Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Old Notes tendered, or if tendered Old Notes are registered in the name of any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Old Notes pursuant to the Exchange Offer, satisfactory evidence of the payment of the amount of any such transfer taxes must be submitted with the Letter of Transmittal (whether imposed on the registered holder or any other person). Certificates representing Exchange Notes will not be issued to such persons until satisfactory evidence of the payment of such taxes, or an exemption therefrom, is submitted. Consequences of Failure to Exchange Upon consummation of the Exchange Offer, holders that were not prohibited from participating in the Exchange Offer and did not tender their Old Notes will not have any registration rights under the Registration Rights Agreement with respect to such nontendered Old Notes and, accordingly, such Old Notes will continue to be subject to the restrictions on transfer contained in the legend thereon as a consequence of the issuance of the Old Notes pursuant to exemptions from or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered for resale or resold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Company does not intend to register the Old Notes under the Securities Act. The Exchange Notes may not be offered or sold unless they have been registered or qualified for sale under applicable state securities laws or an exemption from registration or qualification is available and is complied with. The Registration Rights Agreement requires the Company to register the Exchange Notes in any jurisdiction requested by the holders, subject to certain limitations. To the extent the Old Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Old Notes could be adversely affected. Resale of the Exchange Notes Under existing interpretations of the staff of the Commission contained in several no-action letters to third parties, the Exchange Notes would in general be freely transferable after the Exchange Offer without further registration under the Securities Act. However, any purchaser of Old Notes who intends to participate in the Exchange Offer for the purpose of distributing the Exchange Notes (i) would not be able to rely on the interpretation of the staff of the Commission, (ii) will not be able to tender its Old Notes in the Exchange Offer and (iii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the Notes unless such sale or transfer is made pursuant to an exemption from such requirements. By executing the Letter of Transmittal, each holder of the Old Notes will represent that (i) it is not an affiliate of the Company or if such Holder is an "affiliate," that such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (ii) any Exchange Notes to be received by it were acquired in the ordinary course of its business and (iii) at the time of commencement of the Exchange Offer, it had no arrangement with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes. In addition, in connection with any resales of Exchange Notes, any broker-dealer (a "Participating Broker-Dealer") who acquired the Notes for its own account as a result of market-making or other trading activities must deliver a prospectus meeting the requirements of the Securities Act. The Commission has taken the position that Participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to the Exchange Notes (other than a resale of an unsold allotment from the original sale of the Old Notes) with the prospectus contained in the Exchange Offer Registration Statement. Under the Registration Rights Agreement, the Company is required to allow Participating Broker-Dealers and other persons, if any, subject to similar prospectus delivery requirements to use this Prospectus as it may be amended or supplemented from time to time, in connection with the resale of such Exchange Notes. Other Participation in the Exchange Offer is voluntary and holders should carefully consider whether to accept. Holders of the Old Notes are urged to consult their financial and tax advisors in making their own decisions on what action to take. Upon consummation of the Exchange Offer, holders who were not prohibited from participating in the Exchange Offer and who did not tender their Old Notes will not have any registration rights under the Registration Rights Agreement with respect to such nontendered Old Notes and such Old Notes will continue to be subject to the restrictions on transfer contained in the legend thereon. Accordingly, such Old Notes may not be offered, sold, pledged or otherwise transferred except (i) to a person whom the seller reasonably believes is a "Qualified Institutional Buyer" within the meaning of Rule 144A under the Securities Act purchasing for its own account or for the account of a Qualified Institutional Buyer in a transaction meeting the requirements of Rule 144A, (ii) in an offshore transaction complying with Rule 904 of Regulation S under the Securities Act, (ii) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available), (iv) pursuant to an effective registration statement under the Securities Act or (v) to the Company and, in each case, in accordance with all other applicable securities laws. Accounting Treatment The Exchange Notes will be recorded in the Company's accounting records at the same carrying value as the Old Notes as reflected in the Company's accounting records on the date of the exchange. Accordingly, the Company will recognize no gain or loss for accounting purposes upon the consummation of the Exchange Offer. The expenses of the Exchange Offer will be amortized over the remaining term of the Exchange Notes. THE COMPANY TWA is the eighth largest U.S. air carrier (based on RPMs for the full-year 1997), whose primary business is transporting passengers, cargo and mail. During 1997, the Company carried approximately 23.4 million passengers and flew approximately 25.1 billion RPMs. As of December 31, 1997, TWA provided regularly scheduled jet service to 89 cities in the United States, Mexico, Europe, the Middle East, Canada and the Caribbean. As of December 31, 1997, the Company operated a fleet of 185 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 36 states, the District of Columbia, Puerto Rico, Mexico, Canada and the Caribbean. The JFK and St. Louis hub systems are designed to allow TWA to support both its North American and transatlantic connecting flights. During 1997, TWA's North American revenues accounted for approximately 85.9% of its total revenues versus approximately 81.7% during the same period of 1996. St. Louis TWA is the predominant carrier at St. Louis, with approximately 365 scheduled daily departures as of December 31, 1997 serving 79 cities. In 1997, TWA had approximately a 74.5% share of airline passenger enplanements in St. Louis, excluding all commuter flights, while the next largest competitor enplaned approximately 12.6%. Since 1995, TWA has added service from its St. Louis hub to Reno, Nevada, Knoxville, Tennessee, Shreveport, Louisiana, Steamboat Springs, Colorado, Palm Springs, California, Toronto, Canada and the Mexican resort cities of Cancun, Puerto Vallarta and Ixtapa/Zihuatenejo. JFK TWA serves 26 domestic and international cities from its JFK hub, with approximately 40 daily departures. JFK is both the Company's and the industry's largest international gateway from North America. The Company offers non-stop flights from JFK to 8 cities in Europe and the Middle East as well as 17 destinations in the U.S. and the Caribbean. Commuter Feed TWA coordinates operation of its commuter feed into the Company's hubs at St. Louis and JFK with Trans States Airlines, Inc. ("Trans States"). Trans States, an independently owned regional commuter carrier, currently operates approximately 169 daily flights into St. Louis and 56 flights into JFK. Trans States' operations are coordinated to feed TWA's North American and international flights. Management believes that these commuter operations are an important source of traffic into the Company's domestic and international route networks. International Route Structure TWA's international operations consist of both nonstop and through service from JFK and St. Louis to destinations in Europe and the Middle East. TWA's international operations are concentrated at JFK, where TWA has built a hub system primarily designed to provide domestic traffic feed for its transatlantic service. International cities served include: Barcelona, Cairo, Lisbon, Madrid, Milan, Riyadh, Rome, Tel Aviv from JFK; Paris from JFK and St. Louis; and London-Gatwick from St. Louis. On January 13, 1997, as part of its plans to improve the operating and financial performance of its international operations, the Company discontinued service on certain European routes, including JFK to Frankfurt and Boston to Paris, as well as non-stop feed service to JFK from several domestic cities. In addition, service to Athens was discontinued on April 18, 1997. In 1997, TWA's international passenger revenues accounted for approximately 14.1% of total revenues versus approximately 18.3% in 1996. On April 28, 1997, TWA announced it had filed an application with the DOT seeking approval of code-share service with Royal Jordanian Airline. The DOT approved the code-share on October 1, 1997. The agreement calls for the joint coding of TWA domestic flights between seven U.S. cities and JFK and of Royal Jordanian Airline's direct flights between JFK, Amsterdam and Amman, Jordan. Service began on November 1, 1997. In addition, TWA and Royal Jordanian Airline recently announced that they have requested an amendment to their statements of authorization to add additional cities in the U.S. and in the Persian Gulf area. The DOT has approved the application and TWA is seeking authority to serve Bahrain, Qatar, Pakistan and India. It is anticipated that such authority will be received in the second quarter of 1998. On October 24, 1997, TWA announced that it had signed an agreement with Spanish carrier Air Europa to provide code share service. Under the agreement, which still requires governmental approval, TWA will place its TW flight code on Air Europa flights operating between Madrid and Barcelona, on the one hand, and Palma and Malaga, Spain, on the other hand. Air Europa will place its UX flight code on TWA flights operating between both Madrid and Barcelona, on the one hand, and JFK, on the other hand, and to numerous U.S. points beyond JFK. The code share service is anticipated to commence in the second quarter of 1998. Pursuant to their agreements, both Royal Jordanian Airline and Air Europa have moved their operations to the Company's JFK terminal. On February 11, 1998, TWA announced that it had applied to the DOT seeking authority to operate 28 frequencies of code share service between St. Louis and Japan in cooperation with Delta Air Lines ("Delta"). The application proposed to start code share service to Tokyo and Nagoya as soon as possible after approval, and to Osaka and Fukuoka on October 28, 1998. TWA also applied for non-stop route authority from St. Louis to Tokyo beginning June 1, 1999. On March 16, 1998, the DOT issued an order authorizing the Company to serve the St. Louis-Tokyo market with seven weekly frequencies and allocating to the Company fourteen of the weekly frequencies for United States-Japan code share service. The DOT allowed interested parties ten days to object and seven additional days to reply to objections. It is anticipated that a final order will be issued by the DOT in the second quarter. TWA is exploring the possibility of entering into marketing and code-share alliances with additional foreign carriers. These alliances, if consummated, would allow the Company to provide its passengers with extended service to foreign destinations not served directly by the Company, while feeding TWA's North American operations from these foreign destinations. Business Strategy In late 1996, the Company began implementing certain initiatives designed to further its strategic objectives. These initiatives were implemented in response to a significant deterioration in the Company's operating performance and financial condition during the second half of 1996. This deterioration was primarily caused by (i) an overly aggressive expansion of TWA's capacity and planned flight schedule, particularly during the 1996 summer season, which forced the Company to rely disproportionately on lower-yield feed traffic and bulk ticket sales to fill the increased capacity of its system; (ii) the delayed delivery of four older 747s intended to increase capacity for incremental international operations during the summer of 1996; and (iii) unexpected maintenance delays due to the capacity increase, higher levels of scheduled narrow-body heavy maintenance and increased contract maintenance performed for third parties. These factors caused excessive levels of flight cancellations, poor on-time performance, increased pilot training costs and higher maintenance expenditures and adversely affected the Company's yields and unit costs. In addition, the crash of TWA Flight 800 on July 17, 1996 distracted management's attention from core operating issues and led to lost bookings and revenues. The Company also experienced a 27.6% increase in fuel costs in 1996 versus 1995, primarily due to a 22.3% increase in the average fuel price paid per gallon during the year. The primary focus of the Company's strategic initiatives, initially implemented in late 1996, was to reestablish TWA's operational reliability and schedule integrity and overall product quality in order to attract higher-yield passengers and enhance overall productivity, which was intended to improve the Company's financial results. As the initial steps in implementing this strategy, the Company temporarily reduced its flight schedule during the first quarter of 1997 to more closely match aircraft available for active service and worked to reduce the number of aircraft in maintenance backlog by increasing overtime and maintenance capacity made available by terminating an unprofitable aircraft maintenance contract with the U.S. government. The other key initiatives which TWA began implementing in late 1996 included: (i) acceleration of the Company's fleet renewal plan; (ii) a restructuring of TWA's operations at JFK; (iii) a focus on improving productivity; (iv) implementation of a series of revenue-enhancing marketing initiatives; and (v) implementation of a number of employee-related initiatives to reinforce the Company's focus on operational performance. The key elements of the Company's overall ongoing business strategy, as well as the late 1996 strategic initiatives, are outlined below. Fleet Upgrade and Simplification TWA's fleet modernization plans seek to realize operating cost savings by replacing a number of older, less efficient aircraft with more modern, technologically advanced, twin-engine, two-pilot aircraft. New flight equipment acquisition plans initiated in 1996, are intended to achieve a decrease in operating and maintenance costs as the older, heavier maintenance aircraft are phased out and replaced by newer aircraft. These changes are intended to simplify the Company's fleet structure, thereby reducing the number of aircraft types to decrease overall crew training and aircraft maintenance costs (although resulting in increased short-term transition crew training costs). Additional efficiencies should be realized through increased standardization of aircraft parts, supplies and cabin equipment that must be inventoried throughout TWA's system. Despite the higher capital costs associated with owning or leasing new and later model aircraft, the Company believes that corresponding reductions in operating costs will offset any increased costs. Management believes this initiative will further improve the Company's operating performance while allowing the Company to achieve Stage 3 compliance with the Noise Act by the year 2000 and will not require further fleet reductions. In the first quarter of 1997, as part of its efforts to improve near-term operational reliability, the Company announced plans to accelerate retirement of the 14 747s (four-engine, 3-pilot wide-body jets with an average age of approximately 25.6 years) and the 11 L-1011s (three-engine, three-pilot wide-body jets with an average age of approximately 22.6 years) remaining in its fleet as of December 31, 1996. All of the L-1011s and 747s have been retired. These older, less efficient and less reliable aircraft have been replaced with new or later-model used 757, 767 and MD-80 aircraft. Management believes that these smaller aircraft are more appropriately sized to the routes served and, by reducing the Company's reliance on lower-yield feed traffic to fill capacity, have resulted in higher load factors and improved yields. Further, these newer twin-engine, two-pilot aircraft are expected to provide efficiencies in fuel, flight crew and maintenance expenses, while reducing long-term pilot training costs by enabling TWA to have fewer aircraft types in the fleet. Such aircraft should also permit TWA to more effectively utilize its yield management system. In 1996, TWA entered into agreements to lease 10 new 757s and to purchase an additional 10 new 757 aircraft. As of February 1, 1998, TWA had taken delivery of 15 of such aircraft. The Company also acquired the right, subject to certain conditions, to purchase up to 20 more new 757 aircraft from the manufacturer. In addition, the Company entered into agreements with a major operating lessor to lease two 767-300ERs which were delivered in early 1998. In 1996, the Company entered into an agreement with the manufacturer to acquire 15 new MD-83s. As of February 1, 1998, the Company had taken delivery of seven of the MD-83s, and expects to take delivery of six additional planes during 1998 and two additional planes in 1999. The Company also entered into an agreement for the lease of nine late-model used MD-82s, which were delivered in 1997 and early 1998. The Company also intends to retire eight of its older 727s in 1998, which are expected to be replaced with MD-80s. As of March 31, 1998, TWA had retired two such 727s. As a result of this fleet restructuring, the Company's mix of narrow-body and wide-body aircraft shifted to approximately 90%/10% as of December 31, 1997 versus 80%/20% as of year-end 1996, while TWA's average number of seats per aircraft declined to 141 from 161 over the same period. As of December 31, 1997, the average age of its fleet had decreased to 16.9 years from 19.0 years at year-end 1996. In April 1998, the Company entered into an agreement to purchase from the manufacturer 24 new MD-83 aircraft with deliveries in 1999. The Company has obtained financing commitments for long-term debt and lease financing for such aircraft. If TWA takes delivery of all of these aircraft, and assuming no other changes in the composition of the Company's fleet, the average age of its fleet as of December 31, 1999 would decrease to 12.8 years. TWA also entered into an agreement with a third-party aircraft lessor for the sale and leaseback of 15 Boeing 727-200A aircraft owned by the Company. The aircraft were delivered on March 31 and April 1, 1998 and leased to TWA under leases which expire in 1999 and 2000. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Commitments." During 1996 and 1997, the Company outfitted 30 of its DC9-30 aircraft with "hush-kits" in order to bring such aircraft into compliance with Stage 3 requirements of the Noise Act. The Company is considering "hush-kitting" additional aircraft as well as other alternatives to assure compliance with Stage 3 noise requirements, in particular the replacement of such DC9 aircraft with newer model 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 continue to implement its strategic plan. See "Risk Factors--Risk Factors Related to the Company--Liquidity; Substantial Indebtedness; Capital Expenditure Requirements." Route Structure Optimization The Company has been optimizing its route structure by redeploying assets to markets in which it believes it has a competitive advantage and limiting its commitments in other markets. Domestically, the Company believes the greatest opportunities for improved operating results will continue to come from focusing additional resources on its St. Louis hub in order to leverage its strong market position. The Company already dominates operations at St. Louis, with approximately 74.5% of total enplanements in 1997, excluding commuter traffic. In addition, the Company enjoys certain advantages in the Midwest due to its established route system, strong brand identity and concentrated presence in that market. Because St. Louis is located in the center of the country, it is well-suited to function as an omni-directional hub for both north-south and east-west transcontinental traffic. Therefore, TWA believes it is better positioned to offer more frequencies and connecting opportunities to many travelers in its key Midwestern markets than competing airlines. To capitalize on these advantages, the Company has increased its number of daily departures at St. Louis from 229 in 1993 to approximately 365 as of December 31, 1997. In addition, beginning in 1995, the Company has increased service to the north and south with service to Reno, Nevada, Knoxville, Tennessee, Shreveport, Louisiana, Steamboat Springs, Colorado, Palm Springs, California, Toronto, Canada and the Mexican resort cities of Cancun, Puerto Vallarta and Ixtapa/Zihuatenejo. Internationally, the Company's operations are concentrated at JFK. The Company's strategy has been to reduce and streamline international operations to focus on markets that it believes can support non-stop service and to maximize utilization of the JFK facility. As a result, since 1994, the Company has eliminated service to several European cities and reduced its service to and from Paris. In addition, during 1996 and 1997 the Company increased service from JFK to the Caribbean, Florida and to certain other domestic cities to increase utilization of the Company's JFK facility, particularly during off-peak time periods, and to provide feed traffic for its international operations. On February 11, 1998, the Company applied to the DOT seeking authority to operate code share service between St. Louis and Japan in cooperation with Delta Air Lines. The application proposes to start code share service to Tokyo and Nagoya as soon as possible after approval, and to Osaka and Fukuoka on October 28, 1998. TWA also applied for non-stop route authority from St. Louis to Tokyo beginning June 1, 1999. On March 16, 1998, the DOT issued an order authorizing the Company to serve the St. Louis-Tokyo market with seven weekly frequencies and allocating to the Company fourteen of the weekly frequencies for United States-Japan code share service. The DOT allowed interested parties ten days to object and seven additional days to reply to objections. It is anticipated that a final order will be issued by the DOT in the second quarter. As part of its efforts to position the Company for sustained profitability, TWA restructured its operations at JFK during 1997 by eliminating certain unprofitable international destinations (such as Frankfurt and Athens), as well as certain low-yield domestic feed service into JFK. The Company also consolidated for the near term most of its JFK operations from two terminals into a single terminal in order to reduce operating costs, increase facility utilization and improve passenger service. In addition to enhancing yields and load factors, the substitution of 757s and 767s for 747s and L-1011s on international routes also has increased operating efficiencies and on-time performance at JFK, since these smaller aircraft are better suited to the physical limitations of TWA's terminals. As a result of these changes, TWA's international scheduled capacity (as measured by ASMs) decreased 31.5% in 1997 versus 1996 and represented 19.5% of total scheduled capacity for the full year 1997 versus 25.6% for the full year 1996. The Company believes that this decrease in international operations, together with the rationalization of fleet size described above, will help deseasonalize TWA's business, with the difference between TWA's seasonal average daily peak and trough capacities anticipated to be approximately 4.2% in 1998, versus 20.5% in 1996 and 16.9% in 1997. As a result, the Company believes the seasonal variability of its financial performance will be reduced; however, there can be no assurance that such deseasonalization will occur. Customer Service; Travel Agent Commissions The Company is focusing on improving the quality of its air travel product and the service provided to passengers by TWA personnel. The Company believes that its increased focus on quality, certain new marketing initiatives and the steps taken to restore operational reliability and schedule integrity in 1997 have resulted and will allow TWA to attract a greater percentage of higher-yield passengers. Ongoing initiatives include: Focus on Business Traveler. Based on customer research, the Company has targeted business travelers and is therefore tailoring its marketing and advertising efforts to emphasize the Company's positioning as a full-service, high-value airline providing service to popular business destinations throughout the U.S. The Company believes that its convenient flight schedules and connections, as well as its centrally located hub at St. Louis, are important in providing service which is attractive to these travelers. The Company is introducing a series of marketing initiatives designed to attract a greater percentage of higher-yield business passengers. In March 1995, TWA introduced Trans World One, a premium business class service in its international and certain trans-continental non-stop markets. This product has recently been enhanced and relaunched with advertising and promotional support. Trans World One is available in 767 equipment and in selected 757 equipment. Overall service is being improved, including check-in, on-board comfort, food service and priority baggage return. TWA is also increasing first class cabin seating in its narrow-body domestic aircraft by 60% and is planning a series of airport and in-flight enhancements. This domestic service was launched in early 1998 as Trans World First. In March 1998, the Company launched TWQ, a specially designed service for short-haul business markets. The Company is also in the early phases of a series of facilities upgrades, including a newly opened Ambassadors Club in St. Louis, a renovated club at LaGuardia, a completely refurbished club in its JFK terminal and improved new check-in counters and backwalls. A new electronic passenger and baggage processing system is being installed in St. Louis. TWA announced in March 1998 a rebranded frequent flier program named "Aviators" which is effective as of May 1, 1998. The Company has already implemented several new initiatives to improve its frequent flier program. A Platinum level was introduced in the third quarter of 1997 to offer the Company's most attractive travel benefits for its highest mileage customers. Platinum level travelers and travelers purchasing first class or full fare coach tickets will also be given mileage bonuses equal to the base dollar amount paid for their tickets, in addition to other existing bonuses. Further, TWA joined the American Express Membership Rewards Program, allowing members the opportunity to earn additional miles for amounts charged on the American Express Card. Leisure Traveler. Within the leisure travel market, TWA is positioned as a high-quality, competitive-fare carrier. Management believes that TWA's cost structure and attractive route system position it well to compete for leisure traffic. Further, TWA's Getaway Program, which was the original airline tour program, has a leading position in this sector. Travel Agent Commissions. Until recently TWA paid the full traditional 10% commission on tickets for domestic transportation on TWA sold by independent travel agents without the cap of $50 and $25 per domestic round-trip and one-way tickets, respectively, which most other major airlines imposed in 1995, and paid an 11% commission on tickets for international transportation. On October 2, 1997, the Company reduced its commissions on tickets for domestic and international transportation to 8% and 10%, respectively, without the cap imposed by most other major airlines. Although the Company cannot quantify the current or potential future impact of this decision, the Company believes the uncapped commission structure is a positive factor in maintaining and improving its long-term relationships with such travel agents and encourages the booking of higher fare tickets. See "Business--Travel Agencies--Travel Agent Commissions." Labor Relationship Management believes TWA has a generally cooperative relationship with its employees, including employees represented by 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 Reorganization (as defined) and the '95 Reorganization. As a result of these agreements (i) the Company's employees received approximately 30% of the voting equity of TWA outstanding immediately following the '95 Reorganization and (ii) certain corporate governance provisions were effected, including provision of the right of employees currently represented by ALPA and the IAM to elect four of the Company's 15 directors. See "Description of Capital Stock--Description of Employee Preferred Stock" and "Certain Provisions of the Certificate of Incorporation, the By-laws and Delaware Law." On March 6, 1997, the IAM assumed representation of the Company's flight attendants formerly represented by IFFA, and IFFA was decertified. Union and non-union employees are also eligible under the ESIP to increase their level of stock ownership through grants and purchases of additional shares over a five year period commencing in 1997. For information concerning the ESIP, see "Business--Employees." Each of the Company's union contracts became amendable as of August 31, 1997, and negotiations have begun with respect to all three major 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. In January 1997, TWA implemented programs through which TWA has sought to institutionalize throughout all levels of its organization the importance of running an airline with operational reliability and schedule integrity. These programs provide certain operating and procedural guidelines for enhancing performance and improving overall product quality. In addition, in 1996 the Company introduced Flight Plan 97, which paid eligible employees a $65 bonus for each month that TWA finished in the top five in all three performance categories tracked by the DOT (on-time performance, customer complaints and baggage handling) and a total of $100 if TWA also ranked first in at least one of such categories. Based on the Company's performance in September 1997, eligible employees earned their first bonus under this program, a $100 payment for ranking first in on-time performance, fourth in customer complaints and fifth in baggage handling. This program has been enhanced as Flight Plan 98 and now provides that in any quarter where the Company places first in one of the DOT-tracked performance categories for the entire quarter (and assuming that no bonus was paid to employees during that quarter) the eligible employees would receive a $100 bonus. 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 taken a significant step forward in this area by installing a computerized yield management system. The need to build a historical database for such yield management system has delayed full realization of benefits expected from such system; however, as this database grows during 1998, it is expected to allow the Company to improve significantly its ability to estimate demand flight-by-flight for each class of fares and manage the allocation of seats accordingly. Given TWA's prior lack of a computerized yield management system, the Company's management believes that as this database grows the 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 center in St. Louis. TWA is also in the process of installing state-of-the-art computer hardware for ticket counter and gate podiums at St. Louis using "QIK-Chek" software to improve passenger service and data collection while simplifying the ticket and check-in process. Cost and Efficiency Initiatives Management believes that maintaining a low cost structure is crucial to the Company's business strategy. TWA's airline operating cost per ASM (adjusted for subsidiaries, restructuring and earned stock contributions) increased from 8.12 Cents in 1995 to 8.76 Cents in 1996 and to 8.97 Cents in 1997. The primary contributors to these increases were increases in maintenance costs and costs associated with flight crew training which occurred primarily during the first six months of 1997. Despite these increases, management believes that TWA's operating costs remain below the average of the six largest full service carriers. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company intends to continue to pursue, among other things, route optimization, increased labor efficiencies, fleet modernization and rationalization, and investment in technological advances in order to improve operating results. During 1997, TWA realized cost efficiencies in maintenance, reflecting the elimination of TWA's maintenance backlog during the first quarter of 1997, as well as the reduced maintenance requirements for the newer aircraft already added to TWA's fleet. In addition, as described above, the Company's fleet renewal plan is expected to provide efficiencies in fuel, flight crew and training expenses, while the JFK restructuring has eliminated certain unprofitable routes and reduced certain operating costs. TWA's average number of employees per aircraft has decreased from 131.0 as of December 31, 1996 to 120.7 as of December 31, 1997, which is generally consistent with industry standards. The Company has increased to 12 the number of connecting "banks" of flights operating into its St. Louis hub to increase further the utilization of its aircraft. TWA has installed a new ticketless system and has begun to test automatic ticket machines in selected markets. In mid-1996, the Company initiated programs allowing customers to book reservations directly via on-line network systems, and during the second quarter of 1997, TWA began to provide bookings via the Internet. It is expected that distribution costs will be reduced as travelers use these on-line booking vehicles and ticketless systems. In addition, TWA is implementing a number of programs to reduce computer reservation systems booking fees, both internally and from travel agents. Such booking fees are separate transaction fees that are paid in addition to any travel agent commission. TWA will continue to explore other opportunities to reduce costs and improve efficiency in the areas of aircraft maintenance, airport operations, purchasing, distribution, ticket delivery, food service, cargo delivery operations and administrative functions. Corporate Reorganizations During the early 1990s, the U.S. airline industry, including the Company, experienced unprecedented losses, which were largely attributable to, among other things, the Persian Gulf War (which caused a substantial increase in fuel costs and reduction in travel demand due to concerns over terrorism), recessions in the United States and Europe, and significant industry-wide fare discounting resulting from another U.S. airline's attempt to introduce a new pricing structure into the domestic airline business. In addition, TWA had incurred significant debt as a result of the leveraged acquisition in 1986 of a controlling interest in the Company by Carl Icahn. The substantial losses sustained by the Company during this period, coupled with the Company's excessive debt obligations, made it necessary for TWA to restructure its debt obligations and equity, lower its labor costs and severely reduce its capital outlays. '93 Reorganization On November 3, 1993 (the "'93 Effective Date"), TWA emerged from the protection of Chapter 11 of the United States Bankruptcy Code pursuant to a bankruptcy case filed on January 31, 1992. During the pendency of the '93 Reorganization, the Company (i) negotiated, effective September 1, 1992, a series of three-year concession agreements with its unions providing for, among other things, a 15% reduction in wages and benefits and certain work-rule concessions designed to reduce costs substantially (the "'92 Labor Agreements"), (ii) obtained confirmation of a reorganization plan which eliminated more than $1.0 billion of debt and lease obligations, and (iii) reached a settlement with the Pension Benefit Guaranty Corporation (the "PBGC") with respect to the Company's underfunded pension plan obligations. During the pendency of the '93 Reorganization, the Icahn Entities (as defined) released their claims against and interests in TWA and Mr. Icahn resigned as Chairman of the Board of Directors and as an officer of TWA. The Icahn Entities also agreed to provide up to $200.0 million of financing pursuant to the Icahn Loans (as defined) (see "Management's Discussion and Analysis of Financial Condition and Results of Operations"). '95 Reorganization Notwithstanding the reduction in levels of debt and obligations achieved through the '93 Reorganization, the Company emerged from the '93 Reorganization in a too highly leveraged position and, despite progress in increasing revenues and reducing costs, continued to experience significant operating losses. With the hiring of a new management team in 1994, the assumptions underlying the Company's operating plans, upon which its ability to service its post '93 Reorganization obligations depended, were recognized as unrealistic and unachievable. As a consequence, the Company was forced to seek a second financial restructuring. 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 $91.0 million and other modifications to certain aircraft leases, and (iv) obtained an extension of the term of the approximately $190.0 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 $52.0 million through an equity rights offering; (iii) distributed certain warrants to its then current equity holders, and (iv) implemented certain amendments to the Certificate of Incorporation relating to the recapitalization and various corporate governance matters. See "Description of Capital Stock--Description of Employee Preferred Stock." In connection with and as a precondition to the '95 Reorganization, in August and September of 1994, the Company entered into the '94 Labor Agreements, amending existing collective bargaining agreements, with the IAM, ALPA and IFFA, the three labor unions who then represented approximately 84% of the Company's employees. The '94 Labor Agreements provided for an extension of certain previously agreed wage concessions, modifications to work rules and the deletion of certain provisions of the then existing labor agreements, including elimination of so-called snapbacks, i.e., the automatic restoration of wage reductions granted in such agreements at the end of their term to levels that prevailed prior to the concessionary agreement. During 1994 and 1995, the Company also implemented a number of similar cost savings initiatives with respect to domestic non-union and management employees, primarily through reducing head count, altering benefit packages, and continuing wage reductions which had been scheduled to expire. See "Business--Employees." CAPITALIZATION The following table sets forth the consolidated cash and the capitalization of the Company as of March 31, 1998. This information should be read in conjunction with the Consolidated Financial Statements appearing elsewhere in this Prospectus.
March 31, 1998 (in millions) Cash and cash equivalents(1) $ 346.1 ========== Long-term debt and capital lease obligations (net of unamortized discounts and including current maturities)(2): 11 3/8% Senior Notes due 2006........................................................................ $ 150.0 9.80% Airline Receivable Asset Backed Notes, Series 1997.............................................. 100.0 11 1/2% Senior Secured Notes due 2004................................................................. 138.4 12% Senior Secured Notes due 2002..................................................................... 43.5 8% IAM Backpay Notes.................................................................................. 13.7 PBGC Notes............................................................................................ 117.1 Various secured notes, 4.0% to 12.4%, due 1997-2001................................................... 36.7 Installment Purchase Agreements, 10.00% to 10.53%, due 2002-2003...................................... 115.3 Boeing Co. 757 Purchase Agreements, 11.85% to 12.38%, due 2015........................................ 147.9 IRS Deferral Note..................................................................................... 4.8 Predelivery Financing Agreement....................................................................... 6.4 Worldspan Note........................................................................................ 31.2 Capital lease obligations............................................................................. 211.1 ---------- Total long-term debt and capital lease obligations.................................................... 1,116.1 ---------- Shareholders' equity: Preferred Stock, $0.01 par value; 137,500,000 shares authorized: 8% Preferred Stock, 3,869,000 shares authorized; 3,869,000 shares issued and outstanding....................................................................................... -- 9 1/4% Preferred Stock, no shares authorized; no shares issued and outstanding; 1,725,000 authorized, issued and outstanding and as adjusted...................................... -- Employee Preferred Stock; 6,959,860 shares authorized; 6,020,145 shares issued and outstanding (3)................................................................................... 0.1 Common Stock, $0.01 par value; 150,000,000 shares authorized; 51,946,129 shares issued and outstanding (4)............................................................................... 0.5 Additional paid-in capital.......................................................................... 687.8 Accumulated deficit (481.3) ---------- Total shareholders' equity....................................................................... 207.1 ---------- Total capitalization............................................................................. $1,323.2 ==========
- ---------- (1) Includes cash and cash equivalents held in its international operations and by its subsidiaries which, based upon foreign monetary regulations and other factors, might not be immediately available to the Company. (2) Current maturities of long-term debt and capital lease obligations at March 31, 1998 were $49.2 million and $36.6 million, respectively. In April 1998, the Company consummated a private placement of $43.2 million aggregate principal amount of 11 3/8% Senior Secured Notes due 2003 and $31.8 million principal amount of Mandatory Convertible Equity Notes due 1999 in connection with the acquisition of three used Boeing 767-231 ETOPS aircraft. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (3) Comprised of 3,191,759 shares of the Company's IAM Preferred Stock, par value $0.01 per share, 962,892 shares of the Company's IFFA Preferred Stock, par value $0.01 per share, and 1,865,494 shares of the Company's ALPA Preferred Stock, par value $0.01 per share, distributed and allocated to employees through employee stock ownership plans for the benefit of employees represented by IAM and ALPA (collectively, the "Employee Preferred Stock"). See "Description of Capital Stock--Employee Preferred Stock." (4) Does not include (i) the number of shares of Common Stock that will be reserved as of the Issue Date for issuance upon conversion of the Equity Notes, which number shall be calculated using the closing price of the Common Stock on the American Stock Exchange, or on such other stock exchange or market system as the Common Stock is principally traded, on the Issue Date, and which number of reserved shares may be adjusted pursuant to the terms of the Equity Notes, (ii) approximately 10.9 million shares of Common Stock initially reserved for issuance upon conversion of the 1997 Preferred Stock, (iii) approximately 6.3 million shares of Common Stock reserved for issuance upon exercise of warrants issued in connection with the March 1997 offering of the Company's 50,000 Units (the "Units"), each consisting of (x) one 12% Senior Secured Note due 2002, in the principal amount of $1,000 and (y) one Redeemable Warrant to purchase 126.26 shares of Common Stock at an exercise price of approximately $7.92 per share, (iv) approximately 9.5 million shares of Common Stock reserved for issuance upon conversion of the 8% Preferred Stock, (v) approximately 3.7 million shares of Common Stock which may be issued upon exercise of outstanding stock options granted to officers and employees of the Company under the KESIP (as defined) at prices ranging from $4.64 to $18.37 per share and Common Stock issuable upon the exercise of warrants, and (vi) 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, "Risk Factors--Risk Factors Related to the Company--Corporate Governance Provisions; Special Voting Arrangements" and "Business--Employees." SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data presented below relate to periods in the years ended December 31, 1997 and 1996, the four months ended December 31, 1995, the eight months ended August 31, 1995, the year ended December 31, 1994, the two months ended December 31, 1993 and the ten months ended October 31, 1993. This data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements. The consolidated financial data for the above periods were derived from the audited consolidated financial statements of the Company. Certain amounts have been reclassified to conform with presentations adopted in 1997. During the period from 1992 through 1995, TWA underwent two separate Chapter 11 reorganizations, the first in 1992-93 and the second in 1995. In connection with the '95 Reorganization, TWA has applied fresh start reporting in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), which has resulted in the creation of a new reporting entity for accounting purposes and the Company's assets and liabilities being adjusted to reflect fair values on the '95 Effective Date. A description of the adjustments to the financial statements arising from the consummation of the '95 Reorganization and the application of fresh start reporting is contained in Note 19 to the Consolidated Financial Statements. For accounting purposes, the '95 Effective Date is deemed to be September 1, 1995. Because of the application of fresh start reporting, the financial statements for periods after the '95 Reorganization are not comparable in all respects to the financial statements for periods prior to the reorganization. Similarly, the Consolidated Financial Statements for the periods prior to the '93 Reorganization are not consistent with periods subsequent to the '93 Reorganization. Accordingly, a vertical black line separates these periods. Preferred stock dividend requirements and earnings per share of the predecessor companies have not been presented as these amounts are not meaningful.
Prior Predecessor Reorganized Company Predecessor Company Company ------------------------------------------ ------------------------------------------ ----------- Four Months Two Months Ten Months Year Ended Year Ended Ended Eights Months Year Ended Ended Ended December 31, December 31, December 31, Ended August December 31, December 31, October 31, 1997 1996 1995 31, 1995 1994 1993 1993 -------------- ------------- ------------- ------------- ------------- ------------ ------------ (Dollars in thousands, except per share amounts) Statement of Operations Data: Operating Revenues ............$ 3,327,952 $ 3,554,407 $ 1,098,474 $ 2,218,355 $ 3,407,702 $ 520,821 $ 2,633,937 Operating income (loss)(1) .... (29,260) (198,527) 10,446 14,642 (279,494) (58,251) (225,729) Loss before income taxes and extraordinary items(2) ...... (89,335) (274,577) (32,268) (338,309) (432,869) (88,140) (362,620) Provision (credit) for income taxes ....................... 527 450 1,370 (96) 960 (248) 1,312 Loss before extraordinary items........................ (89,862) (275,027) (33,638) (338,213) (433,829) (87,892) (363,932) Extraordinary items, net of income taxes(3) ............. (20,973) (9,788) 3,500 140,898 (2,005) -- 1,075,581 Net income (loss) ............. (110,835) (284,815) (30,138) (197,315) (435,834) (87,892) 711,649 Per share amounts(4): Loss before extraordinary items .....................$ (1.98) $ (6.60) $ (1.15) Net loss .................... (2.37) (7.27) (1.05)
Predecessor Company Reorganized Company -------------------------------------------- ------------------------------ December 31, 1997 1996 1995 1994 1993 ----------- ----------- ----------- ------------ ------------ Selected Balance Sheet Data: Cash and cash equivalents(5).............. $ 237,765 $ 181,586 $ 304,340 $ 138,531 $ 187,717 Current assets............................ 632,957 625,745 737,301 603,806 728,303 Net working capital (deficiency).......... (303,988) (336,416) (81,913) (1,238,216) (106,703) Flight equipment, net..................... 626,382 472,495 455,434 508,625 660,797 Total property and equipment, net......... 741,765 614,207 600,066 693,045 886,116 Intangible assets, net.................... 1,118,864 1,184,786 1,275,995 921,659 1,024,846 Total assets.............................. 2,773,848 2,681,939 2,868,211 2,512,435 2,958,862 Current maturities of long-term debt and capital leases(6)....................... 88,460 134,948 110,401 1,149,739 108,345 Long-term debt, less current maturities(6)........................... 736,540 608,485 764,031 -- 1,053,644 Long-term obligations under capital leases, less current maturities......... 182,922 220,790 259,630 339,895 376,646 Shareholders' equity (deficiency)(7)...... 268,284 238,105 302,855 (417,476) 18,358
- ---------- (1) Includes special charges of $85.9 million in 1996, $1.7 million in the eight months ended August 31, 1995 and $138.8 million in 1994. For a discussion of these and other non-recurring items, see Note 16 to the Consolidated Financial Statements. (2) The eight months ended August 31, 1995 includes charges of $242.2 million related to reorganization items. The ten months ended October 31, 1993 includes a charge of $342.4 million related to the settlement of pension obligations and income of $268.1 million related to reorganization items. (3) The extraordinary items in 1997 and 1996 are the result of the early extinguishment of certain debt. The extraordinary item in the four months ended December 31, 1995 was the result of the settlement of a debt of a subsidiary, while the extraordinary item in the eight months ended August 31, 1995 represents the gain on the discharge of indebtedness pursuant to the consummation of the '95 Reorganization. The extraordinary item in 1994 represents the charge for a prepayment premium related to the sale and lease back of four McDonnell Douglas MD-80 aircraft. The extraordinary item in 1993 represents the gain on discharge of indebtedness pursuant to the consummation of the '93 Reorganization. (4) No effect has been given to stock options, warrants, convertible preferred stock or potential issuances of additional Employee Preferred Stock as the impact would have been anti-dilutive. (5) Includes cash and cash equivalents held in international operations and by subsidiaries which, based upon foreign monetary regulations and other factors, might not be immediately available to the Company. (6) Long-term debt in 1994 was reclassified to current maturities as a result of certain alleged defaults and payment defaults. (7) No dividends were paid on the Company's outstanding common stock during the periods presented above. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In late 1996, the Company began implementing certain strategic initiatives in response to a significant deterioration in the Company's operating performance and financial condition during the second half of 1996. This deterioration was primarily caused by: (i) an overly aggressive expansion of TWA's capacity and planned flight schedule, particularly during the 1996 summer season, which forced the Company to rely disproportionately on lower-yield feed traffic and bulk ticket sales to fill the increased capacity of its system; (ii) the delayed delivery of four older 747s intended to increase capacity for incremental international operations during the summer of 1996; and (iii) unexpected maintenance delays due to the capacity increase, higher levels of scheduled narrow-body heavy maintenance and increased contract maintenance performed for third parties. These factors caused excessive levels of flight cancellations, poor on-time performance, increased pilot training costs and higher maintenance expenditures and adversely affected the Company's yields and unit costs. In addition, the crash of TWA Flight 800 on July 17, 1996 distracted management's attention from core operating issues and led to lost bookings and revenues. The Company also experienced a 27.6% increase in fuel costs in 1996 versus 1995, primarily due to a 22.3% increase in the average fuel price paid per gallon during the year. The primary focus of the Company's new strategic initiatives was to reestablish TWA's operational reliability, schedule integrity and overall product quality in order to attract higher-yield passengers and improve its financial results. As the initial steps in implementing this strategy, the Company temporarily reduced its flight schedule during the first quarter of 1997 to more closely match aircraft available for active service and worked to reduce the number of aircraft in maintenance backlog by increasing overtime and utilizing maintenance capacity made available by the termination of an unprofitable aircraft maintenance contract with the U.S. government. The other key initiatives which TWA began implementing in late 1996 included: (i) acceleration of the Company's fleet renewal plan; (ii) a restructuring of TWA's operations at JFK; (iii) a focus on improving productivity; (iv) implementation of a series of revenue-enhancing marketing initiatives; and (v) implementation of a number of employee-related initiatives to reinforce the Company's focus on operational performance. General The airline industry operates in an intensely competitive environment. The industry is also cyclical due to, among other things, a close relationship of yields and traffic to general U.S. and worldwide economic conditions. Small fluctuations in RASM and cost per ASM can have a significant impact on the Company's financial results. The Company has experienced significant losses (excluding extraordinary items) on an annual basis since the early 1990s, except in 1995 when the Company's combined operating profit was $25.1 million. The airline industry has consolidated in recent years as a result of mergers, alliances, liquidations, and further consolidation may occur in the future. This consolidation has, among other things, enabled certain of the Company's major competitors to expand their international operations and increase their domestic market presence. The emergence and growth of low cost, low fare carriers in domestic markets represents an intense competitive challenge for the Company, which has higher operating costs than many of such low fare carriers and fewer financial resources than many of its major competitors. In many cases, such low cost carriers have initiated or triggered price discounting. The '94 Labor Agreements became amendable after August 31, 1997. Negotiations on a new collective bargaining agreement with the IAM with regard to the flight attendants commenced in July 1997 and are currently ongoing, and negotiations regarding the Company's ground employees represented by the IAM commenced in February 1997 and are currently ongoing. At the request of the IAM, a mediator was appointed on August 6, 1997 in connection with the negotiations on the collective bargaining agreement covering the ground employees. On March 27, 1998, at the request of the IAM, a mediator was appointed in connection with the negotiations on the collective bargaining agreement covering the flight attendants. Negotiations on a new collective bargaining agreement with ALPA commenced in June 1997 and are also currently ongoing. While wage rates currently in effect will likely increase, management believes that it is essential that the Company's labor costs remain favorable in comparison to its largest competitors. See "The Company--Business Strategy." The Company will seek to continue to improve employee productivity as an offset to any wage increases and will continue to explore other ways to control and/or reduce operating expenses. There can be no assurance that the Company will be successful in obtaining such productivity improvements or unit cost reductions. In the opinion of management, the Company's financial resources are not as great as those of most of its competitors, and therefore, any substantial increase in its labor costs as a result of any new labor agreements or any cessation or disruption of operations due to any strike or work action could be particularly damaging to the Company. There are a number of uncertainties relating to agreements with employees, the resolution of which could result in significant non-cash charges to future operating results of the Company. Shares granted or purchased at a discount under the ESIP will generally result in a charge equal to the fair value of shares granted plus the discount for shares purchased at the time when such shares are earned. If the ESIP's target prices for the Common Stock are realized, the minimum aggregate charge for the years 1997 to 2002 (the 1997 and 1998 target prices having been met) would be approximately $108.8 million based upon such target prices and the number of shares of Common Stock and Employee Preferred Stock outstanding at January 30, 1998. The charge for any year, however, could be substantially higher if the then market price of the Common Stock exceeds certain target prices. On February 17, 1998, the first target price of $11.00 was realized and a grant of 2% of the outstanding Common Stock and Employee Preferred Stock will be made on July 15, 1998. Based on the current number of outstanding shares of Common Stock and Employee Preferred Stock and taking into account a credit with respect to the Company's required contribution, the net contribution will be 1,109,722 shares and the related non-cash charge recorded in the first quarter of 1998 was approximately $12.3 million. In addition, on March 4, 1998 the market price of the Company's Common Stock exceeded the $12.10 target price for the 30-day period necessary to earn the 1998 grant. As a result, on July 15, 1998 the Company will be required to make an additional contribution to the relevant employee trusts of 1.5% of its Common Stock and Employee Preferred Stock. Based on the current number of outstanding shares of Common Stock and Employee Preferred Stock, that contribution would be 1,172,354 shares. As a result of the grants earned in 1998, the Company expects to issue a combined total of 2,282,076 shares of Common Stock and Employee Preferred Stock on July 15, 1998 and the aggregate non-cash charge in connection with such issuance was recorded in the first quarter of 1998 in the amount of $26.5 million. See "Business--Employees." Pursuant to the '92 Labor Agreements, the Company agreed to pay to employees represented by the IAM a cash bonus for the amount by which overtime incurred by the IAM from September 1992 through August 1995 was reduced below specified thresholds. This amount was to be offset by the amount by which medical savings during the period for the same employees did not meet certain specified levels of savings. The obligation is payable in three equal annual installments beginning in 1998. The Company has estimated the net overtime bonus owed to the IAM to be approximately $26.3 million and has reflected this amount as a noncurrent liability in the Consolidated Financial Statements. Such amount reflects a reduction of approximately $10.0 million pursuant to an agreement to reduce proportionately the obligation based upon the size of the reduction of indebtedness achieved by the '95 Reorganization. The IAM, while not providing a calculation of its own, has disputed the method by which management has computed the net overtime bonus and has indicated that it believes the amount due to the IAM is much greater than the amount which has been estimated by management. TWA also entered into an agreement which provides for an adjustment to existing salary rates of labor-represented employees based on the amount of the cash bonus for overtime ultimately paid to the employees represented by the IAM as described in this paragraph. The exact amount of such adjustment is not capable of being determined until the amount of the IAM bonus payment is finally determined. In addition, in connection with certain wage scale adjustments afforded to non-contract employees, employees previously represented by the IFFA have asserted and won an arbitration ruling with respect to the comparability of wage concessions made in 1994 that, if sustained, would require that the Company provide additional compensation to such employees. The Company estimates that at December 31, 1997 such additional compensation that would be payable pursuant to the arbitration ruling would be approximately $12.0 million. The Company denies any such obligation and is pursuing an appeal of the arbitration ruling and a court award affirming the ruling. Effective September 1, 1997, the Company also reduced the overall compensation and benefits package for non-contract employees so as to offset, in the Company's view, any claims by such employees previously represented by IFFA for any retroactive or prospective wage increases. As such, no liability has been recorded by the Company. In connection with the '95 Reorganization, the Company entered into a letter agreement with employees represented by ALPA whereby if the Company's flight schedule, as measured by block hours, does not exceed certain thresholds, a defined cash payment would be made to ALPA. The defined thresholds were exceeded during the measurement periods through December 31, 1996 and no amount was therefore owed to ALPA as of that date. A payment of approximately $2.6 million was due under the agreement on August 14, 1997 for the period January through June 1997. The Company made this payment in January 1998. Management estimates that its aggregate obligation for 1997 is approximately $9.5 million. See Notes 7 and 12 to the Consolidated Financial Statements. For a description of certain additional employee related uncertainties, see "Risk Factors--Risk Factors Related to the Company--Certain Potential Future Earnings Charges." TWA has historically experienced significant variations in quarterly and annual operating revenues and operating expenses and expects such variations to continue. Due to the greater demand for air travel during the summer months, airline industry revenues for the third quarter of the year are generally significantly greater than revenues in the first and fourth quarters of the year and moderately greater than revenues in the second quarter of the year. In the past, given the Company's historical dependence on summer leisure travel, TWA's results of operations have been particularly sensitive to such seasonality. While the Company, through an acceleration of its fleet renewal program and restructuring of its JFK operations, anticipates that the deseasonalization of operations affected thereby will reduce quarter to quarter fluctuations in the future, there can be no assurance that such deseasonalization will occur. The Company's results of operations have also been impacted by numerous other factors that are not necessarily seasonal. Among the uncertainties that might adversely impact TWA's future results of operations are: (i) competitive pricing and scheduling initiatives; (ii) the availability and cost of capital; (iii) increases in fuel and other operating costs; (iv) insufficient levels of air passenger traffic resulting from, among other things, war, threat of war, terrorism or changes in the economy; (v) governmental limitations on the ability of TWA to service certain airports and/or foreign markets; (vi) regulatory requirements necessitating additional capital expenditures; (vii) the outcome of certain ongoing labor negotiations; and (viii) the reduction in yield due to the continued implementation, of a discount ticket program entered into by the Company with Karabu in connection with the '95 Reorganization on the terms currently sought to be applied by Karabu, which terms are, in the opinion of the Company, inconsistent with and in violation of, the agreement governing such program. See "-- Liquidity and Capital Resources" and "Business--Legal Proceedings--Icahn Litigation." The Company is unable to predict the potential impact of any of such uncertainties upon its future results of operations. On July 17, 1996, TWA Flight 800 crashed shortly after departure from JFK en route to Paris, France. There were no survivors among the 230 passengers and crew members aboard the Boeing 747 aircraft. The Company is cooperating fully with all federal, state and local regulatory and investigatory agencies to ascertain the cause of the crash, which to date has not been determined. The National Transportation Safety Board held hearings relating to the crash in December of 1997 and is continuing its investigation. While TWA is currently a defendant in a number of lawsuits relating to the crash, it is unable to predict the amount of claims which may ultimately be made against the Company or how those claims might be resolved. TWA maintains substantial insurance coverage and, at this time, management has no reason to believe that such insurance coverage will not be sufficient to cover the claims arising from the crash. Therefore, TWA believes that the resolution of such claims will not have a material adverse effect on its financial condition or results of operations. The Company is unable to identify or predict the extent of any adverse effect on its revenues, yields or results of operations which has resulted or may result from the public perception of the crash or from any future findings by the National Transportation Safety Board. See "Business--Legal Proceedings." Following the crash of TWA Flight 800 in July 1996, the FAA implemented new security measures primarily impacting international operations. The Company does not believe that these measures have had any material effect on its revenues or operating costs to date. Additionally, a special committee appointed by the President to review aviation safety and airport security issued its final report on February 12, 1997. The report contains several recommendations. However, the Company is unable to predict which recommendations will be adopted or their impact on the Company's future operating results. Additional government mandated security measures could have a direct adverse impact on the Company's operating costs to the extent any such costs are directly assessed to commercial airlines or, if funded through new taxes or user fees, could indirectly have an adverse impact on the Company's future operating results in the event that the Company is not able to fully pass on those charges in the form of ticket price increases. Management believes that the Company benefitted from the expiration on December 31, 1995 of the Ticket Tax, which imposed certain taxes including a 10% air passenger tax on tickets for domestic flights, a 6.25% air cargo tax and a $6 per person international departure tax. The Ticket Tax was reinstated on August 27, 1996 and expired again on December 31, 1996. At the end of February 1997, the Ticket Tax was reinstated effective March 7, 1997 through September 30, 1997. Congress recently passed tax legislation reimposing and significantly modifying the Ticket Tax, effective October 1, 1997. The legislation includes the imposition of new excise tax and significant fee tax formulas over a multiple year period, an increase in the international departure tax, the imposition of a new arrivals tax, and the extension of the Ticket Tax to cover items such as the sale of frequent flier miles. Management believes that the imposition and modification of the Ticket Tax have a negative impact on the Company, although neither the amount of such negative impact nor the benefit previously realized by its expiration can be precisely determined. However, management believes that the recent tax legislation and any other increases of the Ticket Tax will result in higher costs to the Company and/or, if passed on to consumers in the form of increased ticket prices, might have an adverse effect on passenger traffic, revenue and/or margins. See "Business--Regulatory Matters." During the period from 1992 through 1995, TWA underwent two separate Chapter 11 reorganizations, the first in 1992-93 and the second in 1995. In connection with the '95 Reorganization, TWA has applied fresh start reporting in accordance with SOP 90-7 which has resulted in the creation of a new reporting entity for accounting purposes and the Company's assets and liabilities being adjusted to reflect fair values on the '95 Effective Date. A description of the adjustments to financial statements arising from consummation of the '95 Reorganization and the application of fresh start reporting is contained in Note 19 to the Consolidated Financial Statements. For accounting purposes, the '95 Effective Date is deemed to be September 1, 1995. Because of the application of fresh start reporting, the financial statements for periods after the '95 Reorganization are not comparable in all respects to the financial statements for periods prior to the reorganization. Similarly, the Consolidated Financial Statements for the periods prior to the '93 Reorganization are not consistent with periods subsequent to the '93 Reorganization. As a result of the application of fresh start reporting as of the '95 Effective Date, substantial values were assigned to routes, gates and slots ($458.4 million) and reorganization value in excess of amounts allocable to identifiable assets ($839.1 million). The Company has evaluated its future cash flows and, notwithstanding the operating loss experienced since the '95 Effective Date, expects that the carrying value of the intangibles at December 31, 1996 will be recovered. However, the achievement of such improved future operating results and cash flows are subject to considerable uncertainties. In future periods these intangibles will be evaluated for recoverability based upon estimated future cash flows. If expectations are not substantially achieved, charges to future operations for impairment of those assets may be required and such charges could be material. The Company's ability to improve its financial position and meet its financial obligations will depend upon a variety of factors, including: significantly improved operating results, favorable domestic and international airfare pricing environments, absence of adverse general economic conditions, more effective operating cost controls and efficiencies, and the Company's ability to attract new capital and maintain adequate liquidity. No assurance can be given that the Company will be successful in generating the operating results or attracting new capital required for future viability. Results of Operations TWA's passenger traffic data, for scheduled passengers only and excluding Trans World Express, Inc. ("TWE") a wholly-owned subsidiary of the Company that provided a commuter feed service to the Company's New York hub prior to November, 1995, are shown in the table below for the indicated periods (1):
1997 1996 1995 --------------- --------------- --------------- North America Passenger revenues ($ millions)....................... $ 2,512 $ 2,515 $ 2,292 Revenue passenger miles (millions)(2)................. 19,737 19,513 17,902 Available seat miles (millions)(3).................... 29,341 30,201 28,194 Passenger load factor(4).............................. 67.3% 64.6% 63.5% Passenger yield (cents)(5)............................ 12.73 Cents 12.89 Cents 12.80 Cents Passenger revenue per available seat mile (cents)(6).. 8.56 Cents 8.33 Cents 8.13 Cents International Passenger revenues ($ millions)....................... $ 412 $ 563 $ 544 Revenue passenger miles (millions)(2)................. 5,363 7,598 7,000 Available seat miles (millions)(3).................... 7,123 10,393 9,719 Passenger load factor(4).............................. 75.3% 73.1% 72.1% Passenger yield (cents)(5)............................ 7.68 Cents 7.41 Cents 7.78 Cents Passenger revenue per available seat mile (cents)(6).. 5.78 Cents 5.42 Cents 5.60 Cents Total System Passenger revenues ($ millions)....................... $ 2,924 $ 3,078 $ 2,836 Revenue passenger miles (millions)(2)................. 25,100 27,111 24,902 Available seat miles (millions)(3).................... 36,464 40,594 37,905 Passenger load factor(4).............................. 68.8% 66.8% 65.7% Passenger yield (cents)(5)............................ 11.65 Cents 11.35 Cents 11.39 Cents Passenger revenue per available seat mile (cents)(6).. 8.02 Cents 7.58 Cents 7.48 Cents Operating cost per available seat mile (cents)(7)..... 8.97 Cents 8.76 Cents 8.12 Cents Average daily utilization per aircraft (hours)(8)..... 9.38 9.63 9.45 Aircraft in fleet being operated at end of period..... 185 192 188
- ---------- (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 divided by scheduled available seat miles. (7) Operating expenses, excluding special charges, earned stock compensation, other nonrecurring charges and subsidiaries, divided by total available seat miles. (8) The average block hours flown per day in revenue service per aircraft. Results of Operations for the Fiscal Year Ended December 31, 1997 Compared to the Fiscal Year Ended December 31, 1996 Total operating revenues of $3,328.0 million for 1997 were $226.4 million or 6.4% less than the total operating revenues of $3,554.4 million for the year ended December 31, 1996. The decrease was primarily reflected in TWA passenger revenues, which were $153.9 million less than in 1996, resulting from the elimination of certain unprofitable international destinations and the planned reduction in capacity as the Company replaced older L-1011 and B-747 aircraft with new B-757, B-767 and MD-80 aircraft on many routes. Additionally, revenues from contract work decreased $41.8 million primarily due to the termination of an unprofitable aircraft maintenance contract with the U.S. government and overall reduction in other third party maintenance as the Company focused its resources on maintenance of its own aircraft. Revenue from freight and mail also decreased $26.3 million as a result of the reduction in capacity. As a result of the Company's planned retirement of older widebody aircraft and elimination of unprofitable services, capacity and traffic decreased in 1997 as compared to 1996. System-wide capacity, measured in ASMs, decreased by 10.2% in 1997 as compared to 1996 (reflecting a 2.8% decrease in domestic ASMs and a 31.5% decrease in international ASMs). Passenger traffic volume, as measured by total RPMs in scheduled service, decreased 7.4% in 1997 over 1996. Passenger load factor for 1997 was 68.8% compared to 66.8% in 1996. TWA's yield per passenger mile increased from 11.35 cents in 1996 to 11.65 cents in 1997. Reflecting the Company's efforts to improve productivity and reduce operating costs, operating expenses declined to $3,357.2 million in 1997, $395.7 million (10.5%) lower than the total operating expenses of $3,752.9 million for the year ended December 31, 1996, representing a net change in the following expense groups: Salaries, wages and benefits of $1,224.1 million for 1997 were $30.2 million (2.4%) less than 1996, primarily due to a decrease in the average number of employees. The average number of employees declined 3.5% to 23,413 in 1997 as compared to 24,254 in 1996. A reduction of the number of employees occurred in several areas, particularly those impacted by the reduction in flying or maintenance of older narrow and widebody aircraft. Earned stock compensation charges of $4.2 million for 1997 and $9.1 million for 1996 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. For a further discussion of future charges related to non-cash compensation, see Note 12 to the Consolidated Financial Statements. Aircraft fuel and oil expense of $480.9 million for 1997 was $104.3 million (17.8%) less than expenses of $585.2 million for the year ended December 31, 1996. The decrease in expenses is primarily due to decreases in the price of fuel ($28.2 million) and in gallons consumed ($76.1 million). Passenger sales commission expense of $242.1 million for 1997 was $26.0 million (9.7%) less than the expense of $268.1 million in 1996 primarily related to the $153.9 million decrease in TWA passenger revenues. Other factors contributing to the decrease were a reduction in commission rates in October 1997 and a decrease in the percentage of commissionable sales resulting in decreases in commission expense of $7.1 million and $3.2 million, respectively. Aircraft maintenance materials and repairs expense of $138.4 million in 1997 represented a decrease of $69.8 million (33.5%) from $208.2 million for 1996. The decrease was primarily the result of higher levels of scheduled maintenance in 1996, including heavy maintenance, a 3.0% decrease in flying hours in 1997 versus 1996, addition of new aircraft and retirement of old aircraft from TWA's fleet, and a decrease in contract repair work performed by the Company for other air carriers and third parties. The average age of TWA's operating fleet decreased from 19.0 years at December 31, 1996 to 16.9 years at December 31, 1997. Depreciation and amortization expense decreased $11.4 million from $161.8 million in 1996 to $150.4 million in 1997 primarily represented by decreases in the provision for obsolescence ($7.0 million), depreciation of aircraft ($3.0 million) and amortization of intangible assets ($1.2 million). The decrease in obsolescence was significantly related to the retirement of L-1011 and B-747 aircraft fleets and its replacement with newer aircraft fleets. The decrease in aircraft depreciation was related to B-727-200, B-747 and L-1011 fleets becoming fully depreciated partially offset by increased depreciation on B-757, B-767 and DC9-30 fleets related to new aircraft acquisitions and aircraft modifications on the DC9-30 aircraft associated with noise compliance and aging aircraft. The decrease in amortization of intangible assets was related to the 1996 write-off of the carrying value of TWA's New York to Athens route authority as a result of TWA's decision to discontinue unprofitable service to Athens and the sale of three gates at Newark International Airport in early 1997. Operating lease rentals of $370.8 million for 1997 were $67.8 million (22.4%) more than the total rentals of $303.0 million for 1996. The increase was primarily due to an increase in the average number of aircraft under operating leases from 123 in 1996 to 137 in 1997 and higher lease rates attributed to the introduction of newer aircraft into the fleet. Passenger food and beverage expense of $83.2 million in 1997 represented a decrease of $26.9 million (24.4%) from $110.1 million for the twelve months of 1996. The decrease was primarily due to a 29.7% reduction in the number of passengers boarded on international flights resulting from the 31.5% reduction in international scheduled ASMs together with savings derived from changes and improved efficiencies in food and beverage service. 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-off of the carrying value of TWA's New York-Athens route authority ($26.7 million) and international employee severance liabilities ($5.5 million) related to the termination of service to Athens and Frankfurt. The 1996 special charges also include a reduction in carrying value of TWA's owned L-1011 and B-747 fleets ($32.2 million) and the related inventories ($21.5 million). These charges were based upon management's estimate of the amounts to be realized upon the disposition of these assets when they are removed from service. Actual amounts could materially differ from such estimates. See Note 16 to the Consolidated Financial Statements for a further discussion of these special charges. All other operating expenses decreased $104.1 million (13.6%) to $663.1 million in 1997 from $767.2 million during the year ended December 31, 1996. Decreases were noted in the cost of services sold ($19.3 million), cost of services purchased ($23.0 million), advertising and publicity ($17.8 million), navigation charges ($9.4 million), landing fees ($6.4 million), subsidiary expenses ($7.4 million), uncollectible accounts ($5.6 million), taxes-other than income ($5.4 million) and numerous other miscellaneous categories. These decreases were primarily related to TWA's planned reductions in capacity (10.2% reduction in system scheduled ASMs) and maintenance performed for third parties. Other charges (credits) were a net charge of $60.1 million for 1997 as compared to $76.1 million for 1996. Interest expense decreased $12.8 million in 1997 over 1996 as a result of the reduction of debt arising from the '95 Restructuring and additional reductions of debt during 1997 and 1996. Interest income decreased by $8.8 million in 1997 primarily as a result of lower levels of invested funds. Dispositions of assets resulted in a net gain of $16.0 million in 1997, compared to a net loss of $1.1 million in 1996. The net gain in 1997 included $7.4 million from the sale of three gates at Newark International Airport and $8.6 million from the sale of aircraft, engines and other property. Other charges and credits-net were unfavorable by $5.2 million in 1997 compared to 1996, primarily due to a $1.2 million decline in foreign currency translation adjustments, a $1.7 million decrease in vendor discounts and a $2.5 million credit in 1996 to reflect a litigation settlement. The provision for income taxes in 1997 and 1996 related primarily to foreign taxes. In future periods, the amortization of reorganization value in excess of amounts allocable to identifiable assets and certain other non-deductible items will likely result in the Company's effective tax rate for financial reporting purposes exceeding statutory rates, notwithstanding the Company's substantial net operating loss carryforwards. See Note 5 to the Consolidated Financial Statements. As a result of the above, the operating loss of $29.3 million for 1997 was $169.2 million less than the operating loss of $198.5 million for 1996. The net loss of $110.8 million for 1997 was $174.0 million less than the net loss of $284.8 million for 1996. The operating and net losses for 1996 included special charges for nonrecurring items of $85.9 million as further described in Note 16 to the Consolidated Financial Statements. The 1996 net loss also included $9.8 million in extraordinary charges related to the early extinguishment of debt while the 1997 net loss included $21.0 million of such charges. 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 In the following discussion, the results of operations for the fiscal year ended December 31, 1996 is compared to the combined results of the four months ended December 31, 1995 and eight months ended August 31, 1995 (twelve months ended December 31, 1995) unless specified otherwise. 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 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 Trans World Express 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 productivity levels. The Company had an average of 24,254 employees in 1996 as compared to 22,927 in 1995. Earned stock compensation charges of $9.1 million for 1996 and $58.0 million for 1995 represent primarily the non-cash compensation charge recorded to reflect the expense associated with the distribution of shares of stock on behalf of employees as part of the '95 Reorganization. Aircraft fuel and oil expense of $585.2 million for 1996 was $126.6 million (27.6%) over the total expenses 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 fuel taxes of 4.3 cents per gallon, which impacted 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 expenses 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-off of the carrying value of TWA's New York-Athens route authority ($26.7 million), international employee severance liabilities ($5.5 million) related to the termination of service to Athens and Frankfurt, and a reduction in carrying value of TWA's owned L-1011 and B-747 fleets ($32.2 million) and the related inventories ($21.5 million), reflecting planned retirement of such aircraft. See Note 16 to the Consolidated Financial Statements for a further discussion of these special charges. Special charges of $1.7 million were recorded in the third quarter of 1995 related to the shutdown of TWE. All other operating expenses of $767.2 million in 1996 represented an increase of $79.6 million (11.6%) from $687.6 million for the year ended December 31, 1995. An increase in flight cancellations during 1996 resulted in increased CRS fees related thereto ($19.4 million) and interrupted trip expenses ($3.7 million). In addition, expenses relating to maintenance services provided under a contract with the military increased approximately $21.6 million in 1996 compared to 1995. The Company also experienced a significant increase in professional/technical fees ($18.7 million) which was primarily due to the use of contract programmers for ongoing development of new systems and external consultants' fees for re-engineering. Other charges (credits) were a net charge of $76.1 million for 1996 as compared to $42.7 million and $353.0 million in the four month and the eight month periods of 1995, respectively (included in the eight month period is a charge of $242.3 million for reorganization items in connection with the application of fresh start reporting pursuant to the '95 Reorganization). Interest expense decreased $42.3 million in 1996 over 1995 as a result of the reduction of debt arising from the '95 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 million 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. Liquidity and Capital Resources The following is a discussion of the impact of significant factors affecting TWA's liquidity position and capital resources. These comments should be read in conjunction with, and are qualified in their entirety by, the Consolidated Financial Statements and Notes thereto. Liquidity The Company's consolidated cash and cash equivalents balance at December 31, 1997 was $237.8 million, a $56.2 million increase from the December 31, 1996 balance of $181.6 million. This increase in the Company's cash balances resulted primarily from the issuance of long-term debt and sale of preferred stock as described below. Although the Company's operational performance substantially improved during the second, third and fourth quarters of 1997, the residual effects of difficulties experienced in 1996 continued throughout the first two quarters of 1997 and, to a lesser extent, during the third quarter of 1997. However, the Company has taken various initiatives designed to improve the Company's financial performance. As a result, the Company's financial performance for the final six months of 1997 was better than its performance in the final six months of 1996. In February 1997, in order to improve its liquidity, the Company entered into an agreement with and received approximately $26 million from certain St. Louis business enterprises, representing the advance payment for tickets for future travel by such enterprises. In March 1997, the Company raised approximately $47.2 million in net proceeds from the issuance of 50,000 Units, with each Unit consisting of (i) one 12% Senior Secured Note due 2002, in the principal amount of $1,000, and (ii) one Redeemable Warrant to purchase 126.26 shares of Common Stock at an exercise price of approximately $7.92 per share. In December 1997, the Company raised net proceeds of $82.2 million from the sale of the 9(1)/(4)% Preferred Stock, net proceeds of $133.5 million from the sale of the 11(1)/(2)% Notes, a portion of the proceeds of which was used to repay the 12% Reset Notes, and net proceeds of $97.0 million from the sale of the Receivables Securitization Notes, a portion of the proceeds of which was used to repay the outstanding balance of the Icahn Loans. The net increase in cash and cash equivalents during 1997 was due, in large part, to cash provided by financing activities of $112.2 million in 1997 versus cash used by financing activities of $9.7 million in 1996. Sources of cash generated by financing activities related primarily to proceeds from long-term debt, warrants and preferred stock sold of $359.9 million in 1997 versus $188.9 million in 1996. These proceeds were partially offset by the repayment of long-term debt and capital lease obligations of $257.8 million in 1997 versus $117.2 million in 1996, and the 1996 redemption of 12% preferred stock in the amount of $81.7 million. Cash provided by operating activities improved to $0.2 million in 1997 from cash used by operating activities of $5.7 million in 1996. This favorable change reflects a reduction in the net loss from $284.8 million in 1996 to $110.8 million in 1997. Additionally, as an offset, net discounted sales from tickets sold under the Karabu Ticket Agreement are excluded from cash provided by operating activities as the related amounts are applied as a reduction of the Icahn Loans and PBGC Notes. During 1997, $53.8 million of such proceeds had been applied as a reduction to the principal balance of the Icahn Loans and $70.3 had been applied as a reduction to the PBGC Notes. During 1996, the proceeds applied as reductions to the Icahn Loans and the PBGC Notes were $62.9 million and $6.4 million, respectively. Additionally, $42.5 million in cash was generated from an increase in accounts payable and accrued expenses, primarily due to the timing of payments of certain obligations, and $65.3 million in cash was generated from a decrease in receivables, offset by a related reduction of $41.3 million in advanced ticket sales. Cash used by investing activities decreased to $56.3 million in 1997 from $107.4 million in 1996. Components of this decrease include a decrease in capital expenditures (including aircraft pre-delivery payments) to $74.0 million in 1997 from $121.5 million in 1996, an increase in proceeds from the sale of assets to $22.8 million in 1997 versus $3.2 million in 1996 and the return of $5.6 million in pre-delivery deposits related to a new B-757 aircraft which was purchased by a lessor and simultaneously leased back to TWA. Gross proceeds from assets sold during 1997 included $10.0 million for three gates at Newark International Airport and $12.8 million from the sale of aircraft, engines and other surplus property and equipment. The net decrease in cash and cash equivalents during 1996 as compared to 1995 was due, in large part, to the fact that cash used in operating activities in 1996 was $5.7 million as compared to 1995 when cash provided by operating activities was $216.9 million. The adverse change was primarily attributable to the decrease in 1996 operating income as compared with 1995. Additionally, as discussed above, net discounted sales from tickets sold under the Karabu Ticket Agreement are excluded from cash provided by operating activities as the related amounts were applied as a $62.9 million reduction of the Icahn Loans and a $6.4 million reduction of the PBGC Notes. At December 31, 1995 approximately $2.0 million of such proceeds had been applied to the principal balance of the Icahn Loans, while no proceeds had been applied to the PBGC Notes. The increase of $79.5 million in trade accounts payable during 1996 was primarily due to the Company utilizing a safe harbor provision with regard to payment of U.S. transportation taxes of $60 million for the period September through December 1996, a significant portion of which was paid in February 1997. Cash used in investing activities increased $84.1 million from $23.3 million in 1995 to $107.4 million in 1996. A large part of this increase was related to capital expenditures ($121.5 million in 1996 versus $59.5 million in 1995) which had been somewhat restricted by fiscal controls in place during most of 1995. Financing activities used $9.7 million of cash in 1996, compared with a net use of cash of $27.8 million in 1995. Proceeds from long-term debt issued and sale and leaseback transactions decreased from $22.1 million in 1995 to $16.6 million in 1996. Repayments of long-term debt and capital leases required $15.4 million more cash in 1996 than in 1995. In 1996, net proceeds from the sale of 8% Preferred Stock were $186.2 million while the early redemption of the Mandatorily Redeemable 12% Preferred Stock and cash dividends required $81.7 million and $14.5 million, respectively. In 1995, the net proceeds from an equity rights offering generated $51.9 million. In March 1998, the Company completed the sale of $150.0 million in 11 3/8% Senior Notes due 2006 resulting in net proceeds to the Company of $144.9 million. The Company intends to use the net proceeds for certain capital expenditures, including pre-delivery deposits on new aircraft acquisitions, and for working capital and other general corporate purposes. In late 1996, the Company began implementing a series of new strategic initiatives designed to improve the Company's financial and operating results. The achievement of these improved operating results is subject to significant uncertainties, including the Company's ability to achieve higher revenue yields and load factors, the cost of aircraft fuel, the Company's ability to finance or lease suitable replacement aircraft at reasonable rates and the containment of operating costs. No assurance can be given that any of the initiatives already implemented or any new initiatives, if implemented, will be successful, or if successful, that such initiatives will produce sufficient results for the Company to be successful in generating the operating revenues and cash required for profitable operations or future viability. Pursuant to the '95 Reorganization, the Company issued 600,000 ticket vouchers, each with a face value of $50.00, which may be used for up to a 50% discount off the cost of a TWA airline ticket for transportation on TWA ("Ticket Vouchers"). Pursuant to certain agreements, the Company repurchased approximately 236,000 of the Ticket Vouchers at an aggregate cost of $8.8 million. Payments in respect of these Ticket Vouchers were approximately $0.7 million in 1995 and approximately $8.1 million in 1996. Concurrently, the Company undertook aircraft lease payment deferrals to increase liquidity and improve the Company's financial condition. Gross deferrals of lease and conditional sale indebtedness payments aggregated approximately $91.0 million with a weighted average repayment period of approximately two years. The aircraft lease payment deferrals contemplated by the '95 Reorganization generally anticipated six month deferrals with various payback periods, extending in some instances over the remaining life of the lease, and in other cases over a specified period. Cash repayments of lease deferrals, including interest, were approximately $9.5 million in the fourth quarter of 1995, $23.8 million in 1996, $9.1 million in 1997 and are expected to approximate $0.5 million in 1998. On June 14, 1995, the Company signed an agreement (the "Extension and Consent Agreement") with Karabu to extend the term of the Icahn Loans from January 8, 1995 to January 8, 2001 and to obtain the consent of Karabu and the Icahn Entities to certain modifications to the PBGC Notes. Collateral for the Icahn Loans included a number of aircraft, engines and related equipment, along with substantially all of the Company's receivables. On December 30, 1997 the Company repaid the outstanding balance of the Icahn Loans with a portion of the proceeds from the sale of the Receivables Securitization Notes. On June 14, 1995, in consideration of, among other things, the extension of the Icahn Loans, TWA and Karabu entered into the Ticket Agreement, which permitted Karabu to purchase two categories of discounted tickets: (1) "Domestic Consolidator Tickets," which are subject to a cap of $610 million, based on the full retail price of the tickets ($120 million in the first 15 months and $70 million per year for seven consecutive years through the term of the Ticket Agreement), and (2) "System Tickets," which are not subject to any cap throughout the term of the Ticket Agreement. Tickets sold by the Company to Karabu pursuant to the Ticket Agreement are priced at levels intended to approximate current competitive discount fares available in the airline industry. 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 purchased by Karabu pursuant to the Ticket Agreement are required to be at fares specified in the Ticket Agreement, net to TWA, and exclusive of tax. No commissions will be paid by TWA for tickets sold under the Ticket Agreement, and TWA believes that under the applicable provisions of the Ticket Agreement, Karabu may not market or sell System Tickets through travel agents or directly to the general public. Karabu, however, has been marketing System Tickets through travel agents and directly to the general public. TWA has demanded that Karabu cease doing so and Karabu has stated that is disagrees with the Company's interpretation concerning sales through travel agents or directly to the general public. For a description of the litigation pending between TWA and Karabu, Mr. Icahn and affiliated companies, see "Business--Legal Proceedings--Icahn Litigation." Domestic Consolidator Tickets sold under the Ticket Agreement are limited to certain origin/destination city markets in which TWA has less than a 5% market share limit except for New York where there is a 10% limit. These restricted markets will be reviewed from time to time to determine any change in TWA's market share, and other markets may be designated as necessary. The purchase price for the tickets purchased by Karabu had been required to either, at Karabu's option, be retained by Karabu and the amount so retained credited as prepayments against the outstanding balance of the Icahn Loans, or be paid over by Karabu to a settlement trust established in connection with the '93 Reorganization for TWA's account as prepayments on the PBGC Notes. At December 31, 1997, approximately $118.6 million of such proceeds had been applied to the principal balance of the Icahn Loans and $76.7 million had been applied to the PBGC Notes. On December 30, 1997, the Company repaid the outstanding balance of the Icahn Loans out of the proceeds of the Receivables Securitization Offering. As a result, the purchase price of tickets purchased by Karabu will be paid, at Karabu's election, either to the settlement trust for prepayments on the PBCG Notes or to TWA directly. The Company elected to pay interest, due August 1, 1995 and February 1, 1996, and half the interest due February 1, 1997, on the 12% Reset Notes, in shares of Common Stock. The amount of such interest aggregated approximately $10.4 million, $10.2 million and $3.7 million, respectively, and resulted in the issuance of approximately 1.9 million, 1.1 million and 0.6 million shares of Common Stock on the respective dates. The Company elected to pay dividends due February 1, 1996 on its 12% Preferred Stock for the period from November 1, 1995 to and including January 31, 1996, in the amount of approximately $3.3 million, in shares of Common Stock. Capital Resources During 1997 the Company continued a series of privately negotiated exchanges with a significant holder of 12% Reset Notes which resulted in the return to the Company of $51.8 million in 12% Reset Notes and approximately $1.4 million in accrued interest thereon in exchange for the issuance of approximately 7.7 million shares of Common Stock leaving an outstanding principal balance of approximately $72.5 million. The Company redeemed the outstanding balance of its 12% Reset Notes on January 20, 1998. TWA has no unused credit lines and must satisfy all of its working capital and capital expenditure requirements from cash provided by operating activities, from external capital sources or from the sale of assets. As a result of the financings consummated in the fourth quarter of 1997 and the repayment of certain debt in connection therewith, assets with an approximate appraised value of $165.0 million were released from collateral liens and are currently unencumbered. Further pledging of these unencumbered assets, however, may be limited by negative pledge restrictions in outstanding indebtedness. Substantially all of TWA's other strategic assets have been pledged to secure various issues of outstanding indebtedness of the Company. To the extent that the pledged assets are sold, the applicable financing agreements generally require the sale proceeds to be applied to repay the corresponding indebtedness. To the extent that the Company's access to capital is constrained, the Company may not be able to make certain capital expenditures or to continue to implement certain other aspects of its strategic plan, and the Company may therefore be unable to achieve the full benefits expected therefrom. Commitments In February 1996, TWA executed definitive agreements providing for the operating lease of 10 new 757 aircraft, all of which have been delivered. These aircraft have an initial lease term of 10 years. Although individual aircraft rentals escalate over the term of the leases, aggregate rental obligations are estimated to average approximately $59 million per annum over the lease terms. The Company also entered into an agreement in February 1996 with Boeing for the purchase of ten 757-231 aircraft and related engines, spare parts and equipment for an aggregate purchase price of approximately $500 million. The agreement also provides for the purchase of up to ten additional aircraft. As of February 1, 1998, TWA had taken delivery of five purchased aircraft and had five on firm order. Furthermore, to the extent TWA exercises its options for additional aircraft, the Company will have the right to an equal number of additional option aircraft. Four of the five aircraft already delivered were manufacturer financed and one was leased. TWA has obtained commitments for debt financing for approximately 80% of the total costs associated with the acquisition of four of the remaining five aircraft which have not been delivered and obtained commitments for 100% lease financing of the total costs of the remaining fifth and final of such aircraft. Such commitments are subject to, among other things, so-called material adverse change clauses which make the availability of such debt and lease financing dependent upon the financial condition of the Company. In 1997, TWA reached agreements for the acquisition, by lease, of two new Boeing 767-300ER aircraft, one of which has been delivered in March 1998 and the second is scheduled to be delivered in April 1998. The longer-range 300 series aircraft will be utilized on TWA's international routes and to Hawaii. 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 $1.0 billion. The agreements, as amended, require the delivery of the aircraft in 2001 and 2002 and provide for the purchase of up to ten additional aircraft. TWA has not yet made arrangements for the permanent financing of the purchases subject to the agreements. In the event of cancellation, predelivery payments of approximately $18 million would be subject to forfeiture. The Company has entered into an agreement to acquire from the manufacturer fifteen new MD-83s. The long-term leasing arrangement provides for delivery of the aircraft between the second quarter of 1997 and the first quarter of 1999. As of December 31, 1997, the Company has taken delivery of seven of the MD-83 aircraft and expects to take delivery of six additional planes during 1998 and two additional planes in 1999. In April 1998, the Company entered into an agreement to purchase from the manufacturer 24 new MD-83 aircraft with deliveries in 1999. The Company has obtained financing commitments for long-term debt and lease financing for such aircraft. Although the Company anticipates that rental payments for such aircraft would represent a substantial financial commitment, it is not possible to accurately estimate the amount of such payments at this time.` TWA 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. To comply with the 1996 requirement, the Company retrofitted, by means of engine hush-kits, 30 of its DC-9 aircraft. As of December 31, 1997, hush-kits have been installed on 71 DC-9 engines at an aggregate cost of approximately $55 million, most of which was financed by lessors with repayments being facilitated through increased rental rates or lease term extensions. TWA intends to comply with the transition requirements for December 31, 1998 by having 75% of its fleet meet Stage 3 requirements. By December 31, 1999, 100% of the fleet must meet Stage 3 requirements. The Company has acquired three Boeing 767-231 ETOPS airframes and six accompanying engines (collectively, the "Aircraft") which the Company previously leased in exchange for the issuance of (i) $43.2 million aggregate principal amount of the 11 3/8% Senior Secured Notes due 2003, and (ii) $31.8 million aggregate principal amount of the Mandatory Conversion Equity Notes due 1999, which have a second priority security interest in the Aircraft and are convertible into shares of Common Stock. The 11 3/8% Senior Secured Notes and the Mandatory Conversion Equity Notes due 1999 have not been registered under the Securities Act and may not be transferred or sold in the United States absent registration or an applicable exemption from registration requirements. Certain Other Capital Requirements Expenditures for facilities and equipment, other than aircraft, generally are not committed prior to purchase and, therefore, no such significant commitments exist at the present time. TWA's ability to finance such expenditures will depend in part on TWA's financial condition at the time of the commitment. The Company utilizes software and related computer technologies essential to its operations that use two digits rather than four to specify the year, which will result in a date recognition problem in the year 2000 and thereafter unless modified. The Company has completed an assessment to determine the changes needed to make its computer systems year 2000 compliant and has developed a plan to implement such changes. The Company currently expects that it will complete the necessary changes and testing in mid-1999. As of December 31, 1997, the Company estimates that the total cost to complete the remediation of its computer systems would be approximately $18.7 million. The Company is also reviewing software which was purchased from outside vendors and is evaluating its reliance on other third parties to determine and minimize the extent to which its operations may be dependent on such third parties to remediate the year 2000 issues in their systems. The costs of the Company's year 2000 project and the date on which it will be completed are based on management's best estimates and include assumptions regarding third party modification plans. However, there can be no assurance that these estimates will be achieved and actual results could differ materially from those anticipated. Availability of NOLs The Company estimates that it had, for federal income tax purposes, net operating loss carryforwards ("NOLs") amounting to approximately $855 million at December 31, 1997. Such NOLs expire in 2008 through 2012 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. Changes in ownership in future periods could substantially restrict the Company's ability to utilize its tax net operating loss carryforwards. The Company believes that no ownership change has occurred subsequent to the '95 Reorganization. There can be no assurance, however, that an ownership change will not occur in the future. In addition, the NOLs are subject to examination by the IRS and, thus, are subject to adjustment or disallowance resulting from any such IRS examination. For 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. BUSINESS TWA is the eighth largest U.S. air carrier (based on RPMs for the full-year 1997), whose primary business is transporting passengers, cargo and mail. During 1997, the Company carried approximately 23.4 million passengers and flew approximately 25.1 billion RPMs. As of December 31, 1997, TWA provided regularly scheduled jet service to 89 cities in the United States, Mexico, Europe, the Middle East, Canada and the Caribbean. As of December 31, 1997, the Company operated a fleet of 185 jet aircraft. Route Structure TWA's passenger airline business is the Company's chief source of revenue. TWA also carries cargo (mail and freight) on its North American and international systems. For the year ended 1997, the Company's North American passenger operations accounted for 85.9% of its total passenger revenues, while its international passenger operations contributed 14.1% 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 36 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 26 cities with approximately 40 daily departures. International cities served include Barcelona, Cairo, Lisbon, Madrid, Milan, Riyadh, Rome, and Tel Aviv from JFK; Paris from JFK and St. Louis; and London-Gatwick from St. Louis. Other Activities In addition to TWA's passenger and cargo services, the Company operates Getaway Vacations, a tour package offering leisure travel products and services. In addition, TWA earns revenue by providing contract maintenance services for a number of third parties. In 1996, the Company began reducing certain third-party airframe and engine contract maintenance service and, while the Company expects to maintain the reduced level of airframe third-party contract work through 1998, the Company has selectively expanded the amount of engine third-party contract maintenance work that it performs. Flight Equipment As of December 31, 1997, TWA operated a fleet of 185 aircraft, of which 36 were owned by TWA and 149 were leased. All aircraft in use are maintained in airworthy condition in accordance with procedures approved by the FAA. The active operating aircraft owned by and leased to TWA as of December 31, 1997 are listed below.
Average Age Seats in of Aircraft (in Standard TWA Type Owned(2) Leased Total(3) years) Configuration - ---- -------- ------ -------- ------ ------------- Douglas DC-9-10.......... -- 7 7 31.0 77 Douglas DC-9-30.......... -- 36 36 28.0 100 Douglas DC-9-40.......... -- 3 3 23.2 100 Douglas DC-9-50.......... -- 12 12 20.9 115 Douglas MD-80/83(1)...... -- 65 65 9.6 142 Boeing 727-200(1)........ 25 5 30 22.2 146 Boeing 747(1)............ 1 2 3 27.3 433 Boeing 757............... 4 11 15 0.7 180 Boeing 767............... 6 8 14 13.3 192 -- --- --- ---- Total................... 36 149 185 16.9 == === === ====
- ---------- (1) Excludes the following aircraft which are not in the active fleet: four Boeing 727-100s, four Boeing 727-200s, eight Boeing 747-100s, two Boeing 747-200s, 10 L-1011s and two Douglas MD-80s. (2) A significant portion of TWA's owned flight equipment is pledged to secure its indebtedness. (3) For information concerning compliance of the above-referenced aircraft with the Noise Act, see "--Regulatory Matters--Noise Abatement." For a discussion of the Company's fleet restructuring plans, see "The Company--Business Strategy--Fleet Upgrade and Simplification." Real Property TWA utilizes or has rights to utilize airport and terminal facilities located in or near the cities it serves under lease agreements or other arrangements with the governmental authorities exercising control over such facilities. At St. Louis, TWA has preferential use rights to 57 gates and 40 ticket counter positions, and ramp, baggage and other supporting ground facility space. TWA's domestic-international hub at JFK operates out of two passenger terminal facilities (Terminals 5 and 6). TWA is the lessee at JFK of a total of 29 gates, 102 ticket counter positions, and ramp, baggage and other supporting ground facility space. TWA occupies both Terminal 5 and Terminal 6 as a holdover tenant pursuant to expired agreements of lease with the Port Authority of New York and New Jersey (the "Port Authority"). Such holdover tenancies are with the consent of the Port Authority pursuant to a Term Sheet dated August 12, 1993 (the "Term Sheet"), which extended TWA's right to occupy Terminals 5 and 6, provided TWA paid the rent set forth in the Term Sheet, made certain specified financed improvements to Terminals 5 and 6, and was otherwise in compliance with the expired leases. TWA's tenancy is currently on a month-to-month basis and no lease has been signed. The Company has recently consolidated for the near term most of its JFK operations into Terminal 5, using only limited facilities in Terminal 6. TWA has currently subleased a majority of the gates in Terminal 6 to other carriers. 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 1997, approximately 81.9% of all ticket sales on TWA were sold by travel agents. Until October 2, 1997, TWA paid the full traditional 10% commission on tickets for domestic transportation on TWA sold by independent travel agents without the cap of $50 and $25 per domestic round-trip and one-way tickets, respectively, which most other major airlines imposed in 1995 and paid an 11% commission on tickets for international transportation. On October 2, 1997, the Company reduced its commission on tickets for domestic and international transportation to 8% and 10%, respectively, without the cap imposed by most of the major airlines. Although the Company cannot quantify the current or potential future impact of this decision, the Company believes the uncapped commission structure is a positive factor in the Company maintaining and improving its long-term relationships with such travel agents and encourages the booking of higher fare tickets. TWA pays 9% for tickets issued outside the U.S. Carriers (including TWA) may also pay additional commissions to travel agents as incentive for increased volume or other business directed to the carrier. Travel Agency Automation Greater than 90% of all travel agencies in the U.S. obtain their airline travel information through access to Global Distribution Systems (also referred to as Computer Reservation Systems or "CRS"). Such systems are used by travel agents to make travel reservations including airline, hotel, train, car and other bookings and allow travel agents to issue airline tickets and boarding passes. One such system is WORLDSPAN, which is owned by a partnership in which affiliates of TWA, Delta Air Lines, Northwest Airlines, and ABACUS Distribution Systems Pte. Ltd, have interests of 25%, 32%, 38% and 5%, respectively. Management believes that its participation in Worldspan has given it direct access to an efficient distribution system. Worldspan continues to expand its offering and coverage, further benefitting the Company. TWA will continue to increase the methods and efficiency of distributing its product through a variety of channels and systems, including increasing use of "E" ticketing (electronic ticketing) and direct booking through the Internet. Frequent Flyer Program: "Aviators" TWA initiated its frequent flyer program in May 1981. Frequent flier programs like TWA's Aviators have been adopted by most major air carriers and are considered the number one marketing tool for developing brand loyalty among travelers and accumulating demographic data pertaining to business fliers. TWA's frequent flyer program rewards certain of its members with mileage credits based on the fare paid as well as miles flown for travel on TWA and also offers mileage credits for members' purchases of goods and services offered by various travel and non-travel related businesses that participate in Aviators including other airlines. Aviators members may also receive mileage credit pursuant to exchange agreements maintained by TWA with a variety of entities, including hotels, car rental firms, credit card issuers and long distance telephone service companies. For example, through the American Express Membership Rewards Program, Aviators members may use amounts charged on the American Express card to earn additional frequent flier miles. TWA accounts for its frequent flyer 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 Aviators participants accumulate sufficient miles to be entitled to claim award certificates. Incremental costs include unit costs for passenger food, beverages and supplies, fuel and liability insurance 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, 1996, participants in TWA's frequent flyer program had accumulated mileage credits for approximately 751,689 free awards, compared with accumulated mileage credits for approximately 938,319 free awards at December 31, 1997. Because TWA expects that some award certificates will never be redeemed, the calculations of the accrued liability for incremental costs at December 1996 and 1997 were based on approximately 71.5% and 63.0%, respectively, of the accumulated credits. Mileage for Aviators participants who have accumulated less than the minimum number of mileage credits necessary to claim a free award is excluded from the calculation of the accrual. The accrued liability at December 31, 1996 was approximately $20.4 million compared to approximately $19.6 million at December 31, 1997. TWA's customers redeemed free awards representing approximately 4.5% and 4.9% of TWA's RPMs in 1996 and 1997, respectively. Aircraft Fuel TWA's worldwide aircraft fuel requirements are met by in excess of twenty different suppliers. The Company has contracts with some of these suppliers, the terms of which vary as to price, payment terms, quantities and duration. The Company also makes incremental purchases of fuel based on price and availability. To assure adequate supplies of jet fuel and to provide a measure of control over price, the Company trades fuel, ships fuel and maintains fuel storage facilities to support key locations. Petroleum product prices, including jet fuel, are primarily driven by crude oil costs. The market's alternate uses of crude oil to produce petroleum products other than jet fuel (e.g., heating oil and gasoline) as well as the adequacy of refining capacity and other supply constraints affect the price and availability of jet fuel. Changes in the price or availability of fuel could materially affect the financial results of the Company. See also "Risk Factors--Risk Factors Related to the Industry--Aircraft Fuel." During 1996, aircraft fuel prices increased significantly, however, such prices declined moderately during 1997. The following table details TWA's fuel consumption and costs for the four years ended December 31, 1994, 1995, 1996 and 1997:
Year Ended December 31, ------------------------------------------------------------------------ 1994 1995 1996 1997 ------------- ------------ ------------- ------------ Gallons consumed (in millions)....... 852.2 804.2 838.9 730.3 Total cost(1) (in millions).......... $477.6 $458.6 $585.2 $480.9 Average cost per gallon.............. 56 Cents 57 Cents 70 Cents 66 Cents Percentage of operating expenses..... 13.0% 13.9% 15.6% 14.3%
- ---------- (1) Excludes into-plane fees. Competition Since the passage of the Airline Deregulation Act of 1978, the airline industry has been characterized by intense competition, consolidation of existing carriers, the formation of international and domestic alliances and the advent of numerous low-cost, low-fare new entrants. A number of airlines have filed for bankruptcy and/or ceased operations. In addition, several carriers have introduced or announced plans to introduce low-cost, short-haul jet service, which may result in increased competition to TWA. Airlines offer discount fares, a wide range of schedules, frequent flier mileage programs and ground and in-flight services as competitive tools to attract passengers and increase market share. Intense price competition has accelerated the efforts of airline managements to reduce costs and improve productivity in order to withstand greater levels of discounting. TWA's services are subject to varying degrees of competition, depending in part on whether such services are operated over domestic or international routes. Because of the relative ease with which U.S. carriers can enter new domestic markets, TWA's domestic services are subject to increases or decreases in competition from other air carriers. Changes in intensity of competition in the deregulated domestic environment cannot be predicted. The level of competition in international markets is normally governed by the terms of bilateral agreements between the U.S. and the foreign countries involved. Many of the bilateral agreements permit an unlimited number of carriers to operate between the U.S. and the foreign country. Competition in some international markets is limited to a specified number of carriers and flights on a given route by the terms of the air transport agreements between the U.S. and the foreign country. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- General" and "--Regulatory Matters." The airline industry is subject to substantial price competition as U.S. airlines are free to determine domestic pricing policies without government regulation. While the DOT retains authority over international fares, which are also subject to the jurisdiction of the governments of the foreign countries being served, the Company generally has substantial discretion with respect to its international pricing policies. While DOT authority is required before any person may operate as an air carrier within or to and from the U.S., the Airline Deregulation Act of 1978 and the International Air Transportation Competition Act of 1979 substantially decreased previous governmental restrictions in this area. In the case of domestic operations, any person who is found to be fit, willing and able may operate as an air carrier between any two points in the U.S. Thus, TWA is able to enter new routes or suspend existing routes within the U.S. without seeking regulatory approval. Similarly, other airlines are free to enter or leave TWA's domestic markets. Employees As of December 31, 1997, the Company had approximately 22,321 full-time employees (based upon full-time equivalents which include part-time employees). Of these, approximately 84.6% were represented by ALPA and the IAM. On March 6, 1997, the IAM was certified to replace IFFA as the bargaining representative of the Company's flight attendants. During 1994, the Company entered into the '94 Labor Agreements with ALPA, IAM and IFFA amending then existing labor agreements with each such union to, among other things, (i) eliminate certain raises scheduled to take effect in 1994 and 1995, thereby continuing certain wage and benefit concessions granted to the Company in the '92 Labor Agreements, (ii) modify existing work rules and benefit packages, and (iii) eliminate contractual "snapback" provisions contained therein which would have automatically restored wages to pre-concessionary levels for purposes of future contract negotiations. The terms of the IFFA contract remain in effect, although the flight attendants are now represented by the IAM. In addition, the Company implemented a number of similar savings initiatives with respect to domestic non-union and management employees, primarily through reducing headcount, altering benefit packages, and eliminating certain planned restorations of previous wage concessions. In exchange for the substantial cost savings realizable by the Company as a result of the foregoing, as described in more detail below, TWA (i) agreed to certain wage increases and productivity payments to its employees, (ii) issued certain equity securities of the Company to its employees, (iii) agreed to make certain future grants of equity securities and to permit such employees an opportunity to purchase certain additional securities at a discount, and (iv) effected certain amendments to the Company's Certificate of Incorporation and By-laws with respect to the election of certain directors and director voting requirements in the event of certain specified corporate actions. As part of the '94 Labor Agreements, TWA agreed with its unionized employees to a series of semi-annual 1% wage increases commencing in May 1995 and continuing through August 31, 1997 (the last such wage increase equaled 3% in the case of employees represented by ALPA and IFFA, and the IAM received a 1% wage increase and a 2% contribution to its retirement plan on August 31, 1997). On the '95 Effective Date, TWA issued to certain trusts established for the benefit of its unionized employees shares of Employee Preferred Stock; such stock being issued in three separate series designated the ALPA Preferred Stock, the IAM Preferred Stock and the IFFA Preferred Stock. Except for certain rights with respect to the election of directors, the Employee Preferred Stock has rights substantially identical to the Common Stock. See "Description of Capital Stock--Description of Employee Preferred Stock." TWA also issued an aggregate of 1,026,694 shares of Common Stock to a trust established for the benefit of certain of TWA's other employees. The value of shares issued to the Company's non-union employees was intended to reflect the estimated value to the Company of the concessions granted by these employees. The equity securities issued on the '95 Effective Date resulted in the employees of the Company initially owning approximately 30% of the then outstanding Common Stock and Common Stock equivalents of the Company. In recognition of the fact that as a result of the '95 Reorganization, the percentage of the Company's stock owned by the Company's employees was substantially reduced, the Company adopted as of the '95 Effective Date the ESIP pursuant to which the Company would grant, commencing in 1997, to certain trusts established for the benefit of its union and non-union employees certain additional shares of Common Stock and Employee Preferred Stock. The ESIP provides that the first stock grant under the plan would be made on July 15, 1997 in an amount sufficient to increase the employee ownership of the combined total number of then outstanding shares of Common Stock and Employee Preferred Stock by 2.0% if the average closing price of the Common Stock on the American Stock Exchange, or such other exchange or market which is then the principal market on which the Common Stock is listed or admitted to trading, for 30 consecutive trading days (the "Average Closing Price") exceeded a target price of $11.00 per share during the period from January 1, 1997 to July 14, 1997. If the target price of $11.00 per share is not exceeded, the grant would instead be made, if at all, on July 15 of the next year (up to and including July 15, 2002) in which the Average Closing Price of the Common Stock exceeds such target price prior to July 15 of that year. In each of 1998 through 2002, additional shares of Employee Preferred Stock and Common Stock will become subject to grant under this program in an amount sufficient to increase the employee ownership by 1.5% in 1998, 1.5% in 1999, 1.0% in 2000, 1.0% in 2001 and 1.0% in 2002 (subject to adjustment as described below) based on the combined total number of shares of Common Stock and Employee Preferred Stock outstanding as of the applicable July 15 grant date, with the target price applicable to the additional shares made available for grant in such year equal to $12.10 in 1998, $13.31 in 1999, $14.64 in 2000, $16.11 in 2001 and $17.72 in 2002. Each such grant is cumulative and, where the applicable target price is not met in the initial grant year, the applicable grant is carried forward and is subject to grant in future years up to and including July 15, 2002 in the manner described above. To protect against the dilutive effect of certain stock issuances, the ESIP provides for an adjustment (the "Adjustment") to the grants described above in the event the Company issues additional Common Stock to third parties for cash or property or in lieu of cash payments on the 12% Reset Notes or the Company's Mandatorily Redeemable 12% Preferred Stock (both the 12% Reset Notes and the Mandatorily Redeemable 12% Preferred Stock have been retired). To the extent that a sale of additional capital stock for cash results in a decline in the percentage of employee ownership of the combined total number of shares of Common Stock and Employee Preferred Stock below a level equal to the Adjusted Base Ownership Percentage (as defined in the ESIP), one-quarter of the difference between the new percentage of employee ownership and the Adjusted Base Ownership Percentage (but in no event greater than 1.0% in each year) would be added to the percentage of Employee Preferred Stock and Common Stock to be granted to union employees and non-union employees, respectively, under the ESIP in each of the years 1999 through 2002, assuming the target prices are met. Furthermore, if TWA issues additional shares of Common Stock with an aggregate value of more than $20 million to third parties for cash or a reduction in debt at a price equal to or greater than $11.00 per share (the "Equity Issuance Acceleration Trigger"), the last two scheduled grants under the ESIP are to be aggregated and these shares allocated equally to the remaining installments in the program. In addition, pursuant to the ESIP, employees have the right commencing July 15, 1997 through July 15, 2002, to purchase additional shares of Employee Preferred Stock in amounts up to an aggregate of 2.0% of the combined total number of outstanding shares of Common Stock and Employee Preferred Stock at a discount of 20.0% from the then current market price. Should all of the target prices be met or exceeded within the time periods specified and should the entire discount stock purchase option be exercised, the various employee stock trusts would receive a total of 10.0% (as adjusted as described below) of the Company's outstanding Common Stock, with the exact amount issued dependent upon the number of shares outstanding as of the date of each grant and option exercise. The ESIP separately provides that if additional shares of Employee Preferred Stock and Common Stock are distributed following the '95 Effective Date in respect of the '95 Reorganization, employees will be entitled to receive an additional number of shares of Employee Preferred Stock and Common Stock such that the employees will retain the same level of ownership. Union representatives and the Company agreed to a one-time distribution pursuant to this provision of the ESIP in an aggregate amount of 525,856 shares of Employee Preferred Stock and Common Stock. As part of that agreement, since additional ESIP shares were not issued to the employees in July 1997, an additional 405,750 shares of Employee Preferred Stock and Common Stock were issued to the employee trusts and, to the extent that additional shares are granted under the ESIP, the Company will receive a credit towards the new grant for these previously issued shares, in that amount. While the $11.00 target price was not exceeded as of July 15, 1997 and no grant was made on that date, on February 17, 1998, the Average Closing Price for the Company's Common Stock did exceed the $11.00 target price with respect to the first scheduled grant. As a result, the initial grant in an amount sufficient to increase the employee ownership by 2.0% based on the then outstanding Common Stock and Employee Preferred Stock will be made on July 15, 1998. Based on the current outstanding Voting Equity (as defined in the ESIP) of 57,890,907, the number of shares of Employee Preferred Stock and Common Stock to be issued to the employees under the ESIP on that date is 1,515,472. TWA is entitled to a credit against this number in the amount of 405,750 shares due to the prior grant to employees as described above. On March 4, 1998, the Average Closing Price for the Company's Common Stock did exceed the $12.10 target price with respect to the 1998 grant of 1.5%. As a result, the 1998 grant in an amount sufficient to increase the employee ownership by 1.5% based on the then outstanding Common Stock and Employee Preferred Stock will also be made on July 15, 1998. Based on the current outstanding Voting Equity, the number of additional shares of Employee Preferred Stock and Common Stock to be issued under the ESIP on that date for the 1998 grant is 1,172,354 shares, which together with the shares to be issued in connection with the 1997 grant equals a total of 2,282,076 shares. The number of shares to be granted could be increased if the last two grants are accelerated pursuant to the Equity Issuance Acceleration Trigger. Furthermore, based on issuances of Common Stock to date, the Adjustment has resulted in a revised grant schedule of 1.5% in 1998, 1.84% in 1999, 1.34% in 2000, 1.34% in 2001 and 1.34% in 2002. Taking into account the Common Stock to be issued upon conversion of the Mandatory Conversion Equity Notes due 1999, the grants for the years 1999 through 2002 would further increase pursuant to the Adjustment to: 1.91% in 1999, 1.41% in 2000, 1.41% in 2001 and 1.41% in 2002. In addition to certain amendments required to effect the recapitalization of the Company, on the '95 Effective Date, TWA further amended its Certificate of Incorporation and By-laws to (i) permit certain employees represented by ALPA and the IAM to elect four of the Company's 15 directors (the "Employee Directors"), and (ii) provide that certain extraordinary corporate actions, including mergers, sales of all or substantially all of the Company's assets or certain routes or any filing seeking protection under the bankruptcy laws, may be blocked by a vote of six directors, including each of the Employee Directors. See "Certain Provisions of the Certificate of Incorporation, the By-laws and Delaware Law--Blocking Coalition." The '94 Labor Agreements were three year agreements and became amendable as of August 31, 1997. Negotiations on a new collective bargaining agreement with the IAM with regard to the flight attendants commenced in July 1997 and are currently ongoing and negotiations regarding the Company's ground employees represented by the IAM commenced in February 1997 and are also currently ongoing. Negotiations on a new collective bargaining agreement with ALPA commenced in June 1997 and are currently ongoing. Under the RLA workers whose contracts have become amendable are required to continue to work under the "status quo" (i.e., under the terms of employment in effect before the amendable date) until the RLA's procedures are exhausted. Under the RLA, the Company and its unions are obligated to continue to bargain until agreement is reached or until a mediator is appointed and concludes that negotiations are deadlocked and mediation efforts have failed. The mediator must then further attempt to induce the parties to agree to arbitrate the dispute. If either party refuses to arbitrate, then the mediator must notify the parties that his efforts have failed and, after a 30-day cooling-off period, a strike or other direct action may be taken by the parties. At the request of the IAM, a mediator was appointed on August 6, 1997 in connection with the negotiations on the collective bargaining agreement covering ground employees. On March 27, 1998, at the request of the IAM, a mediator was appointed in connection with the negotiations on the collective bargaining agreement covering the flight attendants. In the opinion of management, the Company's financial resources are not as great as those of most of its competitors, and, therefore, any substantial increase in its labor costs as a result of any new labor agreements or any cessation or disruption of operations due to any strike or work action could by particularly damaging to the Company. See "Risk Factors--Risk Factors Related to the Company--'94 Labor Agreements." Regulatory Matters Slot Restrictions The Company's ability to increase its level of operations at certain domestic cities currently served is affected by the number of slots available for takeoffs and landings. At JFK, LaGuardia, Chicago O'Hare and Ronald Reagan Washington National airports, which have been designated "High Density Airports" by the FAA, there are restrictions on the number of aircraft that may land and take off during peak hours. In the future, these take-off and landing time slot restrictions and other restrictions on the use of various airports and their facilities may result in further curtailment of services by, and increased operating costs for, individual airlines, including TWA, particularly in light of the increase in the number of airlines operating at such airports. On April 1, 1986, the FAA implemented a final rule relating to allocated slots at the High Density Airports. This rule, as since amended, contains provisions requiring the relinquishment of slots for nonuse and permits carriers, under certain circumstances, to sell, lease or trade their slots to other carriers. TWA does not anticipate losing any slots as a result of these new rules; however the higher use rates required by these rules do increase the risk that TWA might lose slots in the future because of nonuse and decrease TWA's ability to adjust its flight schedules at the High Density Airports. Most international points served by TWA also are slot-controlled. Control over International Routes TWA's international certificates are granted by the DOT for indefinite or fixed-term periods, depending on the route. TWA is authorized to provide transatlantic service from major cities in the U.S. to points in Europe, North Africa, the Middle East and Asia. Some of these authorized routes are not currently served by TWA. Many of the European markets served by TWA are "limited entry" markets in which, as a result of agreements between the United States and foreign governments, TWA has traditionally competed with a limited number of other carriers. During the past several years, however, the U.S. government has encouraged competition in international markets and entered into bilateral agreements with various foreign governments that provide for expanded exchanges of routes and traffic rights, reduction of governmental controls over fares and avoidance of limits on capacity and charter services. Competition in international markets has increased dramatically over the past several years as major U.S. carriers have initiated and/or continued to expand their international operations. Foreign flag carriers have continued to expand service and the DOT has indicated its support for further expansion of opportunities of foreign carriers to serve new points in the U.S. No assurance can be given that TWA will continue to have the advantage of all the "limited entry" markets in which it currently operates or that additional carriers will not be permitted to operate in one or more of these markets or that TWA in general will not face substantial unexpected competition. Competition in the international market is further complicated by the fact that pricing levels on some transatlantic routes are influenced by subsidies that certain foreign carriers receive from their governments and by the presence of smaller, low-cost carriers. Certain portions of TWA's transatlantic route authority have been granted on a fixed-term basis. On May 4, 1993, the bilateral air transport agreement between the U.S. and France lapsed. In the absence of a new bilateral agreement, the U.S. and France are currently operating on a system of comity and reciprocity. Under this regime, carriers are permitted to maintain historical levels of service, but few or no new services are permitted. Cessation of service to any authorized markets from France may cause such underlying authority to terminate. Any reduction in U.S. carrier access to France could have an adverse impact on TWA's transatlantic operations. The operations of TWA's international system will require continued approval by the U.S. government as well as permission or authorization from the governments of the respective countries served and compliance with the laws and regulations of those countries. These authorizations, permits and rights vary considerably in their terms, particularly as to the imposition of restrictive conditions on U.S. airlines. Other DOT/FAA Regulations The DOT has the authority to regulate competitive practices, advertising and other consumer protection matters such as on-time performance, smoking policies, denied boarding, baggage liability and CRSs provided to travel agents. With respect to foreign air transportation, the DOT may approve agreements between air carriers and grant antitrust immunity to those agreements. The DOT must also approve the transfer between U.S. carriers of international route certificates. The Department of Justice has the authority to approve mergers and interlocking relationships. Noise Abatement The Noise Act provides for a reduction in aircraft noise levels by commercial aircraft. Under the Noise Act, air carriers were permitted to elect to comply with the transitional requirements of the Noise Act at December 31, 1994, either by (i) phasing out, or retrofitting with noise abatement equipment, certain older aircraft known as Stage 2, or (ii) phasing in quieter aircraft, known as Stage 3. Air carriers who elected to comply by phasing out or retrofitting Stage 2 aircraft were required to phase out or retrofit at least 25% of a specified 1990 base level of such aircraft by December 31, 1994 and by at least 50% by December 31, 1996. TWA elected to comply with the final Noise Act requirements by adopting the Stage 2 aircraft phase out/retrofit option, and had reduced its specified base level of Stage 2 aircraft by 25% at December 31, 1994 and by 50% at December 31, 1996. The Company will be required to reduce its specified base level of Stage 2 aircraft by at least 75% by December 31, 1998 and 100% by December 31, 1999 or alternatively, 75% and 100% of its total fleet will be required to meet Stage 3 requirements by December 31, 1998 and December 31, 1999, respectively. See "Risk Factors--Risk Factors Related to the Company--Age of Fleet; Noise." As of December 31, 1997, approximately 69% of TWA's active fleet, met the Stage 3 standards. TWA's ability to comply with the federal requirements within the time specified, or with more restrictive local noise restrictions, by acquiring newer aircraft and by phasing out or retrofitting older aircraft that are not in compliance with the Stage 3 standards, will depend upon its ongoing financial condition, its ability to renegotiate existing leases for such aircraft and its ability to obtain financing to acquire the requisite number of Stage 3 aircraft or retrofit kits. TWA is considering "hush-kitting" additional aircraft as well as other alternatives to assure compliance with Stage 3 noise requirements, and has already acquired a number of Stage 3 aircraft while phasing out several Stage 2 aircraft. However, there can be no assurance that TWA will be able to satisfy all applicable noise level requirements. See also "Risk Factors--Risk Factors Related to the Company--Liquidity; Substantial Indebtedness; Capital Expenditure Requirements." Numerous airports have imposed restrictions such as curfews, airplane noise levels, mandatory flight paths and runway restrictions, which limit the ability of TWA and other carriers to increase services at such airports. Other jurisdictions are considering similar measures. While the Company has historically had the flexibility to schedule around these restrictions, there can be no assurance that the Company will continue to be able to work around these restrictions. At this time, TWA cannot predict what additional restrictions will be implemented or, if so, the timing or effect on TWA of any such implementation. The effect on TWA would depend on the extent to which TWA's aircraft then being used in the affected airports meet the Stage 3 requirements as well as the timing of TWA's flights. Labor The RLA governs the labor relations of employers and employees engaged in the airline industry. Comprehensive provisions are set forth in the RLA establishing the right of airline employees to organize and bargain collectively along craft or class lines and imposing a duty on air carriers and their employees to exert every reasonable effort to make and maintain collective bargaining agreements. See "--Employees." The RLA contains detailed procedures which must be exhausted before a lawful work stoppage can occur. Pursuant to the RLA, TWA has collective bargaining agreements with two domestic unions which together represent approximately 84.6% of the Company's employees. See "Risk Factors--Risk Factors Related to the Company--'94 Labor Agreements." Aging Aircraft Maintenance The FAA issued several ADs in 1990 mandating changes to maintenance programs for older aircraft to ensure that the oldest portion of the nation's fleet remains airworthy. The FAA required that these older aircraft undergo extensive structural modifications prior to the later of the accumulation of a designated number of flight cycles or 1994 deadlines established by the various ADs. Most of the Company's aircraft are currently affected by these aging aircraft ADs. The Company monitors its fleet of aircraft to ensure safety levels which meet or exceed those mandated by the FAA. In 1996 and 1997, TWA spent approximately $3.4 million and $4.2 million, respectively, to comply with aging aircraft maintenance requirements. Based on information currently available to TWA and its current fleet plan, TWA estimates that costs associated with complying with these aging aircraft maintenance requirements will aggregate approximately $19.8 million for 1998 through 2001. These cost estimates assume, among other things, that newer aircraft will replace certain of TWA's existing aircraft and as a result, the average age of TWA's fleet will be significantly reduced. There can be no assurance that TWA will be able to implement fully its fleet plan. Safety TWA is subject to FAA jurisdiction with respect to aircraft maintenance and operations, including equipment, dispatch, communications, training, flight personnel and other matters affecting air safety. The FAA has the authority to issue new or additional regulations. To ensure compliance with its regulations, the FAA requires the Company to obtain operating, airworthiness and other certificates which are subject to suspensions or revocation for cause. In addition, a combination of FAA and Occupational Safety and Health Administrative regulations on both federal and state levels apply to all of TWA's ground-based operations. Passenger Facilities Charges During 1990, Congress enacted legislation to permit airport authorities, with prior approval from the FAA, to impose passenger facility charges ("PFCs") as a means of funding local airport projects. These charges, which are intended to be collected by the airlines from their passengers and remitted to the airports, are limited to $3.00 per enplanement and to $12.00 per round trip, although Congress is currently considering allowing airports to raise the PFCs. 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. Insurance The Company maintains commercial airline insurance with a major group of independent insurers that regularly participate in world aviation insurance markets. The Company's policies include coverage for losses resulting from the physical destruction of or damage to TWA's owned and leased aircraft, as well as losses arising from bodily injury, property damage and personal injury to third parties for which TWA becomes legally obligated to pay. The Company maintains aircraft third party and airline general third party liability insurance with a combined single limit of $1.0 billion per occurrence. Management believes that TWA's commercial airline insurance policies are generally consistent with those of other United States domiciled scheduled passenger air carriers operating similar aircraft over similar routes. Legal Proceedings Icahn Litigation On June 14, 1995, the Company signed the Extension and Consent Agreement with Karabu to extend the term of the Icahn Loans from January 8, 1995 to January 8, 2001 and to obtain the consent of Karabu and the Icahn Entities to certain modifications to the PBGC Notes. Collateral for the Icahn Loans included a number of aircraft, engines and related equipment, along with substantially all of the Company's receivables. On December 30, 1997, the Company repaid the outstanding balance of the Icahn Loans out of the proceeds from the sale of the Receivables Securitization Notes. In addition, on June 14, 1995, in consideration of, among other things, the extension of the Icahn Loans, TWA and Karabu entered into the Ticket Agreement which permitted Karabu to purchase two categories of discounted tickets: (1) "Domestic Consolidator Tickets," which are subject to a cap of $610.0 million, based on the full retail price of the tickets ($120.0 million in the first 15 months and $70.0 million per year for seven consecutive years through the term of the Ticket Agreement), and (2) "System Tickets," which are not subject to any cap throughout the term of the Ticket Agreement. Tickets sold by the Company to Karabu pursuant to the Ticket Agreement are priced at levels intended to approximate current competitive discount fares available in the airline industry. TWA believes that applicable provisions of the Ticket Agreement do not allow Karabu to market or sell System Tickets through travel agents or directly to the general public. Karabu, however, has been marketing System Tickets through travel agents and directly to the general public. TWA has demanded that Karabu cease doing so, and Karabu has stated that it disagrees with the Company's interpretation concerning sales through travel agents or directly to the general public. In December 1995, the Company filed a lawsuit against Karabu, Mr. Icahn, and certain affiliated companies seeking damages and to enjoin further violations of the Ticket Agreement. Mr. Icahn countered by threatening to file his own lawsuit and to declare a default on the Icahn Loans, which financing was then secured by receivables and certain flight equipment pledged under the Karabu Security Agreements. Mr. Icahn's position was based upon a variety of claims related to his interpretations of the Karabu Security Agreements as well as with respect to certain alleged violations of the Ticket Agreement by the Company. The parties negotiated a series of standstill agreements pursuant to which TWA's original lawsuit was withdrawn, while the Company and Mr. Icahn endeavored to negotiate a settlement of their differences and respective claims. Those negotiations reached an impasse and the Company refiled its suit (the "TWA Petition") on March 20, 1996 in the St. Louis County Circuit Court against Mr. Icahn, Karabu and certain other entities affiliated with Icahn (collectively, the "Icahn Defendants"). The TWA Petition alleges that the Icahn Defendants are violating the Ticket Agreement by, among other things, marketing and selling tickets purchased under the Ticket Agreement through travel agents or directly to the general public. The TWA Petition seeks a declaratory judgment finding that the Icahn Defendants have violated the Ticket Agreement, and also seeks liquidated and compensatory damages. In response to such lawsuit, Karabu and another Icahn-affiliated company asserted counterclaims alleging that the Company had breached its obligations under the Ticket Agreement by, among other things, seeking to restrict Karabu and Icahn-affiliated companies from selling System Tickets through travel agents or directly to the general public. The trial of this case was completed on January 7, 1998. A decision regarding this matter is pending. Also on March 20, 1996, TWA was named as a defendant in a complaint (the "Icahn Complaint") filed by Karabu and certain other affiliates of Mr. Icahn (the "Icahn Entities"). The Icahn Complaint alleged, among other things, that the Company had violated certain federal antitrust laws, breached the Ticket Agreement and interfered with certain existing and prospective commercial relations of the Icahn Entities. The Icahn Complaint was based upon an interpretation by Mr. Icahn and the Icahn Entities that the Ticket Agreement permits sales of tickets through travel agents and directly to the general public. The Icahn Complaint sought injunctive relief and actual and punitive monetary damages, as well as the Icahn Entities' costs of litigation. On June 13, 1996, following TWA's filing of a motion to dismiss the Icahn Complaint, the Icahn Entities amended the Icahn Complaint to delete the federal antitrust claim and to add new allegations and theories with respect to claimed violations of the federal antitrust laws and the Lanham Act (the "Amended Icahn Complaint"). On March 24, 1997, the United States District Court for the Southern District of New York, on the Company's motion, dismissed the suit in its entirety and that decision has not been appealed. On August 11, 1997, Karabu and another entity controlled by Mr. Icahn filed another suit against six senior officers of the Company in New York state court seeking damages and other relief and alleging tortious interference with prospective economic advantage based on alleged violations of the Ticket Agreement. This suit is similar to the previous action with respect to which the Icahn Complaint related. The defendants removed this case to the United States District Court for the Southern District of New York and have moved to dismiss the case on the grounds of lack of personal jurisdiction, res judicata and failure to state a claim. This action is pending. On October 15, 1997, Karabu filed suit in New York Supreme Court, New York County, seeking a declaratory judgment that even if TWA were to pay in full the outstanding balance due on the Icahn Loans, Karabu would have no obligation to release any portion of its lien on TWA's accounts receivable and/or aircraft and engine collateral so long as the TWA Petition in the Missouri lawsuit is pending or in the event that TWA is awarded damages as a result of the TWA Petition. By stipulation of the parties in December 1997, this claim was dismissed with prejudice. On November 12, 1997, however, Karabu had amended its complaint to add a claim alleging that TWA had failed to make the appropriate payment to the PBGC in June 1997. TWA believes that it has in fact made the proper payment as it came due and that there is no merit in this claim. On April 16, 1998, Karabu withdrew its complaint. Although the Company intends to press its claims vigorously, it is possible that Karabu's interpretation of the Ticket Agreement regarding system discount ticket sales by the Icahn Defendants through travel agents or directly to the general public could be determined, either by a court or otherwise, to be correct. In such event, 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. Other Actions On July 17, 1996, TWA Flight 800 crashed shortly after departure from JFK en route to Paris, France. There were no survivors among the 230 passengers and crew members aboard the Boeing 747 aircraft. The Company is cooperating fully with all federal, state and local regulatory and investigatory agencies to ascertain the cause of the crash, which to date has not been determined. The National Transportation Safety Board held hearings relating to the crash in December 1997 and is continuing its investigation. While TWA is currently a defendant in a number of lawsuits relating to the crash, it is unable to predict the amount of claims which may ultimately be made against the Company or how those claims might be resolved. TWA maintains substantial insurance coverage, and at this time management has no reason to believe that such insurance coverage will not be sufficient to cover the claims arising from the crash. Therefore, TWA believes that the resolution of such claims will not have a material adverse effect on its financial condition or results of operations. On May 31, 1988, the U.S. Environmental Protection Agency ("EPA") filed an administrative complaint seeking civil penalties as well as other relief requiring TWA to take remedial procedures at TWA's maintenance base in Kansas City, Missouri, alleging violations resulting from TWA's past hazardous waste disposal and related environmental practices. Simultaneously, TWA became a party to a consent agreement and a consent order with the EPA pursuant to which TWA paid a civil penalty of $100,000 and agreed to implement a schedule of remedial and corrective actions and to perform environmental audits at TWA's major maintenance facilities. In September 1989, TWA and the EPA signed an administrative order of consent, which required TWA to conduct extensive investigations at or near the overhaul base and to recommend remedial action alternatives. TWA completed its investigations and on February 17, 1996, submitted a Corrective Measures Study ("CMS") to the Missouri Department of Natural Resources ("MDNR") and the EPA. On August 19, 1997 the MDNR and the EPA approved the CMS. On February 27, 1998, MDNR notified TWA of the EPA's preliminary decision to issue a hazardous waste post-closure permit for TWA's maintenance facility, subject to public comment. Upon final approval of the permit, an additional order will be issued and the required corrective actions implemented. TWA presently estimates the cost of the corrective action activities under the existing and anticipated orders to be approximately $7 million, a majority of which represents costs associated with long-term groundwater monitoring and maintenance of the remedial systems. Although the Company believes adequate reserves have been provided for all known environmental contingencies, it is possible that additional reserves might be required in the future which could have a material adverse effect on the results of operations or financial condition of the Company. However, the Company believes that the ultimate resolution of known environmental contingencies should not have a material adverse effect on the financial position or results of operations based on the Company's knowledge of similar environmental sites. On October 22, 1991, judgment in the amount of $12,336,127 was entered against TWA in an action in the United States District Court for the Southern District of New York by Travellers International A.G. and its parent company, Windsor, Inc. (collectively, "Travellers"). The action commenced in 1987, as subsequently amended, sought damages from TWA in excess of $60 million as a result of TWA's alleged breach of its contract with Travellers for the planning and operation of Getaway Vacations. In order to obtain a stay of judgment pending appeal, TWA posted a cash undertaking of $13,693,101. In connection with the '93 Reorganization, TWA sought to have the matter ultimately determined by the Bankruptcy Court and claimed that the cash undertaking constituted a preference payment. Following prolonged litigation with respect to jurisdiction, the United States Supreme Court determined that the entire 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. On January 20, 1998, the Court of Appeals for the Third Circuit reversed the District Court and affirmed the findings of the Bankruptcy Court. Travellers sought reconsideration by the Third Circuit which reconsideration was denied. Travellers has advised they will appeal this decision. In February 1995, a number of actions were commenced in various federal district courts against TWA and six other major airlines, alleging that such companies conspired and agreed to fix, lower and maintain travel agent commissions on the sale of tickets for domestic air travel in violation of the United States and, in certain instances, state, antitrust laws. On May 9, 1995, TWA announced settlement, subject to court approval, of the referenced actions and reinstated the traditional 10% commission on domestic air fares. A final order has not yet been entered; however, an interim order approving the settlement has been entered. The Company believes the settlement of this case will have a favorable effect on revenues. On November 9, 1995, ValuJet Air Lines, Inc., now known as AirTran Airlines, Inc. ("ValuJet") instituted a lawsuit against TWA and Delta 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. ValuJet has settled its claim with Delta and appealed the grant of summary judgment to the 11th Circuit Court of Appeals. Settlement discussions are ongoing. In addition, based on certain written grievances or complaints filed by ValuJet, the Company was informed that the United States Department of Justice ("DOJ"), Antitrust Division, was investigating the circumstances of the slot lease of certain takeoff and landing slots to Delta at LaGuardia to determine whether an antitrust violation has occurred. During the course of its investigation, the DOJ was informed of the summary judgment described above. Since the date of the judgment, TWA is unaware of whether the DOJ has undertaken further investigative efforts, the status of the investigation or any future plans of the DOJ or other regulatory bodies with respect to the ValuJet allegations. While TWA believes the summary judgment should be persuasive to the various regulatory bodies petitioned by ValuJet, it will cooperate with any further investigations. The Company is also defending a number of other actions which have either arisen in the ordinary course of business or are insured or the cumulative effect of which management of the Company does not believe may reasonably be expected to be materially adverse. DESCRIPTION OF NOTES The Company issued the Old Notes and will issue the Exchange Notes under the Indenture dated as of March 3, 1998 by and between the Company and First Security Bank, National Association, as trustee (the "Trustee"), a copy of which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The Notes are entitled to the benefits of and are subject to those terms set forth in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "TIA"), as in effect on the date of the Indenture. Copies of the Indenture can be obtained from the Company upon request. The following description of material provisions of the Notes, the Indenture and the Registration Rights Agreement is intended as a summary only and is qualified by reference to those documents, including the definitions in those documents of certain terms. Whenever particular articles, sections or defined terms of the Notes, the Indenture or the Registration Rights Agreement are referred to, it is intended that those articles, sections or defined terms are to be incorporated herein by reference. See "--Certain Definitions" for definitions of certain capitalized terms used herein. General The Notes will represent senior unsecured obligations of the Company. The Notes will rank senior in right of payment to all existing and future subordinated indebtedness of the Company and will rank pari passu in right of payment with other senior obligations of the Company. The Notes are not secured and, therefore, will be effectively subordinated to all existing and future secured indebtedness of the Company to the extent of the value of the assets securing such indebtedness. Subject to certain conditions specified therein, the Indenture permits the Company to incur additional indebtedness, including certain senior secured indebtedness. The Notes are not presently guaranteed by any subsidiary of the Company and as a result will effectively rank junior to all creditors (including trade creditors) of, and holders of preferred stock issued by, subsidiaries of the Company. Although the Notes will contain restrictions on the incurrence of indebtedness by subsidiaries, the amount of indebtedness which is permitted to be incurred could be substantial. The Notes will contain no limitations on the ability of subsidiaries to incur trade credit and other obligations. As of December 31, 1997, after giving effect to the issuance of the Notes and the application of the net proceeds therefrom, the aggregate principal amount of the Company's total outstanding unsecured indebtedness would be approximately $150.0 million, all of which constitutes senior obligations. The Notes are issued only in fully registered form, without coupons, in minimum denominations of $1,000 and integral multiples of $1,000. Holders will not be charged for any registration of transfer or exchange of the Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection with any such transaction. Principal, Maturity and Interest The Notes will be limited to $150.0 million of principal in the aggregate and will mature on March 1, 2006. The Notes will bear interest at the annual rate of 11 3/8% 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 March 1 and September 1 of each year, commencing on September 1, 1998, to the person in whose name the Note is registered at the close of business on the preceding February 15 and August 15, as the case may be. Interest and Special Interest, if any, will be payable to the holders of record as they appear on the register of the Company kept by the registrar on such record dates. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Notes will not be subject to any sinking fund. Principal of, premium, if any, interest on, and Special Interest, if any, with respect to the Notes will be payable, and the transfer of the Notes will be registerable, at the office or agency of the Company maintained for such purposes. In addition, payment of interest and Special Interest, if any, may, at the option of the Company, be made by check mailed to the address of the person entitled thereto as it appears in the register of the holders of Notes. The Trustee will initially act as paying agent and registrar for the Notes. The Company may change the paying agent and registrar in accordance with the Indenture. Redemptions Mandatory Redemption. Except as set forth under "--Repurchase of Notes Upon a Change in Control", "--Repurchase of Notes in Connection with Incurrence of Acquired Indebtedness" and "--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock," the Company will not be required to repurchase or make mandatory redemption or sinking fund payments with respect to the Notes. Optional Redemption. Except as described below under "--Redemption upon Public Equity Offering" and "--Certain Covenants-Merger and Consolidation," the Notes may not be redeemed prior to March 1, 2002. On or after March 1, 2002, the Notes may be redeemed at any time in whole or in part (in any integral multiple of $1,000) by the Company at its sole option at the applicable redemption price (expressed as a percentage of principal amount) as set forth below during the twelve month periods beginning March 1 of the years shown below, plus in each case an amount equal to accrued and unpaid interest and Special Interest, if any, with respect to the Notes to and including the redemption date. Year Redemption Price ---- ---------------- 2002................................ 105.69% 2003................................ 102.84% 2004 and thereafter................. 100.00% Notice of redemption shall be sent to each holder of Notes being redeemed at the address shown on the books of the Company at least 30 but not more than 60 days prior to the redemption date. If less than all of the Notes are to be redeemed, the Notes to be redeemed shall be selected by lot or pro rata. On or after the redemption date, interest will cease to accrue on the Notes or portions thereof called for redemption. Redemption upon Public Equity Offering. The Notes will be redeemable prior to March 1, 2002 only in the event that on or before March 1, 2001 the Company receives Net Cash Proceeds of one or more Public Equity Offerings in which case the Company may, at its option, use all or a portion of any such Net Cash Proceeds to redeem up to $52.5 million aggregate principal amount of the Notes, within 90 days of such Public Equity Offering, on not less than 30 days, but not more than 60 days, notice to each Holder of the Notes to be redeemed, at a redemption price (expressed as a percentage of principal amount) of 111.375% plus accrued and unpaid interest and Special Interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest and Special Interest, if any, due on the relevant interest payment date); provided, however, that at least $97.5 million aggregate principal amount of the Notes must remain outstanding after each such redemption. Repurchase of Notes Upon a Change in Control The Company must commence, within 30 days of the occurrence of a Change in Control, and consummate an Offer to Purchase for all Notes then outstanding, at a purchase price equal to 101% of the principal amount thereof on the relevant Payment Date, plus accrued and unpaid interest and Special Interest, if any, to the Payment Date. There can be no assurance that the Company will have sufficient funds available at the time of any Change in Control to make any debt payment (including repurchases of Notes) required by the foregoing covenant (as well as may be contained in other securities or agreements of the Company which might be outstanding at the time). Future indebtedness of the Company may contain prohibitions on the occurrence of certain events that would constitute a Change in Control or require such indebtedness to be purchased upon a Change in Control. Moreover, the exercise by the holders of their right to require the Company to repurchase the Notes could cause a default under such indebtedness, even if the Change in Control itself does not, due to the financial effect of such purchase on the Company. Finally, the Company's ability to pay cash to the holders of Notes following the occurrence of a Change in Control may be limited by the Company's then existing financial resources. The provisions under the Indenture relative to the Company's obligation to make an offer to repurchase the Notes as a result of a Change in Control may be waived or modified with the written consent of the holders of a majority in principal amount of the Notes. One of the events which constitutes a Change in Control under the Indenture is the disposition of "all or substantially all" of the Company's assets. This term has not been interpreted under New York law (the law governing the Indenture) to represent a specific quantitative test. As a consequence, in the event the holders of the Notes elect to require the Company to repurchase the Notes and the Company elects to contest such election, there can be no assurance as to how a court interpreting New York law would interpret the phrase. The Company could, in the future, enter into certain significant transactions that would not constitute a Change in Control with respect to the Change in Control purchase feature of the Notes. The Change in Control purchase feature of the Notes may in certain circumstances make more difficult or discourage a takeover of the Company and, thus, the removal of incumbent management. The Change in Control purchase feature, however, is not the result of, to management's knowledge, any specific effort to obtain control of the Company by means of a merger, tender offer, solicitation or otherwise, nor is it part of a plan by management to adopt a series of anti-takeover provisions. The right to require the repurchase of Notes shall terminate after a discharge of the Company from its obligations under the Notes and the Indenture in accordance therewith. See "--Defeasance." Repurchase of the Notes may, under certain circumstances, constitute a default or event of default under senior indebtedness then outstanding and, in such instances, repurchase of the Notes would be prohibited unless and until such default has been cured or waived. The failure to repurchase the Notes in such instance would constitute an Event of Default. See "--Events of Default." Repurchase of Notes in Connection with Incurrence of Acquired Indebtedness The Company shall not, and shall not permit any Restricted Subsidiary to incur any Acquisition Indebtedness in reliance, in whole or in part, on clause (8) of paragraph (b) of the "Limitation on Indebtedness" covenant described below under "--Certain Covenants" unless the Company shall have (i) made an Offer to Purchase all of the Notes at a purchase price equal to 100% of the principal amount thereof, plus the Applicable Premium (as defined) as of, and accrued and unpaid interest and Special Interest, if any, to, the Payment Date and (ii) such Payment Date shall have occurred and money sufficient to pay the purchase price of all Notes or portions thereof tendered for purchase pursuant to such Offer to Purchase shall have been deposited with the Trustee. Any such Offer to Purchase shall contain information concerning the business of the Company which the Company in good faith believes will enable the Holders of the Notes to make an informed decision with respect to such Offer to Purchase and will include (A) the most recent annual and quarterly financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the documents required to be filed with the Trustee pursuant to the Indenture (which requirements may be satisfied by delivery of such documents together with the Offer to Purchase), (B) a description of material developments, if any, in the Company's business subsequent to the date of the latest of such financial statements referred to in clause (A) (including a description of the events requiring the Company to make such Offer to Purchase), (C) if applicable, appropriate pro forma financial information concerning such Offer to Purchase and the events requiring the Company to make the Offer to Purchase and (D) any other information required by applicable law to be included therein. Registered Exchange Offer; Registration Rights Pursuant to a Registration Rights Agreement between the Company and the Initial Purchaser (the "Registration Rights Agreement"), the Company has agreed to use its best efforts to (i) file with the Commission, within 60 days after the date of original issuance of the Notes, a registration statement on an appropriate form under the Securities Act (the "Exchange Offer Registration Statement") with respect to a registered offer (the "Registered Exchange Offer") to exchange the Notes for 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 that the Exchange Notes will not contain terms with respect to transfer restrictions) and (ii) cause the Exchange Offer Registration Statement to be declared effective under the Securities Act within 150 days after the date of original issuance of the Notes. Upon the effectiveness of the Exchange Offer Registration Statement, the Company will offer the Exchange Notes in exchange for surrender of the Notes. The Company will keep the Registered Exchange Offer open for not less than 30 days (or longer if required by applicable law) after the date notice of the Registered Exchange Offer is first mailed to the holders of the Notes. For each Note surrendered to the Company pursuant to the Registered Exchange Offer, the holder of such Note will receive an Exchange Note having a principal amount equal to that of the surrendered Note. Under existing Commission interpretations, the Exchange Notes would be freely transferable by holders other than affiliates of the Company after the Registered Exchange Offer without further registration under the Securities Act if the holder of the Exchange Notes represents that it is acquiring the Exchange Notes in the ordinary course of its business, that it has no arrangement or understanding with any person to participate in the distribution of the Exchange Notes and that it is not an affiliate of the Company, as such terms are interpreted by the Commission; provided, however, that broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in the Registered Exchange Offer will have a prospectus delivery requirement with respect to resales of such Exchange Notes. The Commission has taken the position that Participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to Exchange Notes (other than a resale of an unsold allotment from the original sale of the Notes) with the prospectus contained in the Exchange Offer Registration Statement. Under the Registration Rights Agreement, the Company is required to allow Participating Broker-Dealers and other persons, if any, with similar prospectus delivery requirements to use the prospectus contained in the Exchange Offer Registration Statement in connection with the resale of such Exchange Notes. A Holder of Notes (other than certain specified holders) who wishes to exchange such Notes for Exchange Notes in the Registered Exchange Offer will be required to represent that any Exchange Notes to be received by it will be acquired in the ordinary course of its business and that at the time of the commencement of the Registered Exchange Offer it has no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes and that it is not an "affiliate" of the Company, as defined in Rule 405 of the Securities Act, or if it is an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. In the event that applicable interpretations of the staff of the Commission do not permit the Company to effect the Registered Exchange Offer, or if for any other reason the Registered Exchange Offer is not consummated within 180 days of the date of the Registration Rights Agreement, or if the Initial Purchaser so requests with respect to Notes not eligible to be exchanged for Exchange Notes in the Registered Exchange Offer, or if any holder of Notes is not eligible to participate in the Registered Exchange Offer or does not receive freely tradable Exchange Notes in the Registered Exchange Offer, the Company will, at its cost, (a) as promptly as practicable, file a shelf registration statement (the "Shelf Registration Statement") covering resales of the Notes or the Exchange Notes, as the case may be, (b) use its best efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act and (c) keep the Shelf Registration Statement effective for a period of two years from the date of original issuance of the Notes or such shorter period that will terminate when Notes covered by the Shelf Registration Statement have been sold pursuant thereto or can be sold pursuant to Rule 144(k). The Company will, in the event a Shelf Registration Statement is filed, among other things, provide to each holder for whom such Shelf Registration Statement was filed copies of the prospectus which is a part of the Shelf Registration Statement, notify each such holder when the Shelf Registration Statement has become effective and take certain other actions as are required to permit unrestricted resales of the Notes or the Exchange Notes, as the case may be. A holder selling such Notes or Exchange Notes pursuant to the Shelf Registration Statement generally would be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement which are applicable to such holder (including certain indemnification obligations). If (i) on or prior to 60 days after the date of original issuance of the Notes, neither the Registered Exchange Offer Registration Statement nor the Shelf Registration Statement has been filed with the Commission; (ii) on or prior to 150 days after the original issuance of the Notes, neither the Exchange Offer Registration Statement nor the Shelf Registration Statement is declared effective; (iii) on or prior to 180 days after the original issuance of the Notes, neither the Registered Exchange Offer is consummated nor the Shelf Registration Statement is declared effective; (iv) notwithstanding the filing of the Exchange Offer Registration Statement or the effectiveness thereof or the consummation of the Registered Exchange Offer, by the later of (x) 60 days after the date of original issuance of the Notes and (y) 30 days after a request by the Initial Purchaser or certain other holders of Notes, pursuant to the Registration Rights Agreement, that the Company file a Shelf Registration Statement, a Shelf Registration Statement has not been filed with the Commission or such Shelf Registration Statement has not been declared effective by the Commission within 150 days after any such request; or (v) 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 (v), a "Registration Default," and each period during which a Registration Default has occurred and is continuing, a "Registration Default Period"), then special interest ("Special Interest") on the Notes and the Exchange Notes will accrue at a per annum rate of 0.50% for the first 90 days of the Registration Default Period, at a per annum rate of 1.0% for the second 90 days of the Registration Default Period, at a per annum rate of 1.50% for the third 90 days of the Registration Default Period and at a per annum rate of 2.00% thereafter for the remaining portion of the Registration Default Period. From and including the date on which all Registration Defaults have been cured, the accrual of Special Interest will cease. Special Interest is payable in addition to any other interest payable from time to time pursuant to the terms of the Notes and the Exchange Notes. If the Company effects the Exchange Offer, it will be entitled (subject to applicable law) to consummate the Exchange Offer 30 days after the commencement thereof provided that it has accepted all Notes theretofore validly tendered in accordance with the terms of the Exchange Offer. The summary herein of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject, and is qualified in its entirety by reference, to all of the provisions of the Registration Rights Agreement, a copy of which is available upon request to the Company. Certain Covenants Limitation on Indebtedness. (a) Neither the Company nor the Restricted Subsidiaries shall Incur, directly or indirectly, any Indebtedness; provided, however, that the Company may Incur Indebtedness so long as, on the date of such Incurrence and after giving effect thereto, the Consolidated Coverage Ratio exceeds (i) 2.00 to 1 for Indebtedness Incurred on or prior to December 31, 1999, (ii) 2.25 to 1 for Indebtedness Incurred after December 31, 1999 and on or prior to December 31, 2001 and (iii) 2.50 to 1 for Indebtedness Incurred after December 31, 2001. (b) Notwithstanding the foregoing paragraph (a), the Company and the Restricted Subsidiaries may Incur any or all of the following Indebtedness: (i) Indebtedness of the Company Incurred subsequent to the Issue Date; provided, however, that (A) after giving effect to any such Incurrence, the aggregate principal amount of such Indebtedness then outstanding does not exceed $400.0 million, (B) the Stated Maturity of any such Indebtedness is at least one year after the Stated Maturity of the Notes, (C) the Average Life of any such Indebtedness at the time that it is Incurred is not less than the Average Life of the Notes at such time and (D) except for Liens permitted by clause (p) of the definition of Permitted Liens, such Indebtedness is not secured by a Lien on any asset of the Company or its Restricted Subsidiaries; (ii) Aircraft Acquisition Debt; (iii) Indebtedness of the Company owed to and held by a Restricted Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by the Company or a Restricted Subsidiary; provided, however, that any subsequent issuance or transfer of any Capital Stock which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or another Restricted Subsidiary) shall be deemed in each case, to constitute the Incurrence of such Indebtedness by the Company; (iv) the Notes and the Exchange Notes; (v) Indebtedness Incurred to finance the cost (including the cost of design, development, acquisition, construction, installation, improvement, transportation or integration) of plant, property and equipment used or to be used in the airline business or any other business that is substantially related, ancillary or complementary thereto (including any Capital Lease Obligation and the cost of the Capital Stock of a Person that becomes a Restricted Subsidiary to the extent of the fair market value of the plant, property and equipment of such Person at the time it becomes a Restricted Subsidiary) to be acquired by the Company or a Restricted Subsidiary after the Issue Date; provided that such Indebtedness is incurred within 270 days after such plant, property and equipment has been placed into service; provided further that (A) the principal amount of such Indebtedness does not exceed 80% of the cost of such plant, property or equipment financed thereby and (B) the aggregate principal amount of all Indebtedness Incurred pursuant to the provisions described under this clause (5) shall not exceed $70.0 million at any time outstanding; provided further that the limitations described in clauses (A) and (B) of the immediately preceding proviso shall not apply to Indebtedness Incurred to finance the cost of (i) airport facilities, reservations centers or maintenance facilities or (ii) information technology systems, including all related hardware and software; (vi) Indebtedness outstanding on the Issue Date (other than Indebtedness described in clause (i), (ii), (iii), (iv) or (v) of this covenant); (vii) Indebtedness of the Company not to exceed, at any time outstanding, 2.0 times the Net Cash Proceeds received by the Company after the Issue Date from the issuance and sale of its Capital Stock (other than Disqualified Stock) to a Person that is not a Subsidiary of the Company, to the extent such Net Cash Proceeds are not included in the calculation of amounts under clause (iii)(B) of paragraph (a) of the "Limitation on Restricted Payments" covenant described below or used to make a Restricted Payment pursuant to clause (i) of paragraph (b) of such "Limitation on Restricted Payments" covenant; provided that such Indebtedness (A) is Incurred within 180 days following receipt of such Net Cash Proceeds and (B) does not have a Stated Maturity that is prior to the first anniversary of the Stated Maturity of the Notes and has an Average Life longer than the Notes at the time of Incurrence of such Indebtedness; (viii) Acquired Indebtedness; provided that prior to the Incurrence thereof the Company shall have made an Offer to Purchase all of the Notes and deposited with the Trustee money sufficient to pay the purchase price of all Notes or portions thereof tendered for purchase pursuant to such Offer to Purchase, all as described above under "--Repurchase of Notes in Connection with Incurrence of Acquired Indebtedness"; (ix) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause (i), (ii), (iii), (iv), (v), (vi), (vii), (viii) of this covenant or this clause (ix); (x) Indebtedness (A) in respect of performance, surety, appeal or similar bonds provided in the ordinary course of business, and (B) arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of the Restricted Subsidiaries pursuant to such agreements, in any case Incurred in connection with the disposition of any business, assets of the Company or any of the Restricted Subsidiaries, including all or any interest in any Restricted Subsidiary, and not exceeding the gross proceeds therefrom, other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary or any of the Restricted Subsidiaries for the purpose of financing such acquisition; (xi) Hedging Obligations consisting of Interest Rate Agreements, Fuel Protection Agreements or Currency Agreements; (xii) Indebtedness Incurred in satisfaction of payment obligations arising out of collective bargaining agreements with labor unions representing employees of the Company or its Restricted Subsidiaries; (xiii) Indebtedness arising from aircraft lessor financing of improvements to or maintenance of aircraft, engines or related parts and equipment leased by the Company or its Restricted Subsidiaries; (xiv) Indebtedness Incurred in satisfaction of "return condition" obligations of the Company or its Restricted Subsidiaries under aircraft leases in an aggregate principal amount not to exceed $25.0 million at any time outstanding; (xv) Indebtedness under working capital and/or Receivables financing facilities in an aggregate principal amount not to exceed $150.0 million at any time outstanding and Guarantees thereof by Restricted Subsidiaries not prohibited by the "Limitation of Guarantees by Restricted Subsidiary" covenant; provided that such Indebtedness is not secured by a Lien on any assets of the Company or its Restricted Subsidiaries other than Receivables and Capital Stock of special purpose Subsidiaries of the Company formed to effect a Receivables-based financing; (xvi) Indebtedness issued in satisfaction of trade payables arising in the ordinary course of business; provided that (A) the principal amount of such Indebtedness does not exceed the amount of such trade payables (including accrued interest or finance charges), (B) the Stated Maturity of such Indebtedness is no more than 180 days after the date of Incurrence thereof and (C) the aggregate principal amount of such Indebtedness does not exceed $50.0 million at any time outstanding; and (xvii) Indebtedness of the Company or any Restricted Subsidiary in an aggregate principal amount which, together with all other Indebtedness of the Company and the Restricted Subsidiaries outstanding on the date of such Incurrence (other than Indebtedness permitted by clauses (1) through (16) of this covenant or paragraph (a) of this covenant) does not exceed $100.0 million. (c) Notwithstanding the foregoing, neither the Company nor any Restricted Subsidiary shall Incur any Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are used, directly or indirectly, to Refinance any Subordinated Obligations unless such Indebtedness shall be subordinated to the Notes, to at least the same extent as such Subordinated Obligations. (d) For purposes of determining compliance with the foregoing covenant, (i) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above, the Company, in its sole discretion, will classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of the above clauses and (ii) an item of Indebtedness may be divided and classified in more than one of the types of Indebtedness described above. Limitation on Restricted Payments. (a) The Company shall not, and shall not permit any Restricted Subsidiary, directly or indirectly, to make a Restricted Payment if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (i) a Default shall have occurred and be continuing (or would result therefrom); (ii) the Company is not able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under "--Limitation on Indebtedness"; or (ii) the aggregate amount of such Restricted Payment and all other Restricted Payments since the Issue Date (the amount of any such Restricted Payment, if other than cash, as determined in good faith by the Company, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors or a certificate of the chief financial or accounting officer of the Company delivered to the Trustee prior to the making of such Restricted Payment) would exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the fiscal quarter immediately following the fiscal quarter during which the Notes are originally issued to the end of the most recent fiscal quarter for which financial statements are publicly available prior to the date of such Restricted Payment (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the aggregate net proceeds (including 50% of the fair market value of property other than cash (as determined in good faith by the Company, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors or a certificate of the chief financial or accounting officer of the Company delivered to the Trustee prior to the making of such Restricted Payment)) received by the Company or any Restricted Subsidiary from the issuance or sale, subsequent to the Issue Date, of its Capital Stock (other than Disqualified Stock) and Indebtedness of the Company or any Restricted Subsidiary that has been converted into or exchanged for Capital Stock (other than Disqualified Stock) subsequent to the Issue Date (other than an issuance or sale to a Restricted Subsidiary and other than an issuance or sale to an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees); and (C) an amount equal to the sum of (i) the net reduction in Investments in Unrestricted Subsidiaries resulting from dividends, repayments of loans or advances or other transfers of assets, in each case to the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided, however, that the foregoing sum shall not exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary. (b) The provisions of the foregoing paragraph (a) shall not prohibit: (i) any Restricted Payment made by exchange for, or out of the net proceeds (including 50% of the fair market value of property other than cash (as determined in good faith by the Company, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors or a certificate of the chief financial or accounting officer of the Company delivered to the Trustee prior to the making of such Restricted Payment)) of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company or an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees); provided, however, that (A) such Restricted Payment shall be excluded in the calculation of the amount of Restricted Payments and (B) to the extent used to make such Restricted Payment, the net proceeds from such sale shall be excluded from the calculation of amounts under clause (3)(B) of paragraph (a) above; (ii) any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness of the Company which is permitted to be Incurred pursuant to the covenant described under "--Limitation on Indebtedness"; provided, however, that such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments; (iii) dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with this covenant; provided, however, that such dividend shall be included in the calculation of the amount of Restricted Payments; (iv) the declaration or payment of dividends on or payment of liquidated damages with respect to (A) any Preferred Stock outstanding on the Issue Date or (B) any Preferred Stock (other than Disqualified Stock) issued after the Issue Date that ranks on parity with or junior to Preferred Stock outstanding on the Issue Date; provided, however, that any dividend referred to in the foregoing clause (A) or, subject to the following proviso, clause (B), shall be included in the calculation of the amount of Restricted Payments and provided further, that the Company may elect to exclude from the calculation of amounts under clause 3(B) of paragraph (a) above any Net Cash Proceeds received by the Company from the issue or sale of Preferred Stock pursuant to the foregoing clause (B) (which election must be made by written notice to the Trustee within ten (10) Business Days of the receipt of such Net Cash Proceeds) and, if such election is made, any dividend, distribution, purchase, redemption, acquisition or retirement on or of the Preferred Stock for which such election is made shall not be a Restricted Payment; (v) (A) the payment of cash in lieu of issuing fractional shares of Capital Stock of the Company in connection with the exercise of options or warrants, the conversion of convertible securities or the redemption of interests in employee stock ownership or benefits plans, (B) the purchase or redemption of Capital Stock by the Company from employee stock ownership or benefit plans subject to ERISA to the extent required by ERISA, (C) repurchases of Capital Stock which occur upon the exercise of stock options if such Capital Stock represents a portion of the exercise price of such options, (D) the purchase, redemption, acquisition, cancellation or other retirement for value of shares of Capital Stock of the Company or any Restricted Subsidiary, options on any such shares or related stock appreciation rights or similar securities held by officers or employees or former officers or employees (or their estates or beneficiaries under their estates), upon death, disability, retirement, termination of employment or pursuant to any agreement under which such shares of stock or related rights were issued; provided that the aggregate cash consideration paid pursuant to this clause (D) for such purchase, redemption, acquisition, cancellation or other retirement of such shares of Capital Stock or related rights after the Issue Date does not exceed an aggregate amount of $10.0 million; provided further that the amount of any payment, purchase, redemption, repurchase, acquisition, cancellation or other retirement paid pursuant to this clause (D) shall be included in the amount of Restricted Payments; (vi) any purchase or redemption of Capital Stock of the Company resulting from the consolidation or merger with or into any Person or conveyance, transfer or lease of all or substantially all of the Company's or any Restricted Subsidiary's property to one or more Persons substantially as an entirety not prohibited by the terms of the "Merger and Consolidation" covenant (other than any consolidation, merger or other transactions involving only the Company and a Subsidiary of the Company or involving only Subsidiaries of the Company); provided that the amount of such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; or (vii) the exchange of Preferred Stock (other than Disqualified Capital Stock) for Indebtedness of the Company permitted to be incurred under the Limitation on Indebtedness Covenant; provided that the liquidation value of the Preferred Stock exchanged shall be included in the calculation of the amount of Restricted Payments but only to the extent of the Net Cash Proceeds of such Preferred Stock received after the Issue Date. Limitation on Restrictions on Distributions from Restricted Subsidiaries. The Company shall not, and shall not permit any Restricted Subsidiary to create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (a) pay dividends or make any other distributions on its Capital Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company, (b) make any loans or advances to the Company or (c) transfer any of its property or assets to the Company except: (i) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Issue Date; (ii) any encumbrance or restriction with respect to a Restricted Subsidiary or its property or assets pursuant to an agreement relating to any Indebtedness or Preferred Stock Incurred by such Restricted Subsidiary on or prior to the date on which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company (other than Indebtedness or Preferred Stock Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company) and outstanding on such date; (iii) any encumbrance or restriction pursuant to an agreement effecting a Refinancing of Indebtedness or Preferred Stock Incurred pursuant to an agreement referred to in clause (i) or (ii) of this covenant or this clause (iii) or contained in any amendment to an agreement referred to in clause (i) or (ii) of this covenant or this clause (iii); provided, however, that the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any such refinancing agreement or amendment are in the aggregate no less favorable to the Noteholders than encumbrances and restrictions with respect to such Restricted Subsidiary contained in such predecessor agreements; (iv) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition; (v) any encumbrances and restrictions existing under or by reason of applicable law or regulation; (vi) any encumbrances and restrictions (A) that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract or similar property or asset, (B) existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by the Indenture or (C) arising or agreed to in the ordinary course of business not relating to any Indebtedness, and that do not (as determined by the Company and certified in a resolution of the Board of Directors or a certificate of the chief financial or chief accounting officer of the Company delivered to the Trustee prior to or promptly following such encumbrance or restriction becoming effective), individually or in the aggregate, (1) detract from the value of property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or any Restricted Subsidiary or (2) materially adversely affect the Company's ability to make principal or interest (including Special Interest, if any) payments on the Notes; (vii) any encumbrance or restriction contained in the terms of any Indebtedness or any agreement pursuant to which such Indebtedness was issued if (A) the encumbrance or restriction applies only in the event of a payment default or default with respect to a financial covenant contained in such Indebtedness or agreement, (B) the encumbrance or restriction is not materially more disadvantageous to the Holders of the Notes than is customary in comparable financings (as determined by the Company and certified in a resolution of the Board of Directors or a certificate of the chief financial or chief accounting officer of the Company delivered to the Trustee prior to or promptly following such encumbrance or restriction becoming effective) and (C) such encumbrance or restriction will not materially adversely affect the Company's ability to make principal or interest (including Special Interest, if any) payments on the Notes (as determined by the Company and certified in a resolution of the Board of Directors or a certificate of the chief financial or chief accounting officer of the Company delivered to the Trustee prior to or promptly following such encumbrance or restriction becoming effective); and (viii) any encumbrance or restriction resulting from any financing transaction involving the sale of Receivables or aircraft and/or related engines, spare parts and equipment to a special purpose Subsidiary of the Company formed to effect such financing and which applies only to such special purpose Subsidiary and its assets. Nothing contained in this "Limitation on Restrictions on Distributions from Restricted Subsidiaries" covenant shall prevent the Company or any Restricted Subsidiary from (1) creating, incurring, assuming or suffering to exist any Liens otherwise permitted in the "Limitation on Liens" covenant or (2) restricting the sale or other disposition of property or assets of the Company or any of its Restricted Subsidiaries that secure Indebtedness of the Company or any of its Restricted Subsidiaries. Limitation on Sales of Assets and Subsidiary Stock. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Disposition unless the Company or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value (including as to the value of all non-cash consideration), as determined in good faith by the Board of Directors or by the chief financial or accounting officer of the Company, of the shares and assets subject to such Asset Disposition and at least 80% of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or cash equivalents. If the Company or any Restricted Subsidiary engages in an Asset Disposition, the Company may use the Net Available Cash from such Asset Disposition, within one year after the later of such Asset Disposition and the receipt of such Net Available Cash (such later date, the "Trigger Date"), to (i) permanently repay or prepay any then outstanding Senior Indebtedness of the Company or any Restricted Subsidiary or (ii) invest in or acquire (or enter into a legally binding commitment to invest in or acquire) Additional Assets; provided that the transaction subject to any such commitment be consummated within 180 days after the date of such commitment. If any such legally binding commitment to invest in or acquire such Additional Assets is terminated, then the Company may, within 90 days of such termination or the Trigger Date, whichever is later, use such Net Available Cash as provided in clause (i) or (ii) (without giving effect to the parenthetical contained in such clause (ii)) above. The amount of such Net Cash Proceeds not so used as set forth above in this paragraph constitutes "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company will, within 30 days thereof, apply such aggregate Excess Proceeds (1) first, to make an Offer to Purchase outstanding Notes at 100% of their principal amount plus accrued and unpaid interest and Special Interest, if any, to the date of purchase and, to the extent required by the terms thereof, any other Indebtedness of the Company that is pari passu with the Notes at a price no greater than 100% of the principal amount thereof plus accrued interest to the date of purchase and (2) second, to the extent of any remaining Excess Proceeds following the completion of the Offer to Purchase, to any other use as determined by the Company which is not otherwise prohibited by the Indenture. Upon the completion of an Offer to Purchase pursuant to this paragraph, the amount of Excess Proceeds shall be reset to zero. For the purposes of this covenant, the following are deemed to be cash or cash equivalents: (x) the assumption of Indebtedness of the Company or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition and (y) securities received by the Company or any Restricted Subsidiary from the transferee that are promptly converted by the Company or such Restricted Subsidiary into cash. Limitation on Affiliate Transactions. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or employee compensation arrangements) with any Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof (1) are no less favorable to the Company or such Restricted Subsidiary than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not such an Affiliate and (2) if such Affiliate Transaction involves an amount in excess of $2.0 million (i) are set forth in writing and (ii) have been approved by a majority of the members of the Board of Directors having no personal stake in such Affiliate Transaction. If such Affiliate Transaction involves an amount in excess of $10.0 million, a fairness opinion must be obtained from an internationally recognized investment banking firm, appraisal firm or auditing firm with respect to the financial terms of such Affiliate Transaction. (b) The provisions of the foregoing paragraph (a) shall not prohibit or apply to (i) any Restricted Payment permitted to be paid pursuant to the covenant described under "--Limitation on Restricted Payments," (ii) loans or advances to employees in the ordinary course of business and in an amount that does not exceed $1.0 million in the aggregate outstanding at any one time, (iii) the payment of reasonable fees to directors of the Company and its Restricted Subsidiaries who are not employees of the Company or its Restricted Subsidiaries, (iv) any Affiliate Transaction between the Company and a Restricted Subsidiary or between Restricted Subsidiaries, (v) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors, (vi) the grant of stock options or similar rights to employees and directors of the Company pursuant to plans approved by the Board of Directors and (vii) any Affiliate Transaction entered into pursuant to agreements with labor unions. Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries. The Company shall not sell or otherwise dispose of any Capital Stock of a Restricted Subsidiary, and shall not permit any such Restricted Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any of its Capital Stock except (i) to the Company or a Wholly Owned Subsidiary, (ii) the issuance and sale of directors' qualifying shares, (iii) if, immediately after giving effect to any such issuance, sale or other disposition, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any Investment in such Person remaining after giving effect thereto would have been permitted to be made under the covenant described under "--Limitation on Restricted Payments" if made on the date of such issuance, sale or other disposition, (iv) if such sale or other disposition is of all or any portion of the Capital Stock of a Restricted Subsidiary and the Net Available Cash received from such sale or other disposition are applied in accordance with the covenant "--Limitation on Sales of Assets and Subsidiary Stock" or (v) to the extent the ownership by a Person other than the Company or a Wholly Owned Subsidiary is required by applicable law and except that any Restricted Subsidiary may issue or permit to exist (x) Preferred Stock issued to and held by the Company or a Wholly Owned Subsidiary; provided, however, that upon either (A) the transfer or other disposition by the Company or such Wholly Owned Subsidiary of any Preferred Stock so permitted to a Person other than the Company or another Wholly Owned Subsidiary or (B) such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary, the provisions of this clause (x) will no longer be applicable to such Preferred Stock and such Preferred Stock will be deemed to have been issued at the time of such transfer or other disposition or such cessation; and (y) Preferred Stock issued by a Person prior to the time such Person becomes a Restricted Subsidiary (including by way of a merger or consolidation with another Restricted Subsidiary), which Preferred Stock was not issued in anticipation of and was outstanding prior to such transaction; provided, however, that on the date of such acquisition and after giving effect thereto, the Company would have been able to Incur at least $1.00 of additional Indebtedness pursuant to clause (a) of the covenant described under "--Limitation on Indebtedness." Limitation on Guarantees by Restricted Subsidiaries. The Company shall not permit any Restricted Subsidiary, directly or indirectly, to Guarantee any Indebtedness of the Company which is pari passu with or subordinate in right of payment to the Notes ("Guaranteed Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes and delivers a Subsidiary Guaranty of payment of the Notes by such Restricted Subsidiary and (ii) such Restricted Subsidiary waives and will not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against the Company or any other Restricted Subsidiary as a result of any payment by such Restricted Subsidiary under its Subsidiary Guaranty; provided that this paragraph shall not be applicable to (1) any Guarantee by any Restricted Subsidiary that existed at the time such Person became a Restricted Subsidiary and was not Incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary or (2) Guarantees of Indebtedness under working capital facilities of the Company in an aggregate principal amount not exceeding $50.0 million at any time outstanding or, if less, the amount by which $150.0 million exceeds the aggregate outstanding principal amount of Indebtedness of the Company under clause (15) of paragraph (b) of the "Limitation on Indebtedness" which is secured by a Lien. If the Guaranteed Indebtedness is (A) pari passu with the Notes, then the Guarantee of such Guaranteed Indebtedness shall be pari passu with, or subordinated to, the Subsidiary Guarantee or (B) subordinated to the Notes, then the Guarantee of such Guaranteed Indebtedness shall be subordinated to the Subsidiary Guaranty at least to the extent that the Guaranteed Indebtedness is subordinated to the Notes. Notwithstanding the foregoing, any Subsidiary Guaranty by a Restricted Subsidiary may provide by its terms that it shall be automatically and unconditionally released and discharged upon (i) any sale, exchange or transfer, to any Person not an Affiliate of the Company, of all of the Company's and each Restricted Subsidiary's Capital Stock in, or all or substantially all the assets of, such Restricted Subsidiary (which sale, exchange or transfer is not prohibited by the Indenture) or (ii) the release or discharge of the Guarantee which resulted in the creation of such Subsidiary Guaranty, except a release or discharge by, or as a result of, payment under such Guarantee. Limitation on Liens. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any Lien of any nature whatsoever on any of its properties other than Permitted Liens, without effectively providing that the Notes shall be secured equally and ratably with (or prior to) the obligations so secured for so long as such obligations are so secured. Limitation on Sale/Leaseback Transactions. The Company shall not, and shall not permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction with respect to any property unless (i) the Company or such Restricted Subsidiary would be entitled to (A) Incur Indebtedness in an amount equal to the Attributable Debt with respect to such Sale/Leaseback Transaction pursuant to the covenant described under "--Limitation on Indebtedness" and (B) create a Lien on such property securing such Attributable Debt without equally and ratably securing the Notes pursuant to the covenant described under "--Limitation on Liens," or (ii) the Sale/Leaseback Transaction is treated as an Asset Disposition and the Company applies the proceeds of such transaction in compliance with the covenant described under "--Limitation on Sales of Assets and Subsidiary Stock." Merger and Consolidation. The Company shall not consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all of its assets to, any Person, unless: (i) the resulting, surviving or transferee Person (the "Successor Company") shall be a Person organized and existing under the laws of the United States, any state thereof or the District of Columbia and the Successor Company (if not the Company) shall expressly assume, by an indenture supplemental thereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Notes and the Indenture; (ii) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Subsidiary of the Company as a result of such transaction as having been Incurred by such Successor Company or such Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction, the Successor Company would be able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under "--Limitation on Indebtedness;" (iv) immediately after giving effect to such transaction, the Successor Company shall have Consolidated Net Worth in an amount that is not less than the Consolidated Net Worth of the Company immediately prior to such transaction; and (v) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that (A) such consolidation, merger or transfer and such supplemental indenture (if any) comply with the Indenture, (B) the Indenture and the Notes will constitute valid and legally binding obligations of the Successor Company and (C) the Indenture is enforceable against the Successor Company in accordance with its terms. The Successor Company shall be the successor to the Company and shall succeed to, and be substituted for, and be bound by and obligated to pay the obligations of, and may exercise every right and power of, the Company under the Indenture, but the predecessor Company in the case of a conveyance, transfer or lease shall not be released from the obligation to pay the principal of, interest on, and Special Interest, if any, with respect to, the Notes. The Company shall have the right, without the consent of the Holders, to redeem the Notes in whole, but not in part, at a redemption price equal to 100% of the unpaid principal amount of the outstanding Notes plus the Applicable Premium as of, and accrued and unpaid interest and Special Interest if any, to, the date of redemption in the event that the Company enters into a binding agreement to consummate any transaction which would be prohibited by this covenant. The redemption date must occur prior to or simultaneously with the consummation of such prohibited transaction. Notice of redemption will be mailed to each Noteholder at such Noteholder's address of record not less than 30 days nor more than 60 days prior to the redemption date. On and after the redemption date, interest will cease to accrue on the Notes. Maintenance of Properties and Insurance. The Company will, and will cause its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition all properties used or useful in their businesses; provided, however, that neither the Company nor any such Subsidiary shall be prevented from discontinuing those operations or suspending the maintenance of those properties which, in the reasonable judgment of the Company, are no longer necessary or useful in the conduct of the Company's business or that of its Subsidiaries. For so long as any property is deemed to be useful to the conduct of the business of the Company or its Subsidiaries, the Company shall, or shall cause such Subsidiaries to, maintain appropriate insurance, in accordance with industry practice, on such properties. Application for Rating. The Company will, within 180 days after the Issue Date, apply to Moody's Investors Service, Inc. and Standard & Poor's Ratings Group, to obtain a rating for the Notes. SEC Reports. The Company shall file with the Trustee and provide, or cause the Trustee to provide, holders of Notes, within 30 days after it files with, or furnishes to, the SEC, copies of its annual report and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act or is required to furnish to the SEC pursuant to the Indenture. Notwithstanding that the Company may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on an annual and quarterly basis on forms provided for such annual and quarterly reporting pursuant to rules and regulations promulgated by the SEC, the Indenture requires the Company to continue to file with, or furnish to, the SEC (i) within 90 days after the end of each fiscal year (or such shorter period as the SEC may in the future prescribe), annual reports on Form 10-K (or any successor form) containing the information required to be contained therein (or required in such successor form), including annual financial statements audited by an internationally recognized independent public accountant with respect to such year and prepared in accordance with GAAP and all applicable exhibits, (ii) within 45 days after the end of each of the first three fiscal quarters of each fiscal year (or such shorter period as the SEC may in the future prescribe), reports on Form 10-Q (or any successor form) containing substantially the same information required to be contained therein prepared in accordance with GAAP and (iii) promptly from time to time after the occurrence of an event required to be therein reported, such other reports on Form 8-K (or any successor form) containing substantially the same information required to be contained therein. Concurrently with the reports delivered pursuant to the preceding paragraph, the Company is required to furnish the Trustee an officer's certificate to the effect that such officer has conducted or supervised a review of the activities of the Company and of performance under the Indenture and that, to the knowledge of such officer, based on such review, the Company has fulfilled all of its obligations under the Indenture or, if there has been a default, specifying each default known to him, its nature and status. Listing of Notes on the AMEX. The Company has agreed to list the Notes on the American Stock Exchange or on such other stock exchange or market as the Common Stock is then principally traded no later than the earliest to occur of (i) the effectiveness of the initial Exchange Offer Registration Statement and (ii) the effectiveness of the initial Shelf Registration Statement, provided that such Notes meet the minimum requirements for listing on any such exchange or market, and, if applicable, to maintain such listing for so long as any of the Notes is outstanding. Events of Default The following shall constitute "Events of Default" with respect to the Notes: (i) failure to pay the principal of, premium, if any, on, or Offer to Purchase repurchase amount, if any, with respect to, any Note when such amounts become due and payable at maturity, upon acceleration, redemption, tender for repurchase or otherwise; (ii) failure to pay interest or Special Interest on the Notes when due, where such failure continues for a 30-day period; (iii) the failure by the Company to comply with its obligations under "--Certain Covenants-Merger and Consolidation" above; (iv) the failure by the Company to comply for 30 days after notice with any of its obligations in the covenants described above under "Repurchase of Notes Upon a Change in Control" or "Repurchase of Notes in Connection with Incurrence of Acquired Indebtedness" (other than, in each case, a failure to purchase Notes) and "--Certain Covenants" under "--Limitation on Indebtedness," "--Limitation on Restricted Payments," "--Limitation on Restrictions on Distributions from Restricted Subsidiaries," "--Limitation on Sales of Assets and Subsidiary Stock (other than a failure to purchase Notes)," "--Limitation on Affiliate Transactions," "--Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries," "--Limitation on Guarantees by Restricted Subsidiaries," "--Limitation on Liens," "--Limitation on Sale/Leaseback Transactions," "--Maintenance of Properties and Insurance," "--Application for Rating," "--SEC Reports" or "--Listing of Notes on the AMEX;" (v) any representation or warranty of the Company in the Indenture 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 or the Indenture, in each case that continues for the period and after the notice specified below; (vi) an event of default shall have occurred and be continuing under any other evidence of Indebtedness of the Company or any Significant Subsidiary (as defined in SEC Regulation S-X) of the Company, whether such Indebtedness now exists or is created hereafter, which event of default results in the acceleration of such Indebtedness which, together with any such other Indebtedness so accelerated, aggregates more than $15.0 million (the "cross acceleration provision"); (vii) any final judgment or judgments for payment of money in excess of $15.0 million in the aggregate shall be rendered against the Company or any Restricted Subsidiary and shall remain unstayed, unsatisfied and undischarged for the period and after the notice specified below; and (viii) certain events of bankruptcy, insolvency or reorganization involving the Company or any Restricted Subsidiary. The Company is required to deliver to the Trustee within 120 days after the end of each fiscal year of the Company, an officer's certificate stating whether or not the signatories know of any default by the Company under the Indenture and the Notes and, if any default exists, describing such default. A default under clause (iv), (v) or (vii) above or, with respect to a Restricted Subsidiary that is not a Significant Subsidiary, clause (viii) 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 (v) or (vii), or within 30 days with respect to clause (iv) or, with respect to a Restricted Subsidiary that is not a Significant Subsidiary, clause (viii), 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 of the Company or a Restricted Subsidiary that is a Significant Subsidiary) shall have occurred and be continuing, the Trustee, by notice to the Company, or the holders of 25% or more of the principal amount of the Notes then outstanding, by notice to the Company and the Trustee, may declare the principal amount of the Notes, plus accrued and unpaid interest and Special Interest, if any, to be immediately due and payable. In case an Event of Default resulting from certain events of bankruptcy, insolvency or reorganization of the Company or a Restricted Subsidiary that is a Significant Subsidiary shall occur, such amounts shall be due and payable without any declaration or any act on the part of the Trustee or the holders of the Notes. Such declaration of acceleration may be rescinded and past defaults may be waived by the holders of a majority of the principal amount of the Notes then outstanding upon conditions provided in the Indenture, except a default in the payment of principal, or interest on, or Special Interest, if any, with respect to, any Note cannot be waived or amended without payment of the amount then due otherwise than for the acceleration. Except to enforce the right to receive payment when due of principal, premium, if any, interest, and Special Interest, if any, no holder of a Note may institute any proceeding with respect to the Indenture or the Notes or for any remedy thereunder unless such holder has previously given to the Trustee written notice of a continuing Event of Default and unless the holders of 25% or more of the principal amount of the Notes then outstanding have requested the Trustee to institute proceedings in respect of such Event of Default and have offered the Trustee reasonable indemnity against loss, liability and expense to be thereby incurred, the Trustee has failed so to act for 60 days after receipt of the same and during such 60-day period the holders of a majority of the principal amount of the Notes then outstanding have not given the Trustee a direction inconsistent with the request. Subject to certain restrictions, the holders of a majority in principal amount of the Notes then outstanding will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture, that is unduly prejudicial to the rights of any holder of a Note or that would involve the Trustee in personal liability and the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Modifications and Waivers of the Indenture Supplemental indentures modifying or amending the Indenture may be made by the Company and the Trustee with the consent of the holders of not less than a majority in aggregate principal amount of the then outstanding Notes; provided, however, that no such modification or amendment may, without the consent of the holders of each Note affected thereby, (a) change the fixed maturity of any Note, reduce the rate or extend the time of payment of interest on, or Special Interest, if any, with respect to, any Note, reduce the principal amount, or premium, if any, on, or Special Interest, if any, (in each case, whether on redemption, repurchase or otherwise) with respect to, any Note, change the time at which any Note may be redeemed as described under "--Redemptions" above, impair the right of a holder to institute suit for payment thereof, or change the place of payment of the Notes, or the currency in which the Notes are payable or make any change in any Subsidiary Guaranty that would adversely affect any holders of the Notes or (b) reduce the percentage of Notes, the consent of the holders of which is required for any modification or waiver. Without the consent of any holders of the Notes, the Company and the Trustee may amend or supplement the Notes or the Indenture to (i) provide for uncertificated Notes in addition to or in place of certificated Notes, (ii) provide for the assumption of the Company's obligations to holders of the Notes in the case of a merger or consolidation or transfer of all or substantially all of the Company's assets, (iii) comply with the TIA, or (iv) cure any ambiguity, defect or inconsistency, or make any other change, in each case provided that such action does not materially adversely affect the interests of the holders of the Notes. The holders of a majority in aggregate principal amount of outstanding Notes may waive any past default under the Indenture, except a default in the payment of principal, premium, if any, interest or Special Interest, if any, or default with respect to certain covenants under the Indenture. The consent of the holders of the Notes is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. After the amendment under the Indenture becomes effective, the Company is required to mail to holders of the Notes a notice briefly describing such amendment. However, the failure to give such notice to all holders of the Notes, or any defect therein, will not impair or affect the validity of the amendment. Defeasance The Company at any time may terminate all its obligations under the Notes and the Indenture ("legal defeasance"), except for certain obligations, including those respecting the defeasance trust and obligations to register the transfer or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a registrar and paying agent in respect of the Notes. The Company at any time may terminate its obligations under "Redemptions," "Repurchase of Notes Upon a Change in Control" and under the covenants described under "--Certain Covenants" (other than the covenant described under "--Merger and Consolidation"), the operation of the cross acceleration provision, the bankruptcy provisions with respect to Restricted Subsidiaries, the judgment default provision, described under "--Events of Default" above and the limitations contained in clauses (iii) and (iv) of the first paragraph under "--Certain Covenants-Merger and Consolidation" above ("covenant defeasance"). The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default with respect thereto. If the Company exercises its covenant defeasance option, payment of the Notes may not be accelerated because of an Event of Default specified in clause (iv), (v), (vi), (vii) or (viii) (with respect only to Restricted Subsidiaries), under "--Events of Default" above or because of the failure of the Company to comply with clause (iii) or (iv) of the first paragraph under "--Certain Covenants-Merger and Consolidation" above. In order to exercise either defeasance option, the Company must irrevocably deposit in trust with the Trustee money or U.S. Government Obligations for the payment of principal and interest and Special Interest, if any, on the Notes to redemption or maturity, as the case may be, and must comply with certain other conditions, including delivery to the Trustee of (i) an Opinion of Counsel to the effect that (x) holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance and will be subject to federal income tax on the same amounts and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred (and, in the case of legal defeasance only, such Opinion of Counsel must be based on a ruling of the Internal Revenue Service or other change in applicable federal income tax law) and (y) the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar law affecting creditors rights generally under any United States federal or state law and that the Trustee has a perfected security interest in such trust funds for the ratable benefit of the Holders and (ii) an opinion of counsel in the Company's jurisdiction of incorporation to the effect that holders of the Notes will not recognize income, gain or loss for tax purposes in such jurisdiction as a result of such deposit and defeasance and will be subject to taxes in such jurisdiction on the same amounts and in the same manner and at the same time as would have been the case if such deposit and defeasance had not occurred. No Personal Liability of Directors, Officers, Employees and Stockholders No past, present or future director, officer, employee, agent, manager, stockholder or other affiliate, as such, of the Company shall have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of the Notes by accepting a Note waives and releases all such liability. Transfer and Exchange A holder may transfer or exchange the Notes in accordance with the Indenture. The Company may require a holder to, among other things, furnish appropriate endorsements and transfer documents and pay any taxes and fees required by law or permitted by the Indenture. The registered holder of a Note may be treated as the owner of it for all purposes. Delivery and Form The Notes are issued in registered form. Concerning the Trustee The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. Subject to the TIA, the Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest, as described in the TIA, it must eliminate such conflict or resign. The Trustee shall have a lien prior to the Notes on all money or property held or collected by the Trustee or otherwise distributable to holders of Notes (except money, securities or property held in trust to pay principal and/or interest on particular Notes) to secure the Company's payment and indemnity obligations to the Trustee. Governing Law The Indenture provides that it and the Notes will be governed by the laws of the State of New York without regard to principles of conflict of laws. Certain Definitions "Acquired Indebtedness" means Indebtedness of a Person existing at the time such Person became a Restricted Subsidiary and not Incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary. "Additional Assets" means (i) any property or assets utilized in the airline business or any business that is substantially related, ancillary or complementary thereto (including an Investment in any Person engaged in any such business); (ii) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary or (iii) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of the provisions described under "--Certain Covenants-Limitation on Restricted Payments", "--Certain Covenants--Limitation on Affiliate Transactions", and "--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of Capital Stock representing 10% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or of rights or warrants to purchase such Capital Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. "Aircraft Acquisition Debt" means Indebtedness Incurred by the Company or any of its Restricted Subsidiaries in connection with an acquisition of aircraft, related engines or spare engines, spare parts or other related equipment (including ground equipment) which Indebtedness either constitutes all or part of the purchase price thereof, or is Incurred prior to, at the time of or within one year after the acquisition thereof for the purpose of financing or refinancing part of the purchase price thereof, and which equipment was not owned by the Company or a Restricted Subsidiary of the Company prior to such purchase provided, however, that in either case the proportion (expressed as a percentage) of such Indebtedness to the purchase price or Appraised Value of such equipment at the time of such financing does not exceed 90% (except that the foregoing limitation shall not apply to aircraft under order or option on the Issue Date for which vendor financing (including by way of vendor guarantee) is initially obtained). "Applicable Premium" means, with respect to a Note at any redemption or repurchase date, the greater of (i) 1.0% of the principal amount of such Note and (ii) the excess of (A) the present value on such redemption or repurchase date of the principal amount of such Note plus all required interest and Special Interest payments due on such Note through its Stated Maturity, such present value computed using a discount rate equal to the Treasury Rate plus 50 basis points over (B) the principal amount of such Note. "Appraised Value" means the fair market sale value as of a specified date of the appraised assets that would be obtained in an arm's length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy, as determined by an Independent Appraiser. "Asset Disposition" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) by the Company or any Restricted Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a "disposition") in one transaction or a series of related transactions, of (i) any shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares or shares required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary), (ii) all or substantially all the assets of any division or line of business of the Company or any Restricted Subsidiary or (iii) sales of aircraft, engines and related equipment (and leasehold interests therein) and any other assets of the Company or any Restricted Subsidiary outside of the ordinary course of business of the Company or such Restricted Subsidiary; provided that "Asset Disposition" shall not include (A) any sale, lease, transfer or other disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Restricted Subsidiary, (B) any sale, lease, transfer or other disposition that constitutes a Restricted Payment permitted by the covenant described under "--Certain Covenants-Limitation on Restricted Payments", (C) any sale, lease, transfer or other dispositions of (i) inventory, (ii) Receivables or (iii) other current assets in the ordinary course of business, (D) any sale, lease, transfer or other dispositions of assets for consideration at least equal to the fair market value of the assets sold or disposed of, to the extent that the consideration received would constitute Additional Assets, (E) any sale, lease, transfer or other disposition of the Company's direct or indirect interest in Worldspan, (F) any sale, lease, transfer or other disposition of aircraft and related engines, spare parts and equipment (including ground equipment) or leasehold interests therein which are obsolete or which have been grounded and held for resale or are of a type no longer used by the Company in the ordinary course of business, (G) any Sale/Leaseback Transaction permitted by clause (i) of the "Sale and Leaseback" covenant or (H) any sale, lease, transfer or other disposition of maintenance bases, hangars and engine shops. "Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate borne by the Notes) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Average Life" means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (ii) the sum of all such payments. "Board of Directors" means the Board of Directors of the Company or any committee of such board duly authorized to act in respect of any particular matter. "Business Day" means each day which is not a Legal Holiday. "Capital Lease Obligations" means an obligation that is required to be classified and accounted for as a capital lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Capital Stock" of any Person means any and all shares interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "Change in Control" means the occurrence of any of the following events: (i) any person (including any entity or group deemed to be a "person" under Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) is or becomes the direct or indirect beneficial owner (as determined in accordance with Rule 13d-3 under the Exchange Act) of shares of the Company's Capital Stock representing greater than 50% of the total voting power of all shares of Capital Stock of the Company entitled to vote in the election of directors under ordinary circumstances or to elect a majority of the Board of Directors, (ii) the Company sells, transfers or otherwise disposes of all or substantially all of its assets, (iii) when, during any period of 12 consecutive months after the Issue Date, individuals who at the beginning of any such 12-month period constituted the Board of Directors (together with any new directors whose election by such Board or whose nomination for election by the stockholders of the Company was approved by a vote of a majority of the directors still in office entitled to vote with respect to such nomination who were either directors at the beginning of such period or whose election or nomination for election was previously so approved, but excluding any of the individuals who at the beginning of such 12-month period constituted such Board but who ceased to be a member of the Board pursuant to the Company's mandatory retirement policy as in effect as of the Issue Date), cease for any reason to constitute a majority of the Board of Directors then in office or (iv) the date of the consummation of the merger or consolidation of the Company with another corporation where the stockholders of the Company, immediately prior to the merger or consolidation, would not beneficially own, immediately after the merger or consolidation, shares entitling such stockholders to 50% or more of all votes (without consideration of the rights of any class of stock to elect directors by a separate class vote) to which all stockholders of the corporation issuing cash or securities in the merger or consolidation would be entitled in the election of directors or where members of the Board of Directors, immediately prior to the merger or consolidation, would not, immediately after the merger or consolidation, constitute a majority of the board of directors of the corporation issuing cash or securities in the merger or consolidation. "Code" means the Internal Revenue Code of 1986, as amended. "Consolidated Coverage Ratio" as of any date of determination means the ratio of (i) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which financial statements have been made publicly available to (ii) Consolidated Fixed Charges for such four fiscal quarters; provided, however, that (a) if the Company or any Restricted Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and Consolidated Fixed Charges for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, (b) if the Company or any Restricted Subsidiary has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of such period or if any Indebtedness is to be repaid, repurchased, defeased or otherwise discharged (in each case other than Indebtedness Incurred under any revolving credit facility unless such Indebtedness has been permanently repaid and has not been replaced) on the date of the transaction giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and Consolidated Fixed Charges for such period shall be calculated on a pro forma basis as if such discharge had occurred on the first day of such period, (c) if since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period, or increased by an amount equal to the EBITDA (if negative), directly attributable thereto for such period and Consolidated Fixed Charges for such period shall be reduced by an amount equal to the Consolidated Fixed Charges directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Fixed Charges for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such disposition), (d) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction requiring a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, EBITDA and Consolidated Fixed Charges for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period, and (e) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition, any Investment or acquisition of assets that would have required an adjustment pursuant to clause (c) or (d) above if made by the Company or a Restricted Subsidiary during such period, EBITDA and Consolidated Fixed Charges for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition, Investment or acquisition occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Fixed Charges associated with any Indebtedness Incurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest of such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term in excess of one year). "Consolidated Fixed Charges" means, for any period, the sum of (i) the Consolidated Interest Expense for such period plus (ii) dividends declared during such period with respect to Preferred Stock that is Disqualified Stock. "Consolidated Interest Expense" means, for any period, the total interest expense of the Company and its consolidated Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP, plus, to the extent not included in such total interest expense, and to the extent incurred by the Company or its Restricted Subsidiaries, without duplication, (i) interest expense attributable to capital leases, (ii) amortization of debt discount and debt issuance cost, (other than in respect of the Notes) (iii) capitalized interest, (iv) non-cash interest expense, (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (vi) net costs associated with Hedging Obligations (including amortization of fees), (vii) interest incurred in connection with Investments in discontinued operations, (viii) interest accruing on any Indebtedness of any other Person to the extent such Indebtedness is Guaranteed by (or secured by the assets of) the Company or any Restricted Subsidiary and (ix) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust. "Consolidated Net Income" means, for any period, the net income of the Company and its consolidated Subsidiaries; provided, however, that there shall not be included in such Consolidated Net Income: (a) any net income of any Person (other than the Company) if such Person is not a Restricted Subsidiary, except that (i) subject to the exclusion contained in clause (d) below, the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to a Restricted Subsidiary, to the limitations contained in clause (c) below) and (ii) the Company's equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income; (b) any net income (or loss) of any Person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (c) any net income of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that (i) subject to the exclusion contained in clause (d) below, the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to another Restricted Subsidiary, to the limitation contained in this clause) and (ii) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (d) any gain or loss realized upon the sale or other disposition of any assets of the Company or its consolidated Subsidiaries (including pursuant to any sale-and-leaseback arrangement) which is not sold or otherwise disposed of in the ordinary course of business and any gain or loss realized upon the sale or other disposition of any Capital Stock of any Person; (e) extraordinary, unusual and non-recurring gains or losses; and (f) the cumulative effect of a change in accounting principles since the Issue Date. Notwithstanding the foregoing, for the purposes of the covenant described under "Certain Covenants--Limitation on Restricted Payments" only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under such covenants pursuant to clause (a)(3)(C) thereof. "Consolidated Net Worth" means the total of the amounts shown on the balance sheet of the Company and its consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of the end of the most recent fiscal quarter of the Company for which financial statements have been made publicly available prior to the taking of any action for the purpose of which the determination is being made, as (i) the par or stated value of all outstanding Capital Stock of the Company plus (ii) paid-in capital or capital surplus relating to such Capital Stock plus (iii) any retained earnings or earned surplus less (A) any accumulated deficit and (B) only to the extent otherwise included in the amount specified in clauses (i), (ii) or (iii) of this definition, any amounts attributable to Disqualified Stock. "Currency Agreement" means in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement to which such Person is a party or a beneficiary designed to protect such Person against fluctuations in currency values and not for the purpose of speculation. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Disqualified Stock" means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise prior to the first anniversary of the Stated Maturity of the Notes, (ii) is convertible or exchangeable for Indebtedness with a Stated Maturity prior to the first anniversary of the Stated Maturity of the Notes or Disqualified Stock or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to the first anniversary of the Stated Maturity of the Notes; provided, however, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset disposition" or "change of control" occurring prior to the first anniversary of the Stated Maturity of the Notes shall not constitute Disqualified Stock if the "asset disposition" or "change of control" provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the provisions described under "--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" and "--Repurchase of Notes Upon Change in Control". "EBITDA" for any period means the sum of Consolidated Net Income, plus Consolidated Interest Expense plus the following to the extent deducted in calculating such Consolidated Net Income: (a) all income tax expense of the Company and its consolidated Restricted Subsidiaries, (b) depreciation expense of the Company and its consolidated Restricted Subsidiaries, (c) amortization expense of the Company and its consolidated Restricted Subsidiaries (excluding amortization expense attributable to a prepaid cash item that was paid in a prior period) and (d) all other noncash charges of the Company and its consolidated Restricted Subsidiaries (excluding any such noncash charge to the extent that it represents an accrual of or reserve for cash expenditures in any future period), in each case for such period. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization and noncash charges of, a Restricted Subsidiary shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Restricted Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Restricted Subsidiary or its stockholders. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fuel Protection Agreements" means in respect to a Person any fuel protection agreement or other financial agreement or arrangement designed to protect such Person against fluctuations in market prices of aircraft fuels and not for the purpose of speculation. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Issue Date, including those set forth in (i) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, (ii) statements and pronouncements of the Financial Accounting Standards Board, (iii) such other statements by such other entity as approved by a significant segment of the accounting profession and (iv) the rules and regulations of the SEC governing the inclusion of financial statements (including pro forma financial statements) in periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the SEC. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement condition or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing any obligation. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement, Fuel Protection Agreement or Currency Agreement. "Holder" or "Noteholder" means the Person in whose name a Note is registered on the Registrar's books. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used as a noun shall have a correlative meaning. The accretion of principal of a non-interest bearing or other discount security shall be deemed the Incurrence of Indebtedness. Neither the accrual of interest, the accretion of original issue discount or fluctuations in exchange rates of currencies shall be considered an Incurrence of Indebtedness. Any change in GAAP that results in an obligation of such Person that exists at such time becoming Indebtedness shall not be considered an Incurrence of Indebtedness. "Indebtedness" means, with respect to any Person on any date of determination (without duplication): (a) the principal of and premium (if any) in respect of (i) indebtedness of such Person for money borrowed and (ii) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable, including, in each case, any premium on such indebtedness to the extent such premium has become due and payable; (b) all Capital Lease Obligations of such Person; (c) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (d) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in clauses (i) through (iii) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit); (e) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary of such Person, the liquidation preference with respect to, any Preferred Stock (but excluding, in each case, any accrued dividends); (f) all obligations of the type referred to in clauses (a) through (e) above of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee; (g) all obligations of the type referred to in clauses (i) through (vi) above of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; and (viii) to the extent not otherwise included in this definition, Hedging Obligations of such Person. The "amount" or "principal amount" of Indebtedness at any time of determination as used herein represented by (a) any contingent Indebtedness, shall be the maximum principal amount thereof, (b) any Indebtedness issued at a price that is less than the principal amount at maturity thereof, shall be the amount of the liability in respect thereof determined in accordance with GAAP and (c) any Disqualified Stock, shall be the maximum fixed redemption or repurchase price in respect thereof. "Interest Rate Agreement" means in respect of a Person any interest rate swap agreement, interest rate cap agreement or other financial agreement or arrangement designed to protect such Person against fluctuations in interest rates and not for the purpose of speculation. "Investment" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of the lender) or other extensions of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of transfer of cash or other property to others or any payment for property or other services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. For purposes of the definition of "Unrestricted Subsidiary", the definition of "Restricted Payment" and the covenant described under "--Certain Covenants-Limitation on Restricted Payments", (i) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors. "Issue Date" means the date on which the Notes are originally issued. "Legal Holiday" means a Saturday, Sunday or any other day on which banks located in New York City or the city and state of the Trustee's corporate trust office as of the Issue Date are authorized or obligated by law to remain closed. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Net Available Cash" from an Asset Disposition means cash payments received therefrom (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise and proceeds from the sale or other disposition of any securities received as consideration, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of indebtedness or other obligations relating to such properties or assets or received in any other noncash form), in each case net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be accrued as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon or other security agreement of any kind with respect to such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition and (iv) the deduction of appropriate amounts provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the property or other assets disposed in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition. "Net Cash Proceeds" means, with respect to any issuance or sale of Capital Stock, the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Offer to Purchase" means an offer to purchase all or a pro rata portion, as the case may be, of the Notes by the Company from the Holders commenced by the mailing (by first class mail, postage prepaid) by the Company (or, if requested by the Company on at least five Business Days prior notice to the Trustee and at the Company's expense, by the Trustee) of a notice to each Holder (and, if mailed by the Company, to the Trustee) at such Holder's address appearing in the Note register, stating: (i) the covenant pursuant to which the offer is being made and that all Notes validly tendered will be accepted for payment on a pro rata basis; (ii) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Payment Date"); (iii) that any Note not tendered will continue to accrue interest pursuant to its terms; (iv) that, unless the Company defaults in the payment of the purchase price, any Note accepted for payment pursuant to the Offer to Purchase shall cease to accrue interest on and after the Payment Date; (v) that Holders electing to have a Note purchased pursuant to the Offer to Purchase will be required to surrender the Note, together with the form entitled "Option of the Holder to Elect Purchase" attached to or on the reverse side of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the Payment Date (or, if such day is a Legal Holiday, on the next subsequent day which is not a Legal Holiday), and such Holder shall be entitled to receive from the Paying Agent a non-transferable receipt of deposit evidencing such deposit; (vi) that, unless the Company defaults in making the payment of the purchase price or shall otherwise, in its sole discretion, consent thereto, Holders will be entitled to withdraw their election only if the Trustee receives, not later than the close of business on the fifth Business Day immediately preceding the Payment Date, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Notes delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; and (vii) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. The Company shall place such notice in a financial newspaper of general circulation in New York City. No failure of the Company to give the foregoing notice shall limit any Holder's right to exercise a repurchase right. On the Payment Date, the Company shall (i) accept for payment on a pro rata basis Notes or portions thereof tendered pursuant to an Offer to Purchase; (ii) deposit with the Trustee money sufficient to pay the purchase price of all Notes or portions thereof so accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Notes or portions thereof so accepted together with an officers' certificate specifying the Notes or portions thereof accepted for payment by the Company. The Trustee shall promptly mail to the Holders of Notes so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate, and the Company shall promptly execute and mail (or cause to be mailed) to such Holders a new Note equal in principal amount to any unpurchased portion of the Note surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof; provided further that if the Payment Date is between a regular record date and the next succeeding interest payment date, Notes to be repurchased must be accompanied by payment of an amount equal to the interest and Special Interest, if any, payable on such succeeding interest payment date on the principal amount to be repurchased, and the interest on the principal amount of the Note being repurchased, and Special Interest, if any, with respect thereto, will be paid on such next succeeding interest payment date to the registered holder of such Note on the immediately preceding record date. A Note repurchased on an interest payment date need not be accompanied by any such payment, and the interest on the principal amount of the Note being repurchased and Special Interest, if any, with respect thereto, will be paid on such interest payment date to the registered holder of such Note on the corresponding record date. The Company will publicly announce the results of an Offer to Purchase as soon as practicable after the Payment Date. The Trustee shall act as the Paying Agent for an Offer to Purchase. The Company will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that the Company is required to repurchase Notes pursuant to an Offer to Purchase. Both the notice of the Company and the notice of the Holder having been given as specified above, the Notes so to be repurchased shall, on the Payment Date become due and payable at the purchase price applicable thereto and from and after such date (unless the Company shall default in the payment of such purchase price) such Notes shall cease to bear interest. If any Note shall not be paid upon surrender thereof for repurchase, the principal shall, until paid, bear interest from the Payment Date at the rate borne by such Note. Any Note which is to be submitted for repurchase only in part shall be delivered pursuant to the above provisions with (if the Company or Trustee so requires) due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing. "Payment Date" with respect to any Offer to Purchase, has the meaning specified in the definition herein of Offer to Purchase. "Permitted Investment" means an Investment by the Company or any Restricted Subsidiary in (i) the Company, a Restricted Subsidiary or a Person that will, upon the making of such Investment, become a Restricted Subsidiary; (ii) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; (iii) Temporary Cash Investments; (iv) receivables owing to the Company or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances; (v) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (vi) loans or advances to employees made in the ordinary course of business consistent with past practices of the Company or such Restricted Subsidiary in an aggregate amount outstanding at any time of not more than $1.0 million; (vii) any Investment arising as a result of any Hedging Obligations; (viii) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments; (ix) any Investment to the extent such Investment represents the non-cash portion of the consideration received for an Asset Disposition as permitted pursuant to the covenant described under "--Certain Covenants-Limitation on Sales of Assets and Subsidiary Stock" and (x) Investments in the normal course of business in any Persons the primary business of which is substantially related, ancillary or complementary to the airline business. "Permitted Liens" means, with respect to any Person, (a) Liens existing or securing Indebtedness existing (or for which a written commitment has been made on or prior to the Issue Date) on the Issue Date; (b) Liens granted on or after the Issue Date in favor of the holders of the Notes or the Exchange Notes; (c) Liens with respect to the assets of a Restricted Subsidiary granted by such Restricted Subsidiary to the Company to secure Indebtedness owing to the Company by such Restricted Subsidiary; (d) Liens for employee wages and pledges or deposits by such Person under worker's compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits of cash or United States government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case Incurred in the ordinary course of business; (e) Liens imposed by law, such as carriers', warehousemen's and mechanics' Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings or other Liens arising out of judgments or awards against such Person with respect to which such Person shall then be proceeding with an appeal or other proceedings for review; (f) Liens for property taxes not yet subject to penalties for non-payment or which are being contested in good faith and by appropriate proceedings; (g) Liens in favor of issuers of surety bonds or letters of credit issued pursuant to the request of and for the account of such Person in the ordinary course of business; provided, however, that such letters of credit do not constitute Indebtedness; (h) minor survey exceptions, minor encumbrances, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property or Liens incidental to the conduct of the business of such Person or to the ownership of its properties which were not Incurred in connection with Indebtedness and which do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person; (i) any Lien securing Aircraft Acquisition Debt, which Lien is Incurred when such Indebtedness is Incurred and which Lien does not extend to property other than aircraft, related engines or spare engines, spare parts or related equipment (including ground equipment) financed thereby; (j) Liens on property or shares of Capital Stock of another Person at the time such other Person becomes a Subsidiary of such Person; provided, however, that such Liens are not created, incurred or assumed in connection with, or in contemplation of, such other Person becoming such a Subsidiary; provided further, however, that such Lien may not extend to any other property owned by such Person or any of its Subsidiaries; (k) Liens on property at the time such Person or any of its Subsidiaries acquires the property, including any acquisition by means of a merger or consolidation with or into such Person or a Subsidiary of such Person; provided, however, that such Liens are not created, incurred or assumed in connection with, or in contemplation of, such acquisition; provided further, however, that the Liens may not extend to any other property owned by such Person or any of its Subsidiaries; (l) Liens securing Hedging Obligations permitted under the Indenture; (m) any Lien or pledge created or subsisting in the ordinary course of business over documents of title, insurance policies or sale contracts in relation to commercial goods to secure the purchase price thereof; (n) Liens to secure any Refinancing (or successive Refinancings) as a whole, or in part, of any Indebtedness secured by any Lien referred to in clauses (a), (i), (j), (k) and (r);provided, however, that (x) such new Lien shall be limited to all or part of the same property that secured the original Lien (plus improvements to or on such property) and (y) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (A) the outstanding principal amount, or, if greater, committed amount of the Indebtedness described under clause (a), (i), (j), (k) and (r) at the time the original Lien became a Permitted Lien and (B) an amount necessary to pay any fees and expenses, including premiums, related to such Refinancing; (o) Liens with respect to Indebtedness permitted pursuant to clauses (b)(5), (b)(12) or (b)(16) of "--Certain Covenants-Limitation on Indebtedness" above; (p) Liens securing any future interest payable with respect to any Indebtedness on cash and cash equivalents which constituted a portion of the net proceeds to the Company or a Restricted Subsidiary from the issuance of such Indebtedness; (q) Liens securing Indebtedness or other obligations of a Subsidiary of such Person owing to such Person or a wholly owned Subsidiary of such Person; (r) Liens on Receivables (or on the Capital Stock and assets of any special purpose Subsidiary formed solely for the purpose of effecting a Receivables based financing transaction) securing Indebtedness permitted under clause (b)(15) of the covenant described under "--Certain Covenants-Limitation on Indebtedness" above; and (s) any judgment Lien, unless the judgment it secures shall not, within sixty (60) days after the entry thereof, have been discharged, vacated or reversed or the execution thereof stayed pending appeal, or shall not have been discharged, vacated or reversed within sixty (60) days after the expiration of any such stay. "Person" means any individual, corporation, partnership, limited liability issuer, joint venture, association, joint-stock issuer, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock" as applied to the Capital Stock of any Person means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. "Principal" of a Note means the principal of the Note plus the premium, if any, payable on the Note which is due or overdue or is to become due at the relevant time. "Public Equity Offering" means an underwritten primary public offering of common stock of the Company pursuant to an effective registration statement under the Securities Act. "Receivables" means accounts receivables, chattel paper, instruments, documents or general intangibles evidencing or relating to the right to payment of money and other similar assets, in each case, relating to such receivables, including any interest in merchandise or goods, the sale or lease of which gave rise to such receivables, related contractual rights, guarantees, insurance proceeds, collections, other related assets and proceeds of all of the foregoing. "Refinance" means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue other Indebtedness in exchange for, such Indebtedness. "Refinanced" or "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means Indebtedness that Refinances any Indebtedness of the Company or any Restricted Subsidiary existing on the Issue Date or Incurred in compliance with the Indenture, including Indebtedness that Refinances Refinancing Indebtedness; provided, however, that (i) such Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being Refinanced, (ii) such Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being Refinanced and (iii) such Refinancing Indebtedness has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding or committed (plus fees and expenses, including any premium and defeasance costs) under the Indebtedness being Refinanced; provided further, however, that Refinancing Indebtedness shall not include (x) Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary. "Restricted Payment" with respect to any Person means (i) the declaration or payment of any dividends or any other distributions of any sort in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving such Person) or similar payment to the direct or indirect holders of its Capital Stock (other than dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock) and dividends or distributions payable solely to the Company or a Restricted Subsidiary, and other than pro rata dividends or other distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation)), (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company held by any Person or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the Company (other than a Restricted Subsidiary and other than pro rata purchases, redemptions, acquisitions or retirements made by a Subsidiary that is not a Wholly-Owned Subsidiary), including the exercise of any option to exchange any Capital Stock (other than into Capital Stock of the Company that is not Disqualified Stock), (iii) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of any Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition) or (iv) the making of any Investment in any Person (other than a Permitted Investment). Any purchase or redemption of Capital Stock by an employee stock ownership or benefit plan shall not constitute a Restricted Payment except to the extent, if any, that such purchase or redemption is financed by the Company or its Restricted Subsidiaries. "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers such property to a Person and the Company or a Restricted Subsidiary leases it from such Person. "SEC" means the Securities and Exchange Commission. "Senior Indebtedness" of any Person means (i) Indebtedness of such Person, whether outstanding on the Issue Date or thereafter Incurred and (ii) accrued interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company to the extent post-filing interest is allowed in such proceeding) in respect of (A) indebtedness for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable unless, in the case of (i) and (ii), in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are subordinate in right of payment to the Notes; provided, however, that Senior Indebtedness shall not include (1) any obligation of such Person to any Subsidiary of such Person, (2) any liability for Federal, state local or other taxes owed or owing by such Person, (3) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including guarantees thereof or instruments evidencing such liabilities), (4) any Indebtedness of such Person (and any accrued interest in respect thereof) which is subordinate or junior in any respect to any other Indebtedness or other obligation of such Person or (5) that portion of any Indebtedness which at the time of Incurrence is Incurred in violation of the Indenture. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred). "Subordinated Obligation" means any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in right of payment to the Notes pursuant to a written agreement to that effect. "Subsidiary" means, in respect of any Person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including membership or partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person. "Subsidiary Guaranty" means the Guarantee by a Restricted Subsidiary of the Company's obligations with respect to the Notes. The form of such Guarantee is provided for in the Indenture. Each Subsidiary Guaranty will be limited in amount to an amount not to exceed the maximum amount that can be guaranteed by the applicable Restricted Subsidiary without rendering the Subsidiary Guaranty, as it relates to such Restricted Subsidiary, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. "Temporary Cash Investments" means any of the following: (i) any investment in U.S. Government Obligations; (ii) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust issuer which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States, and which bank or trust issuer has capital, surplus and undivided profits aggregating in excess of $50.0 million (or the foreign currency equivalent thereof) and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money market fund sponsored by a registered broker dealer or mutual fund distributor; (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) above entered into with a bank meeting the qualifications described in clause (ii) above; (iv) investments in commercial paper, maturing not more than 90 days after the date of acquisition, issued by corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc., or "A-1" (or higher) according to Standard & Poor's Ratings Group; and (v) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc. "Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) which has become publicly available at least two business days prior to such redemption or repurchase date (or, if such Statistical Release is no longer published, any publicly available source or similar market data)) most nearly equal to the period from such redemption or repurchase date to the Stated Maturity of the Notes; provided, however, that if the period from such redemption or repurchase date to the Stated Maturity of the Notes is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided, however, that either (A) the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, such designation would be permitted under the covenant described under "--Certain Covenants-Limitation on Restricted Payments". The Board of Directors may designate any Unrestricted Subsidiary to a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation (x) the Company could Incur $1.00 of additional Indebtedness under paragraph (a) of the covenant described under "--Certain Covenants-Limitation on Indebtedness" and (y) no Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be made by the Company to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the Company's option. "Voting Stock" of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. "Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or one or more Wholly Owned Subsidiaries. BOOK-ENTRY, DELIVERY AND FORM General Each of the Old Notes was issued in the form of one or more fully registered Old Notes in global form ("Old Global Notes"). All Exchange Notes issued in the Exchange Offer for Old Notes represented by Old Global Notes will be represented by one or more Exchange Notes in global form (the "Global Exchange Note," and together with the Old Global Notes, the "Global Notes"), which will be deposited with, or on behalf of, the DTC and registered in the name of the DTC or its nominee. Holders of Exchange Notes who elect to take physical delivery of their certificates instead of holding their interest through the Global Exchange Note (collectively referred to herein as the "Non-Global Holders") will be issued in registered form a certificated Exchange Note ("Certificated Exchange Note"). Upon the transfer of any Certificated Exchange Note initially issued to a Non-Global Holder, such Certificated Exchange Note will, unless the transferee requests otherwise or the Global Exchange Note has previously been exchanged in whole for Certificated Exchange Notes, be exchanged for an interest in the Global Exchange Note. Global Notes Upon deposit of the Global Exchange Note, DTC will credit, on its book-entry registration and transfer system interests in the Global Exchange Note to the accounts of institutions that have accounts with DTC (including Euroclear and Cedel) ("participants"). Ownership of beneficial interests in the Global Exchange Note will be limited to participants or persons that may hold interests through participants. Ownership of beneficial interests in the Global Exchange Note will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC (with respect to participants' interests) for the Global Exchange Note, or by participants or persons that hold interests through participants (with respect to beneficial interests of persons other than participants). The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and laws may impair the ability to transfer or pledge beneficial interests in the Global Exchange Note. So long as DTC, or its nominee, is the registered holder of any Global Notes, DTC or such nominee, as the case may be, will be considered the sole legal owner and holder of such Notes represented by such Global Notes for all purposes under the Indenture and the Notes. Except as set forth below, owners of beneficial interests in Global Notes will not be entitled to have such Global Notes represented thereby registered in their names, will not receive or be entitled to receive physical delivery of certificates representing Notes in definitive, fully registered form bearing a legend containing the applicable restrictions on transfers ("Definitive Notes") in exchange therefor and will not be considered to be the owners or holders of such Global Notes represented thereby for any purpose under the Notes or the Indenture. The Company understands that under existing industry practice, in the event an owner of a beneficial interest in a Global Note desires to take any action that DTC, as the holder of such Global Note, is entitled to take, DTC would authorize the participants to take such action, and that the participants would authorize beneficial owners owning through such participants to take such action or would otherwise act upon the instructions of beneficial owners owning through them. Any payment of principal, interest or Special Interest due on the Notes on any interest payment date or at maturity will be made available by the Company to the Trustee by such date. As soon as possible thereafter, the Trustee will make such payments to DTC or its nominee, as the case may be, as the registered owner of the Global Notes representing such Notes in accordance with existing arrangements between the Trustee and DTC. The Company expects that DTC or its nominee, upon receipt of any payment of principal, interest or Special Interest in respect of the Global Notes, will credit immediately the accounts of the related participants with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Note as shown on the records of DTC. The Company also expects that payments by participants to owners of beneficial interests in the Global Notes held through such participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such participants. None of the Company, the Trustee, or any payment agent for the Global Notes will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in any of the Global Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests or for other aspects of the relationship between DTC and its participants or the relationship between such participants and the owners of beneficial interests in the Global Securities owning through such participants. As long as the Notes are represented by a Global Note, DTC's nominee will be the holder of the Notes and therefore will be the only entity that can exercise a right to repayment or repurchase of the Notes. See "Description of Notes--Repurchase of Notes Upon a Change in Control." Notice by participants, or by owners of beneficial interests in a Global Note held through such participants, of the exercise of the option to elect repayment of beneficial interests in Notes represented by a Global Note must be transmitted to DTC in accordance with its procedures on a form required by DTC and provided to participants. In order to ensure that DTC's nominee will timely exercise a right to repayment with respect to a particular Note, the beneficial owner of such Note must instruct the broker or other participant to exercise a right to repayment. Different firms have cut-off times for accepting instructions from their customers and, accordingly, each beneficial owner should consult the broker or other participant through which it holds an interest in a Note in order to ascertain the cut-off time by which such an instruction must be given in order for timely notice to be delivered to DTC. The Company will not be liable for any delay in delivery of notices of the exercise of the option to elect repayment. Unless and until exchanged in whole or in part for Notes in definitive form in accordance with the terms of the Notes, the Global Notes may not be transferred except as a whole by DTC to a nominee of DTC, or by a nominee of DTC to DTC or another nominee of DTC, or by DTC or any such nominee to a successor of DTC or a nominee of each successor. Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Notes among its participants, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Trustee nor the Company will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. The Company and the Trustee may conclusively rely on, and shall be protected in relying on, instructions from DTC for all purposes. Definitive Notes Upon transfer of Old Notes in definitive, fully registered form bearing a legend containing restrictions on transfers ("Definitive Old Notes") to a Qualified Institutional Buyer, such Definitive Notes will be transferred to the corresponding Old Global Note. Old Global Notes and the Global Exchange Note shall be exchangeable for corresponding Definitive Old Notes and Certificated Exchange Notes, respectively, registered in the name of persons other than DTC or its nominee if (A) DTC (i) notifies the Company that it is unwilling or unable to continue as DTC for any of the Global Notes or (ii) at any time ceases to be a clearing agency registered under the Exchange Act, (B) there shall have occurred and be continuing an Event of Default (as defined in the Indenture) with respect to the Notes or (C) the Company executes and delivers to the Trustee an order that the Global Notes shall be so exchangeable. Any Definitive Notes will be issued only in fully registered form and shall be issued without coupons in denominations of $1,000 and integral multiples thereof. Any Definitive Notes issued in exchange for a Global Note will be registered in such names and in such denominations as DTC shall request. The Clearing System DTC has advised the Company as follows: DTC is a limited-purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities of participants and to facilitate the clearance and settlement of securities transactions among its participants in such securities through electronic book-entry changes in accounts of participants, thereby eliminating the need for physical movement of securities certificates. DTC's participants include securities brokers and dealers (which may include the Initial Purchaser), banks, trust companies, clearing corporations and certain other organizations. Access to DTC's book-entry system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, whether directly or indirectly. Settlement Initial settlement in the Notes will be in same-day funds. Investors holding their Notes through DTC will follow settlement practices applicable to United States corporate debt obligations. The Indenture will require that payments in respect of Notes (including principal, premium, interest and Special Interest) be made by wire transfer of same-day funds to the accounts specified by the holders thereof or, if no such account is specified, by mailing a check to each such holder's registered address. DESCRIPTION OF CAPITAL STOCK Pursuant to TWA's Certificate of Incorporation, the Company has the authority to issue 287.5 million shares of capital stock, consisting of 150 million shares of Common Stock, and 137.5 million additional shares of preferred stock. The Certificate of Incorporation authorizes the Board of Directors to establish one or more series of preferred stock and to establish such relative voting, dividend, redemption, liquidation, conversion and other powers, preferences, rights, qualifications, limitations and restrictions as the Board of Directors may determine without further approval of the stockholders of the Company. The issuance of preferred stock by the Board of Directors could, among other things, adversely affect the voting power of the holders of Common Stock and, under certain circumstances, make it more difficult for a person or group to gain control of the Company. See "Certain Provisions of the Certificate of Incorporation, the By-laws and Delaware Law." The issuance of any series of preferred stock, and the relative powers, preferences, rights, qualifications, limitations and restrictions of such series, if and when established, will depend upon, among other things, the future capital needs of the Company, the then existing market conditions and other factors that, in the judgment of the Board of Directors, might warrant the issuance of preferred stock. At the date of this Offering Memorandum, there are no plans, agreements or understandings relative to the issuance of any additional series of preferred stock other than the Series A Preferred Stock issuable pursuant to the Rights. Description of Common Stock The holders of the Common Stock are entitled to one vote per share on all matters voted on by stockholders, including elections of directors, and, except for the voting rights of the holders of Employee Preferred Stock (who are entitled to elect a total of four directors to the Board) and, under certain circumstances, the 1997 Preferred Stock and 8% Preferred Stock, and as otherwise required by law or provided in any resolution adopted by the Board of Directors with respect to any series of the preferred stock, the holders of such shares exclusively possess all voting power. The Certificate of Incorporation does not provide for cumulative voting in the election of directors but the Board is classified, which means that the holders of a majority of the shares entitled to vote at a meeting at which a quorum is present can elect all of the directors of the class then to be elected (except that the holders of a majority of the shares of Employee Preferred Stock are exclusively entitled to elect four labor directors) and the holders of the remaining shares would not be able to elect any directors at that meeting. Subject to any preferential rights of the 8% Preferred Stock, the 1997 Preferred Stock or any other outstanding series of Preferred Stock entitled to vote in the election of directors, the holders of Common Stock are entitled to such dividends as may be declared from time to time by the Board of Directors from funds available therefor, and upon liquidation are entitled to receive pro rata all assets of the Company available for distribution to such holders. The holders of Common Stock have no preemptive rights and no rights to convert their shares of Common Stock into any other security. It is not presently anticipated that dividends will be paid on the Common Stock in the foreseeable future. All outstanding shares of Common Stock are fully paid and nonassessable, and the shares of Common Stock issuable upon conversion of the 1997 Preferred Stock and the 8% Preferred Stock and, if issued, upon conversion of the 9 1/4% Convertible Subordinated Debentures due 2007 (the "2007 Debentures") and the 8% Convertible Subordinated Debentures due 2006 (the "2006 Debentures") will be, upon issuance, fully paid and nonassessable. As of March 26, 1998, 51,896,129 shares of Common Stock were issued and outstanding and were held by approximately 21,606 holders of record. Rights Plan The Board of Directors of the Company declared a dividend distribution of one right (a "Right") for each outstanding share of Common Stock and Employee Preferred Stock (collectively, the "Voting Stock") payable to holders of record as of the close of business on January 12, 1996 (the "Record Date") and, thereafter, all Common Stock issued by the Company has had an equivalent number of Rights attendant to it. Each Right entitles the holder to purchase, after the Distribution Date (as defined below), from the Company one one-hundredth of a share of Series A Preferred Stock of the Company at a price of $47.50 (the "Purchase Price"). The description and terms of the Rights are set forth in a Rights Agreement, dated as of December 19, 1995 between the Company and American Stock Transfer & Trust Company, as Rights Agent (the "Rights Agent") as supplemented. The Rights Plan is set forth in full in the Rights Agreement and the description thereof herein is qualified in its entirety by reference to such Rights Agreement. Until the earlier to occur of (a) the tenth day after public announcement that any person or group has become the beneficial owner of at least 15% of the Company's Voting Stock (other than pursuant to a "Permitted Offer," as defined below) and (b) the tenth business day after the date of the commencement of a tender or exchange offer (other than a Permitted Offer) by any person which would, if consummated, result in such person becoming the beneficial owner of at least 20% of the Voting Stock (the earlier of such dates being hereinafter called the "Distribution Date"), the Rights will be evidenced, with respect to any of the Voting Stock certificates outstanding as of the Record Date, by such Voting Stock certificates. Each share of Voting Stock issued or delivered by the Company after the Record Date but prior to the earlier of the Distribution Date or the expiration of the Rights shall be accompanied by one Right. The Rights Agreement provides that, until the Distribution Date, the Rights will be transferred with and only with the Voting Stock. Until the Distribution Date (or earlier redemption or expiration of the Rights), the surrender or transfer of any certificates for Voting Stock in respect of which Rights have been issued will also constitute the transfer of the Rights associated with the Voting Stock represented by such certificates. As soon as practicable after the Distribution Date, separate certificates evidencing the Rights (the "Right Certificates") will be mailed to holders of record of the Voting Stock as of the close of business on the Distribution Date and such separate Right Certificates alone will evidence the Rights. No Right is exercisable at any time prior to the Distribution Date. The Rights will expire on January 12, 2006 (the "Final Expiration Date") unless earlier exchanged or redeemed by the Company as described below. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including without limitation the right to vote or to receive dividends. Upon exercise, each Right shall be converted into one one-hundredth of a share of the Series A Preferred Stock. Holders of shares of Series A Preferred Stock are entitled to receive, when, as and if declared by the Board of Directors out of funds legally available therefor, quarterly dividends in an amount per share equal to the greater of (a) $1.00 and (b) 100 times the aggregate per share amount of all cash dividends or other distributions (other than dividends payable solely in shares of Common Stock), declared on the Common Stock since the first dividend payment date with respect to the Series A Preferred Stock. Dividends payable on the Series A Preferred Stock are cumulative. In addition, in the event the Company enters into any consolidation, merger, combination or other transaction in which shares of Common Stock are exchanged for or changed into other stock or securities, shares of Series A Preferred Stock shall be similarly exchanged for or changed into 100 times the aggregate amount of stock, securities, cash or other consideration. Subject to the rights of holders of the 1997 Preferred Stock and the 8% Preferred Stock, holders of shares of Series A Preferred Stock are entitled to 100 votes on all matters submitted to a vote of the stockholders of TWA, voting together as a single class, except as otherwise required by applicable law. In the event dividends payable on the Series A Preferred Stock shall be in arrears in an amount equal to six quarterly payments, all holders of the Series A Preferred Stock together with other holders of preferred stock entitled to vote, shall, voting together as a single class be entitled to elect one director to the Company's Board of Directors. In the event that any person or group (an "Acquiring Person") becomes the beneficial owner of at least 15% of the Company's Voting Stock, then each Right (other than Rights beneficially owned by the Acquiring Person and certain affiliated persons) will entitle the holder to elect to receive, without payment of the Purchase Price, a number of shares of the Company's Common Stock having a market value equal to the Purchase Price. The term "Acquiring Person" does not include (i) the Company, any of its subsidiaries or any employee benefit plan of the Company, except for any such employee benefit plan acting in concert with a third party (other than another employee benefit plan of the Company) or (ii) any person or group which becomes the beneficial owner of at least 15% of the Voting Stock pursuant to a "Permitted Offer" (as defined below). "Permitted Offer" means a tender or exchange offer by a Person for all outstanding shares of Voting Stock, which is made at a price and on such other terms determined by at least a majority of the Continuing Directors (as defined below) to be in the best interests of the Company and its stockholders. In the event that, after any person has become an Acquiring Person, (i) the Company is involved in a merger or other business combination in which the Company is not the surviving corporation or its Voting Stock is exchanged for other securities or assets or (ii) the Company and/or one or more of its subsidiaries sell or otherwise transfer assets or earning power aggregating more than 50% of the assets or earning power of the Company and its subsidiaries, taken as a whole, then each Right will entitle the holder to purchase, for the Purchase Price, a number of shares of common stock of the other party to such business combination or sale (or in certain circumstances, an affiliate) having a market value of two times the Purchase Price. At any time after any person has become an Acquiring Person (but before any person becomes the beneficial owner of at least 50% of the Voting Stock), a majority of the Company's Continuing Directors may exchange all or part of the Rights (other than the Rights beneficially owned by the Acquiring Person and certain affiliated persons) for shares of Common Stock at an exchange ratio of one share of Common Stock per Right. "Continuing Director" means (i) any member of the Board of Directors who was a member of the Board prior to the time an Acquiring Person becomes such or (ii) any person subsequently elected to the Board if he is recommended or approved by a majority of the Continuing Directors or, in the case of a successor to a director elected by holders of a series of Employee Preferred Stock, if such person is elected pursuant to the applicable terms of such Employee Preferred Stock. Continuing Directors do not include an Acquiring Person, an affiliate or associate of an Acquiring Person or any representative or nominee of the foregoing. The Company may redeem the Rights, in whole but not in part, at a price of $.01 per Right at any time prior to the close of business on the tenth day after public announcement that any person has become an Acquiring Person (subject to extension by a majority of the Continuing Directors). After the Distribution Date, the Rights Agreement may be amended in any respect that does not adversely affect the Rights holders (other than any Acquiring Person and certain affiliated persons). In addition, after any person has become an Acquiring Person, the Rights Agreement may be amended only with the approval of a majority of the Continuing Directors. Description of Employee Preferred Stock Pursuant to the '95 Reorganization, the Company issued an aggregate of 6,425,118 shares of Employee Preferred Stock to employee stock trusts for the benefit of certain domestic employees of the Company then represented by ALPA, IFFA and IAM pursuant to the terms of the '94 Labor Agreements (collectively, the "Employee Stock Trusts"). The Employee Preferred Stock was issued in three series designated ALPA Preferred Stock, IAM Preferred Stock and IFFA Preferred Stock. Except for an exclusive right to elect a certain number of directors to the Board of Directors and the liquidation preference described below under "--Liquidation Preference and Other Rights," the Employee Preferred Stock is the functional equivalent of Common Stock. The Employee Preferred Stock is junior to the 1997 Preferred Stock and the 8% Preferred Stock, as to the payment of dividends and the distribution of assets upon Liquidation. Dividends Subject to the issuance by the Company of preferred stock with senior rights (including the 1997 Preferred Stock and the 8% Preferred Stock), the holders of the Employee Preferred Stock are entitled to receive, when, as and if declared by the Board of Directors out of funds legally available therefor, dividends payable in cash, stock or otherwise. No dividends may be paid on the Common Stock unless an equivalent dividend is paid on the Employee Preferred Stock, and no dividends may be paid on the Employee Preferred Stock unless an equivalent dividend is paid on the Common Stock. It is not presently anticipated that dividends will be paid on the Employee Preferred Stock in the foreseeable future. Liquidation Preference and Other Rights Subject to the issuance by the Company of preferred stock with senior rights (including the 1997 Preferred Stock and the 8% Preferred Stock), upon any liquidation of the Company, holders of the Employee Preferred. Stock will be entitled to a liquidation preference equal to $.01 per share from TWA's net assets before any amounts are paid to, or on account of, the holders of Common Stock, and thereafter the remaining net assets of the Company will be distributed pro rata to the holders of the Employee Preferred Stock, the Common Stock and other equity securities of the Company which rank on a parity with such stock and with respect to such rights, all in accordance with their respective rights and interests. The Employee Preferred Stock does not have redemption rights. Automatic Conversion Each share of Employee Preferred Stock will automatically convert into one share of Common Stock upon the withdrawal of such share of Employee Preferred Stock from the Employee Stock Trust in which such share is held. Voting So long as any shares of ALPA Preferred Stock are outstanding, the holders of the ALPA Preferred Stock are entitled to one vote per share (i) on each matter submitted to a vote at a meeting of stockholders other than the election of directors and (ii) for the ALPA Director (defined below) to be elected at an annual meeting of stockholders. Such holders have the exclusive right to elect to the Board one director (the "ALPA Director"), which director shall be a Class II director. So long as any shares of IFFA Preferred Stock are outstanding, the holders of the IFFA Preferred Stock are entitled to one vote per share (i) on each matter submitted to a vote at a meeting of stockholders other than the election of directors and (ii) for the IFFA Director (defined below) to be elected at an annual meeting of stockholders. Such holders have the exclusive right to elect to the Board one director (the "IFFA Director"), which director shall be a Class II director. So long as any shares of IAM Preferred Stock are outstanding, the holders of the IAM Preferred Stock are entitled to one vote per share (i) on each matter submitted to a vote at a meeting of stockholders other than the election of directors and (ii) for the IAM Directors (defined below) to be elected at an annual meeting of stockholders. Such holders have the exclusive right to elect to the Board two directors (the "IAM Directors"), one of which directors shall be a Class II director and one of which shall be a Class III director. Amendment The Certificate of Designations, Preferences and Rights relating to each series of Employee Preferred Stock may be amended only upon the unanimous approval of the holders of the outstanding shares of such series of Employee Preferred Stock. Description of the 8% Preferred Stock The 8% Preferred Stock ranks on a parity with the 1997 Preferred Stock and on a parity with all other Preferred Stock, the terms of which expressly provide that it ranks on a parity with the 8% Preferred Stock with respect to dividends and amounts payable upon Liquidation. The 8% Preferred Stock ranks senior to the Common Stock, the Series A Preferred Stock, if issued, and the Employee Preferred Stock with respect to payment of dividends and amounts payable upon Liquidation. Dividends The holders of the 8% Preferred Stock are entitled to receive cumulative cash dividends at the rate of 8% per annum (equivalent to $4.00 per share per annum), when, as and if declared by the Board of Directors out of funds legally available therefor. Dividends and liquidated damages, if any, are payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year (and, in the case of any accrued but unpaid dividends, at such additional times and for such interim periods, if any, as determined by the Board of Directors) to the holders of record on the record dates, which shall be not more than 30 days nor less than 10 days preceding the payment dates. Dividends on the 8% Preferred Stock commenced to accrue on March 18, 1996 If dividends are not paid in full upon the 8% Preferred Stock and any other preferred stock ranking on a parity as to dividends with the 8% Preferred Stock, all dividends declared upon shares of 8% Preferred Stock and such other preferred stock ranking on a parity as to dividends with the 8% Preferred Stock will be declared pro rata so that in all cases the amount of dividends declared per share on the 8% Preferred Stock and such other preferred stock bear to each other the same ratio that accrued and unpaid dividends per share on the shares of the 8% Preferred Stock and such other preferred stock bear to each other. Except as set forth above, unless full cumulative dividends or the 8% Preferred Stock have been paid and funds set aside, and all liquidated damages, if any, paid, dividends (other than dividends paid solely in Common Stock or other stock ranking junior as to dividends and liquidation preference) may not be paid or declared and set aside for payment and other distributions may not be made upon the Common Stock or on any other stock of the Company ranking junior to or on a parity with the 8% Preferred Stock as to dividends and liquidation preference. Under such circumstances, such stock may not be redeemed, purchased, or otherwise acquired for any consideration by the Company. Conversion Rights Each share of 8% Preferred Stock may be converted at any time at the option of the holder, unless previously redeemed or exchanged, into fully paid, nonassessable shares of Common Stock at an initial conversion price of $20.269 per share of Common Stock (equivalent to a conversion rate of approximately 2.467 shares of Common Stock for each share of 8% Preferred Stock), subject to adjustments in certain circumstances. The right to convert 8% Preferred Stock called for redemption will expire at the close of business on the fifth business day prior to the redemption date. Whenever the Company issues shares of Common Stock upon conversion of 8% Preferred Stock, the Company will, subject to certain conditions, issue, together with each share of Common Stock, one Right, entitling the holder to purchase one one-hundredth of a share of Series A Preferred Stock under certain circumstances. No fractional shares of Common Stock will be issued upon conversion but, in lieu thereof, an appropriate amount will be paid in cash based on the closing price on the last trading day before the conversion date. The conversion price is subject to adjustment upon the occurrence of certain events. Optional Redemption by the Company The 8% Preferred Stock may not be redeemed prior to March 15, 1999. On or after March 15, 1999, the 8% Preferred Stock may be redeemed, in whole or in part, at the option of the Company, at a redemption price of $52.80 in 1999 and at a redemption price decreasing by $0.40 increments each March 15 thereafter until 2006, from which time the redemption price shall be and remain $50.00, in each case, plus accrued and unpaid dividends thereon to the date fixed for redemption. Liquidation Rights Upon any Liquidation of the Company, and after provision is made for any preferential amounts to which the holders of any senior preferred stock may be entitled, holders of 8% Preferred Stock will be entitled to receive from the Company's assets available for distribution to all stockholders $50.00 per share plus all accrued and unpaid dividends through the date of distribution or determination whether or not declared, and liquidated damages, if any, before any distribution is made on the Employee Preferred Stock or Common Stock, Series A Preferred Stock (if issued) or any other capital stock ranking junior to the 8% Preferred Stock and will be entitled to such amount on a parity with the 1997 Preferred Stock and every other series of the Company's preferred stock that ranks on a parity with the 8% Preferred Stock in respect of distributions of assets upon Liquidation. Neither a consolidation or merger of the Company with another corporation nor a sale or transfer of all or substantially all of the Company's assets for cash, securities or other property will be considered a liquidation, dissolution or winding up of the Company for these purposes. Voting Rights Except as indicated below or otherwise required by law, holders of 8% Preferred Stock have no voting rights. If at any time the equivalent of six quarterly dividends payable on the 8% Preferred Stock are accrued and unpaid, the holders of all outstanding shares of 8% Preferred Stock and any stock ranking on a parity as to dividends with the shares of 8% Preferred Stock and having similar voting rights then exercisable, voting separately as a class without regard to series, will be entitled to elect at the next annual or special meeting of the stockholders of the Company, two directors to serve until all dividends accumulated and unpaid have been paid or declared and funds set aside to provide for payment in full. In exercising any such vote, each outstanding share of 8% Preferred Stock will be entitled to one vote, excluding shares held by the Company or any entity controlled by the Company, which shares shall have no vote. Exchange Provisions Provided that all accrued and unpaid dividends and liquidated damages, if any, then owing on the 8% Preferred Stock have been paid, the 8% Preferred Stock is exchangeable in whole, but not in part, at the Company's option for the Company's 2006 Debentures on any dividend payment date, beginning on March 15, 1998, at the rate of $50.00 principal amount thereof for each share of 8% Preferred stock outstanding at the time of exchange. The 2006 Debentures are issuable in denominations of $1,000 and integral multiples thereof. The 2006 Debentures, if issued, will be unsecured, subordinated obligations of the Company and will mature on March 15, 2006. The 2006 Debentures are convertible into fully paid non assessable shares of Common Stock and may be redeemed on and after March 15, 1999 at the option of the Company. Description of the 1997 Preferred Stock The 1997 Preferred Stock ranks on a parity with the 8% Preferred Stock and on a parity with all other Preferred Stock, the terms of which expressly provide that it ranks on a parity with the 1997 Preferred Stock with respect to dividends and amounts payable upon Liquidation. The 1997 Preferred Stock ranks senior to the Common Stock, the Series A Preferred Stock, if issued, and the Employee Preferred Stock with respect to payment of dividends and amounts payable upon Liquidation. Dividends The holders of the 1997 Preferred Stock are entitled to receive cumulative cash dividends at the rate of 9 1/4% per annum (equivalent to $4.625 per share per annum), when, as and if declared by the Board of Directors out of funds legally available therefor. Dividends and liquidated damages, if any, are payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year (and, in the case of any accrued but unpaid dividends, at such additional times and for such interim periods, if any, as determined by the Board of Directors) to the holders of record on the record dates, which shall be not more than 30 days nor less than 10 days preceding the payment dates. Dividends on the 1997 Preferred Stock commenced accruing on December 2, 1997. If dividends are not paid in full upon the 1997 Preferred Stock and any other preferred stock ranking on a parity as to dividends with the 1997 Preferred Stock, all dividends declared upon shares of 1997 Preferred Stock and such other preferred stock ranking on a parity as to dividends with the 1997 Preferred Stock will be declared pro rata so that in all cases the amount of dividends declared per share on the 1997 Preferred Stock and such other preferred stock bear to each other the same ratio that accrued and unpaid dividends per share on the shares of the 1997 Preferred Stock and such other preferred stock bear to each other. Except as set forth above, unless full cumulative dividends or the 1997 Preferred Stock have been paid and funds set aside, and all liquidated damages, if any, paid, dividends (other than dividends paid solely in Common Stock or other stock ranking junior as to dividends and liquidation preference) may not be paid or declared and set aside for payment and other distributions may not be made upon the Common Stock or on any other stock of the Company ranking junior to or on a parity with the 1997 Preferred Stock as to dividends and liquidation preference. Under such circumstances, such stock may not be redeemed, purchased, or otherwise acquired for any consideration by the Company. Conversion Rights Each share of 1997 Preferred Stock may be converted at any time at the option of the holder, unless previously redeemed or exchanged, into fully paid, nonassessable shares of Common Stock at an initial conversion price of $7.90 per share of Common Stock (equivalent to a conversion rate of approximately 6.329 shares of Common Stock for each share of 1997 Preferred Stock), subject to adjustments in certain circumstances. The right to convert 1997 Preferred Stock called for redemption will expire at the close of business on the second business day prior to the redemption date. Whenever the Company issues shares of Common Stock upon conversion of 1997 Preferred Stock, the Company will, subject to certain conditions, issue, together with each share of Common Stock, one Right, entitling the holder to purchase one one-hundredth of a share of Series A Preferred Stock under certain circumstances. No fractional shares of Common Stock will be issued upon conversion but, in lieu thereof, an appropriate amount will be paid in cash based on the closing price on the last trading day before the conversion date. The conversion price is subject to adjustment upon the occurrence of certain events. Optional Redemption by the Company The 1997 Preferred Stock may not be redeemed prior to December 15, 2000. On or after December 15, 2000, the 1997 Preferred Stock may be redeemed, in whole or in part, at the option of the Company, at a redemption price of $53.24 in 2000 and at a redemption price decreasing by approximately $0.46 each December 15 thereafter until 2007, from which time the redemption price shall be and remain $50.00, in each case, plus accrued and unpaid dividends thereon to the date fixed for redemption. Liquidation Rights Upon any Liquidation of the Company, and after provision is made for any preferential amounts to which the holders of any senior preferred stock may be entitled, holders of 1997 Preferred Stock will be entitled to receive from the Company's assets available for distribution to all stockholders $50.00 per share plus all accrued and unpaid dividends through the date of distribution or determination whether or not declared, and liquidated damages, if any, before any distribution is made on the Employee Preferred Stock or Common Stock, Series A Preferred Stock (if issued) or any other capital stock ranking junior to the 1997 Preferred Stock and will be entitled to such amount on a parity with the 8% Preferred Stock and every other series of the Company's preferred stock that ranks on a parity with the 1997 Preferred Stock in respect of distributions of assets upon Liquidation. Neither a consolidation or merger of the Company with another corporation nor a sale or transfer of all or substantially all of the Company's assets for cash, securities or other property will be considered a liquidation, dissolution or winding up of the Company for these purposes. Voting Rights Except as indicated below or otherwise required by law, holders of 1997 Preferred Stock have no voting rights. If at any time the equivalent of six quarterly dividends payable on the 1997 Preferred Stock are accrued and unpaid, the holders of all outstanding shares of 1997 Preferred Stock and any stock ranking on a parity as to dividends with the shares of 1997 Preferred Stock and having similar voting rights then exercisable, voting separately as a class without regard to series, will be entitled to elect at the next annual or special meeting of the stockholders of the Company, two directors to serve until all dividends accumulated and unpaid have been paid or declared and funds set aside to provide for payment in full. In exercising any such vote, each outstanding share of 1997 Preferred Stock will be entitled to one vote, excluding shares held by the Company or any entity controlled by the Company, which shares shall have no vote. Exchange Provisions Provided that all accrued and unpaid dividends and liquidated damages, if any, then owing on the 1997 Preferred Stock have been paid, the 1997 Preferred Stock is exchangeable in whole, but not in part, at the Company's option for the 2007 Debentures on any dividend payment date, beginning on December 15, 1999, at the rate of $50.00 principal amount thereof for each share of 1997 Preferred Stock outstanding at the time of exchange. The 2007 Debentures are issuable in denominations of $1,000 and integral multiples thereof. The 2007 Debentures, if issued, will be unsecured, subordinated obligations of the Company and will mature on December 15, 2007. The 2007 Debentures are convertible into fully paid non assessable shares of Common Stock and may be redeemed on and after December 15, 2000 at the option of the Company. CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION, THE BY-LAWS AND DELAWARE LAW The Certificate of Incorporation and the By-laws contain certain provisions that could make more difficult the acquisition of the Company by means of a tender offer, a proxy contest or otherwise. These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of the Company first to negotiate with the Company. The Company believes that the benefits of increased protection of the Company's potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure the Company outweigh the disadvantages of discouraging such proposals because, among other things, negotiation of such proposals could result in an improvement of their terms. In addition, pursuant to the '95 Reorganization and in connection with the adoption of the '94 Labor Agreements, the Company adopted certain amendments, both to the Certificate of Incorporation and the By-laws, relating to corporate governance matters. These amendments are designed to enhance the input of the Company's union employees or the directors nominated by them in the governance of the Company and to limit the ability to change the provisions of the Certificate of Incorporation in general and the By-laws in particular without broad support from the Company's voting stockholders. Such provisions will also make it more difficult to enact any change in the By-laws or to take any of the specified actions, if such changes or actions are opposed by a substantial constituency, including the Company's employees who are represented by organized labor. The description set forth below is intended as a summary only and is qualified in its entirety by reference to the Certificate of Incorporation and the By-laws. Board of Directors The Certificate of Incorporation and the By-laws provide that the number of directors constituting the entire Board of Directors will be fifteen. The By-laws also provide for the Board of Directors to be divided into three classes consisting of five directors each, with the term of each class expiring in a different year. Subject to any rights of holders of any class or series of the Company's preferred stock, a majority of the remaining directors then in office has the sole authority to fill any vacancies on the Board of Directors, provided, however, that any vacancies arising during the first or second term of a director will be filled by a nominee of the remaining directors who were nominated by the same Original Nominating Entity (as defined below) as the vacating director in accordance with the Certificate of Incorporation. See "Business--Employees" and "Description of Capital Stock--Description of Employee Preferred Stock." Any director elected to fill a vacancy will hold office for the remainder of the full term of the class of directors in which the vacancy occurred and until the director's successor is elected and qualified. The Certificate of Incorporation provides that directors may be removed only by the affirmative vote of at least a majority of the voting power of all the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class. The affirmative vote of at least 80% of the Voting Stock, voting together as a single class, is required to amend or repeal, or adopt any provision inconsistent with, the provision of the Certificate of Incorporation relating to the number, election and terms of directors. "Original Nominating Entity" means, as applicable, each of the management of the Company, ALPA, IAM and IFFA. Upon being certified to replace IFFA as the bargaining representative for the Company's flight attendants, the IAM became the nominating entity with respect to the director to be elected by holders of the IFFA Preferred Stock. Stockholder Actions and Special Meetings The Certificate of Incorporation provides that stockholder action can be taken only at an annual or special meeting of stockholders, and prohibits, subject to the rights of holders of any class or series of the Company's preferred stock to the contrary, stockholder action by written consent in lieu of a meeting. The Certificate of Incorporation and By-laws provide that, subject to the rights of holders of any series of preferred stock, special meetings of stockholders can be called only by (i) the Chairman of the Board of Directors of the Company, (ii) the Corporate Secretary of the Company within ten calendar days after receipt of the written request of a majority of the total number of directors that the Company would have if there were no vacancies, and (iii) the Board of Directors after receipt by the Company of a written request executed by the holders of at least 35% of the outstanding Voting Stock of the Company, provided, however, that no separate special meeting will be required to be convened if the Board of Directors calls an annual or special meeting to be held no later than ninety (90) calendar days after receiving the request for a meeting and the purposes of such annual or special meeting of stockholders called by the Board of Directors include the purposes specified in the request. Business permitted to be conducted at a special meeting of stockholders is limited to the business (x) specified in the notice of meeting given by or at the direction of the chairman of the meeting or a majority of the entire Board of Directors or (y) otherwise properly brought before the meeting by the chairman of the meeting or at the direction of a majority of the entire Board of Directors. Moreover, the chairman of the annual or special meeting of the stockholders will determine whether any business sought to be brought before the meeting is properly brought. Pursuant to the Certificate of Incorporation, the By-laws establish an advance notice procedure with regard to the nomination, other than by or at the direction of the Board of Directors, of candidates for election as directors and with regard to business to be brought before an annual meeting of stockholders of the Company. Amendment of the Certificate of Incorporation and By-laws The Certificate of Incorporation contains provisions requiring the affirmative vote of the holders of at least 80% of the Voting Stock, voting together as a single class, to amend certain provisions of the Certificate of Incorporation, primarily those related to anti-takeover provisions. In addition, the Certificate of Incorporation requires the affirmative vote of at least three-fourths of its issued and outstanding Voting Stock, voting as a single class and not as separate classes, to amend the By-laws by stockholder action. "Voting Stock" means the outstanding shares of all classes and series of capital stock of the Company entitled to vote generally in the election of directors of the Company and does not include any class or series of preferred stock of the Company unless the certificate of designations, preferences and rights for such class or series specifically states that such class or series shall be deemed "Voting Stock" for purposes of the Certificate of Incorporation. Employee Preferred Stock has been deemed Voting Stock and the 1997 Preferred Stock and the 8% Preferred Stock are not Voting Stock. See "Description of Capital Stock." Blocking Coalition Pursuant to the '94 Labor Agreements and in connection with the '95 Reorganization, the Company amended the By-laws to provide that certain actions (as set forth in the next paragraph) may not be approved by the Board of Directors if votes are cast against such actions by directors sufficient to constitute a "Blocking Coalition." A Blocking Coalition is defined as the negative votes of (i) a total of the four directors elected by the holders of the Employee Preferred Stock plus (ii) the negative votes of any two of the Company's other directors. Actions subject to disapproval by the Blocking Coalition include: (a) any sale, transfer or disposition, in a single or series of transactions, of at least 20% of the Company's assets, except for transactions in the ordinary course of business including aircraft transactions as part of a fleet management plan; (b) any merger of the Company into or with, or consolidation of the Company with any other entity; (c) any business combination within the meaning of Section 203 of the DGCL; (d) any dissolution or liquidation of the Company; (e) any filing of a petition for bankruptcy, reorganization or receivership under any state or federal bankruptcy, reorganization or insolvency law; (f) any repurchase, retirement or redemption of the Company's capital stock or other equity securities prior to their scheduled maturity or expiration, except for redemptions out of the proceeds of any substantially concurrent offering of comparable or junior securities and mandatory redemptions of any redeemable preferred stock of the Company; (g) any acquisition of assets, not related to the Company's current business as an air carrier, in a single transaction or a series of related transactions exceeding $50.0 million adjusted annually by the consumer price index; or (h) any sale of the Company's capital stock or securities convertible into capital stock of the Company to any person if (i) at the time of issuance or (ii) assuming conversion of all outstanding securities of the Company convertible into capital stock, such person or entity would beneficially own at least 20% of the capital stock of the Company. Super Majority Voting Provisions At all times before September 1, 2000, the Company must obtain the approval of at least two-thirds of the issued and outstanding Voting Stock of the Company, voting as a single class and not as separate classes, for the holders of such Voting Stock to approve certain actions, unless such matters have been approved by a vote of at least 80% of the Board of Directors then in office. Actions requiring such approval are the following: (i) any merger of the Company into or with, or consolidation of the Company with, any other entity; (ii) any business combination within the meaning of Section 203 of the DGCL; (iii) any dissolution or liquidation of the Company; or (iv) any repurchase, retirement or redemption of the Company's capital stock or other equity securities prior to their scheduled maturity or expiration, except for redemptions out of the proceeds of any substantially concurrent offering of comparable or junior securities, and mandatory redemptions of any redeemable preferred stock of the Company. Preferred Stock The Company believes that the ability of the Board of Directors to issue one or more series of preferred stock of the Company provides TWA with increased flexibility in structuring possible future financings and in meeting other corporate needs that might arise. The authorized shares of preferred stock, as well as shares of Common Stock, will be available for issuance without further action by TWA's stockholders, unless such action is required by applicable law or the rules of any stock exchange on which TWA securities may be listed. If the approval of TWA's stockholders is not required for the issuance of shares of preferred stock or Common Stock, the Board of Directors does not intend to seek stockholder approval. Although the Board of Directors has no intention of doing so, it could issue a series of preferred stock that could, depending on the terms of such series, impede the completion of a merger, tender offer or other takeover attempt. The Board of Directors will make any determination to issue such shares based on its judgment as to the best interests of TWA and its stockholders. The Board of Directors, in so acting, could issue preferred stock having terms that could discourage an acquisition attempt or other transaction that some, or a majority, of the stockholders might believe to be in their best interests or in which stockholders might receive a premium for their stock over the then current market price of such stock. Rights to Purchase Stock The Rights are intended to protect TWA's stockholders from certain non-negotiated takeover attempts which present the risk of a change of control on terms which may be less favorable to TWA's stockholders than would be available in a transaction negotiated with and approved by the Board of Directors of the Company. Although there can be no certainty as to the results of any particular negotiation, the Board of Directors believes that the interests of the stockholders are best served if any acquisition of TWA or a substantial percentage of the Common Stock results from arms-length negotiations and reflects the Board's or stockholders' careful consideration of the proposed terms of a transaction. In particular, the Rights are intended to help (a) reduce the risk of coercive, two-tiered, front-end loaded or partial offers which may not offer fair value to all stockholders, (b) mitigate against market accumulators who through open market or private purchases may achieve a position of substantial influence or control without paying to selling or remaining stockholders a fair control premium, and (c) deter market accumulators who are simply interested in putting a company "in play". See "Description of Capital Stock--Rights Plan." Anti-Takeover Statute Section 203 of the DGCL is applicable to corporate takeovers in Delaware. Subject to certain exceptions set forth therein, Section 203 of the DGCL provides that a corporation shall not engage in any business combination with any "interested stockholder" for a three-year period following the date that such stockholder becomes an interested stockholder unless (a) prior to such date, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder, (b) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding certain shares) or (c) on or subsequent to such date, the business combination is approved by the board of directors of the corporation and by the affirmative vote of at least 662/3% of the outstanding voting stock which is not owned by the interested stockholder. Except as specified therein, an interested stockholder is defined to include any person that is the owner of 15% or more of the outstanding voting stock of the corporation, or is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation, at any time within three years immediately prior to the relevant date, and the affiliates and associates of such person. Under certain circumstances, Section 203 of the DGCL makes it more difficult for an "interested stockholder" to effect various business combinations with a corporation for a three-year period, although the stockholders may, by adopting an amendment to the corporation's certificate of incorporation or by-laws, elect not to be governed by this section, effective twelve months after adoption. The Certificate of Incorporation and the By-laws do not exclude TWA from the restrictions imposed under Section 203 of the DGCL, but do provide that a business combination within the meaning of Section 203 of the DGCL (i) may be approved without the approval of at least 662/3% of the Voting Stock if the business combination is approved by at least 80% of the directors then in office and (ii) may not be approved if votes are cast against the action by the Blocking Coalition. It is anticipated that the provisions of Section 203 of the DGCL and the provisions of the Certificate of Incorporation may encourage companies interested in acquiring TWA to negotiate in advance with the Board of Directors of TWA since the stockholder approval requirement would be avoided if 80% of the directors then in office approve either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following is a general discussion of material United States federal income tax considerations applicable to the initial holders of the Old Notes who purchased the Old Notes at their "issue price," that is, the first price at which a substantial amount of the Old Notes is sold for money to the public (not including bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). This summary is based upon provisions of the Internal Revenue Code of 1986, as amended (the "Code"), regulations, rulings and decisions currently in effect, all of which are subject to change (possibly with retroactive effect). The discussion does not purport to deal with all aspects of the United States federal taxation that may be relevant to particular investors in light of their particular circumstances (for example, to persons holding Notes as part of a conversion transaction or as part of a hedge or hedging transaction, or as a position in a straddle for tax purposes), nor does it discuss the United States federal income tax considerations applicable to certain types of investors subject to special treatment under the federal income tax laws (for example, insurance companies, tax-exempt organizations, financial institutions and persons who are not United States Holders or United States Alien Holders (each as defined below)). In addition, the discussion does not consider the effect of any foreign, state, local or other tax laws that may be applicable to a particular investor. The discussion assumes that investors hold the Notes as "capital assets" within the meaning of Section 1221 of the Code. The Company intends to treat the Notes as indebtedness and not as equity for United States federal income tax purposes, and the United States federal income tax considerations described below are based on that characterization. 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 the Notes should be treated as equity for federal income tax purposes. Prospective investors considering the Exchange Offer should consult their tax advisors with regard to the application of the United States federal income tax laws to their particular situations as well as any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction. As used herein, the term "United States Holder" means an owner of a Note that is, for United States federal income tax purposes, (i) a citizen or resident of the United States, (ii) a corporation created or organized in or under the laws of the United States or of any political subdivision thereof, or (iii) an estate or trust the income of which is subject to United States federal income taxation regardless of its source. The term also includes certain former citizens and certain former long-term residents of the United States. As used herein, the term "United States Alien Holder" means an owner of a Note that is, for United States federal income tax purposes, (i) a nonresident alien individual, (ii) a foreign corporation, (iii) a nonresident alien fiduciary of a foreign estate or trust or (iv) a foreign partnership one or more of the members of which is, for United States federal income tax purposes, a nonresident alien individual, a foreign corporation or a nonresident alien fiduciary of a foreign estate or trust. Tax Consequences to United States Holders Exchange Offer The exchange of the Old Notes for Exchange Notes pursuant to the Exchange Offer will not result in any United States federal income tax consequences to the United States Holders. When a United States Holder exchanges an Old Note for an Exchange Note pursuant to the Exchange Offer, the Holder will have the same adjusted tax basis and holding period in the Exchange Note as in the Old Note immediately before the exchange. Interest on a Note The Old Notes were not issued with original issue discount for United States federal income tax purposes. Accordingly, interest and Special Interest, if any, on a Note will generally be taxable to a United States Holder as ordinary interest income at the time it accrues or is received in accordance with the United States Holder's method of accounting for United States federal income tax purposes. Sale or Retirement of a Note Upon the sale or retirement of a Note, a United States Holder will recognize taxable gain or loss equal to the difference between the amount realized on the sale or retirement and such Holder's adjusted tax basis in the Note. Backup Withholding and Information Reporting Certain noncorporate United States Holders may be subject to backup withholding at a rate of 31% on payments of principal, premium and interest (including Special Interest and/or original issue discount, if any) on, and the proceeds of disposition of, a Note. Backup withholding will apply only if the United States Holder (i) fails to furnish its Taxpayer Identification Number ("TIN") which, for an individual, would be his Social Security number, (ii) furnishes an incorrect TIN, (iii) is notified by the Internal Revenue Service that it has failed to properly report payments of interest or dividends or (iv) under certain circumstances, fails to certify, under penalties of perjury, that it has furnished a correct TIN and has not been notified by the Internal Revenue Service that it is subject to backup withholding for failure to report interest and dividend payments. United States Holders should consult their tax advisors regarding their qualification for exemption from backup withholding and the procedure for obtaining such an exemption if applicable. The amount of any backup withholding from a payment to a United States Holder will be allowed as a credit against such Holder's United States federal income tax liability and may entitle such Holder to a refund, provided that the required information is furnished to the Internal Revenue Service. Tax Consequences to United States Alien Holders Under present United States federal law, and subject to the discussion below concerning backup withholding, payments of principal, interest (including Special Interest, if any) and premium on the Notes by the Company or any paying agent to any United States Alien Holder, and gain realized on the sale, exchange or other disposition of such Note, will not be subject to United States federal income or withholding tax, provided that: (i) such Holder does not own, actually or constructively, 10 percent or more of the total combined voting power of all classes of stock of the Company entitled to vote, is not a controlled foreign corporation related, directly or indirectly, to the Company through stock ownership, and is not a bank receiving interest described in Section 881(c)(3)(A) of the Code; (ii) the statement requirement set forth in Section 871(h) or Section 881(c) of the Code has been fulfilled with respect to the beneficial owner, as discussed below; (iii) such Holder is not an individual who is present in the United States for 183 days or more in the taxable year of disposition, or such individual does not have a "tax home" (as defined in Section 911(d)(3) of the Code) or an office or other fixed place of business in the United States; and (iv) such payments and gain are not effectively connected with the conduct by such Holder of a trade or business in the United States. As noted above, the Company intends to treat the Notes as indebtedness for United States federal income tax purposes. No assurance can be given, however, that Company's treatment will not be challenged by the Internal Revenue Service. If the Notes were ultimately treated as equity rather than debt for United States federal income tax purposes, the portfolio interest exception would not apply and withholding tax at a flat rate of 30% (or a lower rate under an applicable income tax treaty) would be imposed on the payments of interest and Special Interest, if any, on Notes to the extent of the Company's current or accumulated earnings and profits or on the entire amounts of the payments if the withholding agent does not know or cannot reasonably estimate the amount of such earnings and profits. Further, any such withholding could commence when the Internal Revenue Service first asserted that the Notes constituted equity; in such event, if the Internal Revenue Service did not ultimately prevail, the United States Alien Holders would be able to recover the tax withheld by filing a claim for refund with the Internal Revenue Service. Certain Certification Requirements Sections 871(h) and 881(c) of the Code require that, in order to obtain the portfolio interest exemption from the withholding tax described in the paragraphs above, either the beneficial owner of the Note, or a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business (a "Financial Institution") and that is holding the Note on behalf of such beneficial owner, file a statement with the withholding agent to the effect that the beneficial owner of the Note is not a United States Holder. Under current United States Treasury Regulations, such requirement will be fulfilled if the beneficial owner of a Note certifies on Internal Revenue Service Form W-8, under penalties of perjury, that it is not a United States Holder and provides its name and address, and any Financial Institution holding the Note on behalf of the beneficial owner files a statement with the withholding agent to the effect that it has received such a statement from the Holder (and furnishes the withholding agent with a copy thereof). Under recently finalized United States Treasury Regulations, which are generally applicable to payments made after December 31, 1998, certain United States Alien Holders would also need to provide their United States taxpayer identification numbers on such forms in order to fulfill such requirement. If a United States Alien Holder of a Note is engaged in a trade or business in the United States, and if interest on the Note is effectively connected with the conduct of such trade or business, the United States Alien Holder, although exempt from the withholding tax discussed in the preceding paragraphs, will generally be subject to regular United States income tax on interest and on any gain realized on the sale, exchange or other disposition of a Note in the same manner as if it were a United States Holder. In lieu of the certificate described in the preceding paragraph, such a Holder will be required to provide to the withholding agent a properly executed Internal Revenue Service Form 4224 (or the successor W-8 Form), in order to claim an exemption from withholding tax. Under recently finalized United States Treasury Regulations, a United States Alien Holder may also need to provide a United States taxpayer identification number on such form in order to fulfill such requirement. In addition, if such United States Alien Holder is a foreign corporation, it may be subject to a branch profits tax equal to 30% (or such lower rate provided by an applicable treaty) of its effectively connected earnings and profits for the taxable year, subject to certain adjustments. For purposes of the branch profits tax, interest on and any gain recognized on the sale, exchange or other disposition of a Note will be included in the effectively connected earnings and profits of such United States Alien Holder if such interest or gain, as the case may be, is effectively connected with the conduct by the United States Alien Holder of a trade or business in the United States. Estate Taxes Under Section 2105(b) of the Code, a Note held by an individual who is not a citizen or resident of the United States at the time of his death will not be subject to United States federal estate tax as a result of such individual's death, provided that the individual does not own, actually or constructively, 10 percent or more of the total combined voting power of all classes of stock of the Company entitled to vote and, at the time of such individual's death, payments with respect to such Note would not have been effectively connected to the conduct by such individual of a trade or business in the United States. As noted above, the Company intends to treat the Notes as indebtedness for United States federal income tax purposes. No assurance can be given, however, that the Company's treatment will not be challenged by the Internal Revenue Service. If the Notes were ultimately treated as equity rather than debt for United States federal income tax purposes, a United States Alien Holder who is treated as the owner of, or has made certain lifetime transfers of, an interest in the Notes will be required to include the value thereof in his or her gross estate for United States federal estate tax purposes, and may be subject to United States federal estate tax unless an applicable estate tax treaty provides otherwise. Backup Withholding and Information Reporting Under current Treasury Regulations, backup withholding (31%) will not apply to payments by the Company made on a Note if the certifications required by Sections 871(h) and 881(c) of the Code are received, provided in each case that the Company or such paying agent, as the case may be, does not have actual knowledge that the payee is a United States person. Under current Treasury Regulations, payments on the sale, exchange or other disposition of a Note made to or through a foreign office of a broker generally will not be subject to backup withholding. However, if such broker is a United States person, a controlled foreign corporation for United States tax purposes, a foreign person 50 percent or more of whose gross income is effectively connected with a United States trade or business for a specified three-year period or another United States related person described in Section 1.6049-5(c)(5) of the Treasury Regulations, information reporting will be required unless the broker has in its records documentary evidence that the beneficial owner is not a United States person and certain other conditions are met or the beneficial owner otherwise establishes an exemption. Under recently finalized Treasury Regulations, backup withholding may apply to any payment made after December 31, 1998 which such broker is required to report if such broker has actual knowledge that the payee is a United States person. Payments to or through the United States office of a broker will be subject to backup withholding and information reporting unless the Holder certifies, under penalties of perjury, that it is not a United States person or otherwise establishes an exemption. United States Alien Holders of Notes should consult their tax advisors regarding the application of information reporting and backup withholding in their particular situations, the availability of an exemption therefrom, and the procedure for obtaining such an exemption, if available. Any amounts withheld from a payment to a United States Alien Holder under the backup withholding rules will be allowed as a credit against such Holder's United States federal income tax liability and may entitle such Holder to a refund, provided that the required information is furnished to the Internal Revenue Service. PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account ("Participating Broker-Dealer") pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of Exchange Notes received in exchange for Old Notes where such Old Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any Participating Broker-Dealer for use in connection with any such resale. In addition, until , 1998 (90 days after the date of this Prospectus), all dealers effecting transactions in the Exchange Notes may be required to deliver a prospectus. The Company will not receive any proceeds from any sale of Exchange Notes by Participating Broker-Dealers. Exchange Notes received by Participating Broker-Dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such Participating Broker-Dealer or the purchasers of any such Exchange Notes. Any Participating Broker-Dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any Participating Broker-Dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer (including the reasonable expenses of one counsel for the holders of the Notes) other than commissions or concessions of any brokers or dealers and will indemnify the holders of the Notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS The validity of the Exchange Notes offered hereby will be passed upon for the Company by Davis Polk & Wardwell, New York, New York. EXPERTS The consolidated financial statements of the Company as of December 31, 1996 and 1997 and for each of the periods in the three year periods ended December 31, 1997 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 refers to the application of fresh start reporting in connection with the '95 Reorganization. See the Consolidated Financial Statements. 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 Years Ended December 31, 1997 and 1996, the Four Months Ended December 31, 1995, and the Eight Months Ended August 31, 1995........................................................F-3 Consolidated Balance Sheets, December 31, 1997 and 1996..............F-4 Statements of Consolidated Cash Flows for the Years Ended December 31, 1997 and 1996, the Four Months Ended December 31, 1995, and the Eight Months Ended August 31, 1995........................................................F-6 Consolidated Statements of Shareholders' Equity (Deficiency) for the Years Ended December 31, 1997 and 1996, the Four Months Ended December 31, 1995, and the Eight Months Ended August 31, 1995............................................................F-8 Notes to Consolidated Financial Statements...........................F-9 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, 1997 and 1996, and the related statements of consolidated operations, cash flows and shareholders' equity (deficiency) for the years ended December 31, 1997 and 1996, the four months ended December 31, 1995 and the eight months ended August 31, 1995. 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, 1997 and 1996, and the results of their operations and their cash flows for the years ended December 31, 1997 and 1996, the four months ended December 31, 1995 and the eight months ended August 31, 1995, 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. KPMG PEAT MARWICK LLP Kansas City, Missouri March 4, 1998 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED OPERATIONS For the Years Ended December 31, 1997 and 1996, the Four Months Ended December 31, 1995 and the Eight Months Ended August 31, 1995 (Amounts in Thousands Except Per Share Amounts)
Predecessor Reorganized Company Company ----------------------------------------------- ---------------- Year Year Four Months Eight Months Ended Ended Ended Ended December 31, December 31, December 31, August 31, 1997 1996 1995 1995 ------------ ------------ ------------ ------------ Operating revenues: Passenger.................................................. $ 2,924,042 $ 3,077,905 $ 943,077 $ 1,929,166 Freight and mail........................................... 126,730 153,076 48,384 94,784 All other.................................................. 277,180 323,426 107,013 194,405 ------------ ------------ ------------ ------------ Total.................................................... 3,327,952 3,554,407 1,098,474 2,218,355 ------------ ------------ ------------ ------------ Operating expenses: Salaries, wages and benefits............................... 1,224,116 1,254,341 373,041 755,708 Earned stock compensation (Note 12)........................ 4,199 9,056 2,192 55,767 Aircraft fuel and oil...................................... 480,853 585,163 161,799 296,833 Passenger sales commissions................................ 242,135 268,131 80,045 185,981 Aircraft maintenance materials and repairs................. 138,353 208,183 51,998 95,657 Depreciation and amortization.............................. 150,381 161,822 55,168 106,474 Operating lease rentals.................................... 370,827 302,990 96,393 182,548 Passenger food and beverages............................... 83,241 110,092 34,676 68,137 Special charges (Note 16).................................. -- 85,915 -- 1,730 All other.................................................. 663,107 767,241 232,716 454,878 ------------ ------------ ------------ ------------ Total.................................................... 3,357,212 3,752,934 1,088,028 2,203,713 ------------ ------------ ------------ ------------ Operating income (loss)..................................... (29,260) (198,527) 10,446 14,642 ------------ ------------ ------------ ------------ Other charges (credits): Interest expense (contractual interest of $141,967 for the eight months ended August 31, 1995)..................... 114,066 126,822 45,917 123,247 Interest and investment income............................. (12,555) (21,309) (7,484) (10,366) Disposition of assets, gains and losses - net (Note 15).... (16,004) 1,135 (3,330) 206 Reorganization items (Note 19)............................. -- -- -- 242,243 Other charges and credits - net (Note 17).................. (25,432) (30,598) 7,611 (2,379) ------------ ------------ ------------ ------------ Total.................................................... 60,075 76,050 42,714 352,951 ------------ ------------ ------------ ------------ Income (loss) before income taxes and extraordinary items.. (89,335) (274,577) (32,268) (338,309) Provision (credit) for income taxes (Note 5)............... 527 450 1,370 (96) ------------ ------------ ------------ ------------ Loss before extraordinary items............................ (89,862) (275,027) (33,638) (338,213) Extraordinary items, net of income taxes (Note 14)......... (20,973) (9,788) 3,500 140,898 ------------ ------------ ------------ ------------ Net loss................................................... (110,835) (284,815) (30,138) (197,315) Preferred stock dividend requirements...................... 16,119 36,649 4,751 11,554 ------------ ------------ ------------ ------------ Loss applicable to common shares........................... $ (126,954) $ (321,464) $ (34,889) $ (208,869) ============ ============ ============ ============ Per share amounts: Loss before extraordinary item and special dividend requirement.............................................. $ (1.98) $ (6.60) $ (1.15) Extraordinary item and special dividend requirement........ (0.39) (0.67) 0.10 ------------ ------------ ------------ Net loss................................................... $ (2.37) $ (7.27) $ (1.05) ============ ============ ============
See notes to consolidated financial statements TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1997 and 1996 (Amounts in Thousands) ASSETS
1997 1996 ------------ ------------ Current assets: Cash and cash equivalents.................................................... $ 237,765 $ 181,586 Receivables, less allowance for doubtful accounts, $9,334 in 1997 and $12,939 in 1996 (Note 8).................................................... 176,333 239,496 Spare parts, materials and supplies, less allowance for obsolescence, $19,176 in 1997 and $29,463 in 1996 (Note 8)................................ 96,108 111,239 Prepaid expenses and other................................................... 122,751 93,424 ------------ ------------ Total............................................................... 632,957 625,745 ------------ ------------ Property (Notes 8, 9 & 18): Property owned: Flight equipment.......................................................... 569,063 339,150 Prepayments on flight equipment........................................... 15,431 39,072 Land, buildings and improvements.......................................... 62,854 59,879 Other property and equipment.............................................. 64,131 60,750 ------------ ------------ Total owned property................................................ 711,479 498,851 Less accumulated depreciation............................................. 114,921 71,810 ------------ ------------ Property owned - net................................................ 596,558 427,041 ------------ ------------ Property held under capital leases: Flight equipment.......................................................... 166,358 172,812 Land, buildings and improvements.......................................... 49,443 54,761 Other property and equipment.............................................. 7,704 6,570 ------------ ------------ Total property held under capital leases............................ 223,505 234,143 Less accumulated amortization............................................. 78,298 46,977 ------------ ------------ Property held under capital leases - net ........................... 145,207 187,166 ------------ ------------ Total property - net................................................ 741,765 614,207 ------------ ------------ Investments and other assets: Investments in affiliated companies (Note 4)................................. 117,293 108,173 Investments, receivables and other (Note 9).................................. 162,969 149,028 Routes, gates and slots - net................................................ 377,691 401,659 Reorganization value in excess of amounts allocable to identifiable assets - net................................................... 741,173 783,127 ------------ ------------ Total............................................................... 1,399,126 1,441,987 ------------ ------------ $ 2,773,848 $ 2,681,939 ============ ============
See notes to consolidated financial statements TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1997 and 1996 (Amounts in Thousands Except Per Share Amounts) LIABILITIES AND SHAREHOLDERS' EQUITY
1997 1996 ------------- ------------ Current liabilities: Current maturities of long-term debt (Note 8)................................... $ 51,392 $ 92,447 Current obligations under capital leases (Note 9)............................... 37,068 42,501 Advance ticket sales............................................................ 223,197 241,516 Accounts payable, principally trade............................................. 250,551 216,675 Accounts payable to affiliated companies (Note 4)...................... 6,261 4,894 Accrued expenses: Employee compensation and vacations earned.................................... 119,572 116,846 Contributions to retirement and pension trusts (Note 6) ...................... 13,469 14,091 Interest on debt and capital leases........................................... 32,018 39,420 Taxes......................................................................... 14,146 19,018 Other accrued expenses........................................................ 189,271 174,753 ------------- ------------ Total accrued expenses...................................................... 368,476 364,128 ------------- ------------ Total....................................................................... 936,945 962,161 ------------- ------------ Long-term liabilities and deferred credits: Long-term debt, less current maturities (Note 8)................................ 736,540 608,485 Obligations under capital leases, less current obligations (Note 9)............. 182,922 220,790 Postretirement benefits other than pensions (Note 6)............................ 485,787 471,171 Noncurrent pension liabilities (Note 6)......................................... 30,011 30,716 Other noncurrent liabilities and deferred credits............................... 133,359 150,511 ------------- ------------ Total....................................................................... 1,568,619 1,481,673 ------------- ------------ 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 39 9 1/4% cumulative convertible exchangeable preferred stock, $50 liquidation preference; 1,725 shares issued and outstanding ................................ 17 -- Employee preferred stock, $0.01 liquidation preference; special voting rights; shares issued and outstanding: 1997-6,472; 1996-5,681........................... 65 57 Common stock, $0.01 par value; shares issued and outstanding: 1997-51,393; 1996-41,763..................................................................... 514 418 Additional paid-in capital......................................................... 693,437 552,544 Accumulated deficit ............................................................... (425,788) (314,953) ------------- ------------ Total....................................................................... 268,284 238,105 ------------- ------------ $ 2,773,848 $ 2,681,939 ============= ============
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS For the Years Ended December 31, 1997 and 1996, the Four Months Ended December 31, 1995 and the Eight Months Ended August 31, 1995 (Amounts in Thousands)
Reorganized Company --------------------------------------------- Year Year Four Months Ended Ended Ended December 31, December 31, December 31, 1997 1996 1995 ------------- ------------ ------------ Cash Flows from Operating Activities: Net loss........................................................... $(110,835) $(284,815) $(30,138) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Employee earned stock compensation............................... 4,199 9,056 2,192 Depreciation and amortization ................................... 150,381 161,822 55,168 Amortization of discount and expenses on debt ................... 14,461 14,744 3,063 Extraordinary loss (gain) on extinguishment of debt.............. 20,973 9,788 (3,500) Interest paid in common stock.................................... 4,125 11,332 11,587 Equity in undistributed earnings of affiliates not consolidated.. (9,404) (10,017) 12,169 Revenue from Icahn ticket program................................ (115,991) (71,534) (4,356) Net gains-losses on disposition of assets ....................... (16,004) 1,135 (3,330) Non-cash special charges......................................... -- 85,915 -- Reorganization items ............................................ -- -- -- Change in operating assets and liabilities: Decrease (increase) in: Receivables.................................................... 65,336 3,927 69,121 Inventories.................................................... 13,496 (4,897) 510 Prepaid expenses and other current assets...................... (9,227) (28,288) 23,241 Other assets .................................................. (10,910) 111 (3,088) Increase (decrease) in: Accounts payable and accrued expenses ......................... 42,480 83,840 (41,989) Advance ticket sales........................................... (41,301) 19,698 (39,350) Benefits, other noncurrent liabilities and deferred credits.... (1,541) (7,505) (6,387) --------- --------- -------- Net cash provided (used) ................................... 238 (5,688) 44,913 --------- --------- -------- Cash Flows from Investing Activities: Proceeds from sales of property ............................... 22,749 3,234 7,069 Capital expenditures........................................... (74,025) (121,547) (42,973) Return of pre-delivery deposits related to leased aircraft..... 5,565 -- -- Net decrease (increase) in investments, receivables and other.. (10,553) 10,941 842 --------- --------- --------- Net cash provided (used).................................... (56,264) (107,372) (35,062) --------- --------- --------- Cash Flows from Financing Activities: Proceeds from long-term debt issued............................ 270,608 2,750 22,100 Proceeds from warrants issued ................................. 7,076 -- -- Proceeds from sale and leaseback of certain aircraft........... 17,600 13,800 -- Repayments on long-term debt and capital lease obligations..... (257,838) (117,203) (39,654) Refund from retirement of 1967 bonds........................... 5,318 -- -- Net proceeds from sale of preferred stock...................... 82,231 186,163 -- Net proceeds from exercise of equity rights warrants and options........................................ 2,686 1,034 51,930 Redemption of 12% Preferred Stock ............................. -- (81,749) -- Cash dividends paid on preferred stock......................... (15,476) (14,489) -- --------- --------- -------- Net cash provided (used).................................... 112,205 (9,694) 34,376 --------- --------- --------- Net increase (decrease) in cash and cash equivalents................ 56,179 (122,754) 44,227 Cash and cash equivalents at beginning of period.................... 181,586 304,340 260,113 --------- --------- -------- Cash and cash equivalents at end of period.......................... $ 237,765 $ 181,586 $ 304,340 ========= ========= ========= Predecessor Company -------------- Eight Months Ended August 31, 1995 ------------- Cash Flows from Operating Activities: Net loss........................................................... $(197,315) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Employee earned stock compensation............................... 55,767 Depreciation and amortization ................................... 106,474 Amortization of discount and expenses on debt ................... 12,472 Extraordinary loss (gain) on extinguishment of debt.............. (140,898) Interest paid in common stock.................................... -- Equity in undistributed earnings of affiliates not consolidated.. (2,339) Revenue from Icahn ticket program................................ -- Net gains-losses on disposition of assets ....................... 206 Non-cash special charges......................................... -- Reorganization items ............................................ 242,243 Change in operating assets and liabilities: Decrease (increase) in: Receivables.................................................... (62,094) Inventories.................................................... 5,866 Prepaid expenses and other current assets...................... (8,894) Other assets .................................................. (1,586) Increase (decrease) in: Accounts payable and accrued expenses ......................... 108,669 Advance ticket sales........................................... 81,598 Benefits, other noncurrent liabilities and deferred credits.... (28,160) --------- Net cash provided (used) ................................... 172,009 --------- Cash Flows from Investing Activities: Proceeds from sales of property ............................... 2,221 Capital expenditures........................................... (16,554) Return of pre-delivery deposits related to leased aircraft..... -- Net decrease (increase) in investments, receivables and other.. 26,064 --------- Net cash provided (used).................................... 11,731 --------- Cash Flows from Financing Activities: Proceeds from long-term debt issued............................ -- Proceeds from warrants issued ................................. -- Proceeds from sale and leaseback of certain aircraft........... -- Repayments on long-term debt and capital lease obligations..... (62,158) Refund from retirement of 1967 bonds........................... -- Net proceeds from sale of preferred stock...................... -- Net proceeds from exercise of equity rights warrants and options........................................ -- Redemption of 12% Preferred Stock ............................. -- Cash dividends paid on preferred stock......................... -- --------- Net cash provided (used).................................... (62,158) --------- Net increase (decrease) in cash and cash equivalents................ 121,582 Cash and cash equivalents at beginning of period.................... 138,531 --------- Cash and cash equivalents at end of period.......................... $ 260,113 =========
See notes to consolidated financial statements TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS For the Years Ended December 31, 1997 and 1996, the Four Months Ended December 31, 1995 and the Eight Months Ended August 31, 1995 (Amounts in Thousands) SUPPLEMENTAL CASH FLOW INFORMATION
Predecessor Reorganized Company Company ------------------------------------------------------- ---------------- Eight Months Year Year Four Months Ended Ended December Ended December Ended December August 31, 31, 1997 31, 1996 31, 1995 1995 -------------- -------------- -------------- ---------- Cash Paid During the Period for: Interest ........................................ $ 96,865 $102,311 $27,318 $ 55,878 ======== ======== ======= ======== Income taxes .................................... $ 14 $ 159 $ 7 $ 39 ======== ======== ======= ======== Information About Noncash Operating, Investing and Financing Activities: Promissory notes issued to finance aircraft acquisition................................... $177,469 $ 10,565 $ -- $ -- ======== ======== ======= ======== Promissory notes issued to finance aircraft predelivery payments.......................... $ 6,237 $ 19,862 $ -- $ 12,690 ======== ======== ======= ======== Property acquired and obligations recorded under new capital lease transactions.......... $ 1,138 $ 4,266 $ -- $ 12,690 ======== ======== ======= ======== 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 ............... $ 48,835 $ 41,021 $ -- $ -- Common stock issued, at fair value ........... 56,028 49,182 -- -- ======== ======== ======= ======== Extraordinary loss ........................... $ 7,193 $ 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 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY) For the Years Ended December 31, 1997 and 1996, the Four Months Ended December 31, 1995 and the Eight Months Ended August 31, 1995 (Amounts in Thousands)
12% 8% 9 1/4% Employee Preferred Preferred Preferred Preferred Stock Stock Stock Stock --------- --------- --------- --------- PREDECESSOR COMPANY: Balance, December 31, 1994 ....................................... $ 125 $ -- $ -- $ -- Net loss for the eight months ended August 31, 1995 .............. -- -- -- -- Eliminate Predecessor equity accounts in connection with fresh start reporting ........................................... (125) -- -- -- Record additional excess of reorganization value over identifiable assets ............................................. -- -- -- -- Issuance of Common and Employee Preferred Stock pursuant to Plan of Reorganization.......................................... -- -- -- 53 --------- ------- -------- -------- Balance, August 31, 1995 ......................................... -- -- -- 53 REORGANIZED COMPANY: Equity rights exercised .......................................... -- -- -- -- Interest on 12% Notes paid in Common Stock ....................... -- -- -- -- Options and warrants exercised ................................... -- -- -- -- Earned Stock Compensation ........................................ -- -- -- -- Amortization of the excess of redemption value over carrying value of Mandatorily Redeemable 12% Preferred Stock ................... -- -- -- -- Net loss for the four months ended December 31, 1995 ............. -- -- -- -- --------- ------- ------- ------- Balance, December 31, 1995 ....................................... -- -- -- 53 Warrants exercised ............................................... -- -- -- -- Options exercised ................................................ -- -- -- -- Earned Stock Compensation ........................................ -- -- -- -- Allocation of employee preferred stock to ALPA ESOP .............. -- -- -- 6 Conversion of employee preferred stock to Common Stock ........... -- -- -- (2) Net proceeds from issuance of 8% preferred stock ................. -- 39 -- -- Dividends on 8% preferred stock paid in cash ..................... -- -- -- -- Dividends on mandatorily redeemable 12% preferred stock paid in Common Stock ............................................ -- -- -- -- Dividends on mandatorily redeemable 12% preferred stock paid in cash .................................................... -- -- -- -- Amortization of the excess of redemption value over carrying value of mandatorily redeemable 12% preferred stock ................... -- -- -- -- Excess of cash paid for early redemption of mandatorily redeemable 12% preferred stock over carrying value ......................... -- -- -- -- Common Stock issued in exchange for 12% notes .................... -- -- -- -- Interest on 12% Notes paid in Common Stock ....................... -- -- -- -- Net loss for 1996 ................................................ -- -- -- -- --------- ------- ------- ------- Balance, December 31, 1996 ....................................... -- 39 -- 57 Options exercised ................................................ -- -- -- -- Earned stock compensation ........................................ -- -- -- -- Allocation of employee preferred stock to ALPA ESOP .............. -- -- -- 6 Conversion of employee preferred stock to Common Stock ........... -- -- -- (6) Common Stock issued in exchange for 12% Reset Notes .............. -- -- -- -- Net proceeds from issuance of 9 1/4% preferred stock .......... -- -- 17 -- Dividends on 8% preferred stock paid in cash ..................... -- -- -- -- Interest on 12% Reset Notes paid in Common Stock ................. -- -- -- -- Issuance of warrants with 12% Senior Secured Notes Due 2002 ...... -- -- -- -- Issuance of employee fill-up shares .............................. -- -- -- 8 Net loss for 1997 ................................................ -- -- -- -- --------- ------- --------- --------- Balance, December 31, 1997 ....................................... $ -- $ 39 $ 17 $ 65 ========= ======= ========= ========= Additional Common Paid-in Accumulated Stock Capital Deficit Total --------- --------- --------- --------- PREDECESSOR COMPANY: Balance, December 31, 1994 ....................................... $ 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 ........................................... (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........................................... 172 269,775 -- 270,000 --------- --------- --------- --------- Balance, August 31, 1995 ......................................... 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 ....................................... 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) -- -- Conversion of employee preferred stock to Common Stock ........... 2 -- -- -- Net proceeds from issuance of 8% preferred stock ................. -- 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 ....................................... 418 552,544 (314,953) 238,105 Options exercised ................................................ 6 3,098 -- 3,104 Earned stock compensation ........................................ -- 2,941 -- 2,941 Allocation of employee preferred stock to ALPA ESOP .............. -- (6) -- -- Conversion of employee preferred stock to Common Stock ........... 6 -- -- -- Common Stock issued in exchange for 12% Reset Notes .............. 77 55,951 -- 56,028 Net proceeds from issuance of 9 1/4% preferred stock .......... -- 82,214 -- 82,231 Dividends on 8% preferred stock paid in cash ..................... -- (15,476) -- (15,476) Interest on 12% Reset Notes paid in Common Stock ................. 6 4,119 -- 4,125 Issuance of warrants with 12% Senior Secured Notes Due 2002 ...... -- 7,076 -- 7,076 Issuance of employee fill-up shares .............................. 1 976 -- 985 Net loss for 1997 ................................................ -- -- (110,835) (110,835) --------- --------- --------- --------- Balance, December 31, 1997 ....................................... $ 514 $ 693,437 $(425,788) $ 268,284 ========= ========= ========= =========
See notes to consolidated financial statements 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. However, beginning in the third quarter of 1996, the Company's operating performance substantially deteriorated. Management believes that certain strategic initiatives undertaken by the Company beginning in late 1996 have contributed to the improved financial and operating results. TWA's management began to implement such strategic initiatives in response to a significant deterioration in the Company's operating performance and financial condition during the second half of 1996. This deterioration was primarily caused by (i) an overly aggressive expansion of TWA's capacity and planned flight schedule, particularly during the 1996 summer season, which forced the Company to rely disproportionately on lower-yield feed traffic and bulk ticket sales to fill the increased capacity of its system; (ii) the delayed delivery of four older 747s intended to increase capacity for incremental international operations during the summer of 1996; and (iii) unexpected maintenance delays due to the capacity increase, higher levels of scheduled narrow-body heavy maintenance and increased contract maintenance performed for third parties. These factors caused excessive levels of flight cancellations, poor on-time performance, increased pilot training costs and higher maintenance expenditures and adversely affected the Company's yields and unit costs. In addition, the crash of TWA Flight 800 on July 17, 1996 distracted management's attention from core operating issues and led to lost bookings and revenues. Management believes that certain strategic initiatives undertaken by the Company beginning in late 1996 and continuing throughout 1997 have contributed to the Company's improved financial and operating results. The primary focus of the Company's strategic initiatives was to reestablish TWA's operational reliability and schedule integrity and overall product quality in order to attract higher-yield passengers and enhance overall productivity, which was intended to improve the Company's financial results. As the initial steps in implementing this strategy, the Company temporarily reduced its flight schedule during the first quarter of 1997 to more closely match aircraft available for active service and worked to reduce the number of aircraft in maintenance backlog by increasing overtime and maintenance capacity made available by terminating an unprofitable aircraft maintenance contract with the U.S. government. The other key initiatives which TWA began implementing in late 1996 included: (i) acceleration of the Company's fleet renewal plan; (ii) a restructuring of TWA's operations at JFK; (iii) a focus on improving productivity; (iv) implementation of a series of revenue-enhancing marketing initiatives; and (v) implementation of a number of employee-related initiatives to reinforce the Company's focus on operational performance. TWA has significantly enhanced its operational reliability and schedule integrity since the first quarter of 1997. According to statistics reported to the DOT, TWA improved from tenth among the 10 largest U.S. scheduled commercial airlines in domestic on-time performance in 1996 to second in 1997. TWA also canceled 5,413 fewer flights in 1997 than in 1996, improving its percentage of scheduled flights completed to 98.0% compared to 96.2% for 1996. Primarily as a result of the Company's improved operational performance during 1997, passenger load factors and passenger revenue per available seat mile reflected improvement compared to 1996. For the full year ended December 31, 1997, the Company's financial results reflected operating revenues of $3,328.0 million (a decrease of $226.4 million from operating revenues of $3,554.4 million for the full year 1996), an operating loss of $29.3 million (an improvement of $169.2 million over the full year 1996 operating loss of $198.5 million, which included special charges of $85.9 million), and a net loss of $110.8 million (including a non-cash extraordinary loss of $21.0 million related to the early extinguishment of debt), an improvement of $174.0 million over a net loss of $284.8 million (which included a non-cash extraordinary loss of $9.8 million and special charges of $85.9 million) for 1996. The reduction in full-year operating revenues for 1997 resulted from the planned reduction in capacity as the Company replaced older L-1011 and B-747 aircraft with new B-757, B-767 and MD-80 aircraft on many routes. 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 to date and planned by management to improve the Company's future operating results and performance, the Company anticipates reporting operating and net losses in the first quarter of 1998, which losses may be substantial. On December 31, 1997, the Company's total cash and cash equivalents balance was approximately $237.8 million. This balance represented an increase of approximately $56.2 million from the Company's corresponding cash balance at December 31, 1996. This increase in the Company's cash balance resulted primarily from the proceeds of various capital market offerings during 1997 and asset dispositions offset by capital expenditures and debt repayments. In March 1997, the Company raised approximately $47.2 million in net proceeds from the issuance of 50,000 Units, with each Unit consisting of (i) one 12% Senior Secured Note due 2002, in the principal amount of $1,000, and (ii) one Redeemable Warrant to purchase 126.26 shares of Common Stock at an exercise price of approximately $7.92 per share. In December 1997, the Company raised net proceeds of $82.2 million from the sale of the 9 1/4% Preferred Stock, net proceeds of $133.5 million from the sale of the 11 1/2% Notes, a portion of the proceeds of which was used to repay the 12% Reset Notes, and net proceeds of $97.0 million from the sale of the Receivables Securitization Notes, a portion of the proceeds of which was used to repay the outstanding balance of the Icahn Loans. In March 1998, the Company completed the sale of $150.0 million in 11 3/8% Senior Notes due 2006 resulting in net proceeds to the Company of $144.9 million. The Company intends to use the net proceeds for certain capital expenditures including pre-delivery deposits on new aircraft acquisitions, and for working capital and other general corporate purposes. Each of the Company's union contracts became amendable as of August 31, 1997, and negotiations have begun with respect to all three of the contracts. While management believes that the negotiation process for the 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 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, 1997 will be recovered. However, the achievement of such improved future operating results and cash flows are subject to considerable uncertainties. In future periods these intangibles will be evaluated for recoverability based upon estimated future cash flows. If expectations are not substantially achieved, charges to future operations for impairment of those assets may be required and such charges could be material. The Company has no unused credit lines and must satisfy all of its working capital and capital expenditure requirements from cash provided by operating activities, from external capital sources or from the sale of assets. As a result of the financings consummated in the fourth quarter of 1997 and the repayment of certain debt in connection therewith, certain assets were released from collateral liens and are currently unencumbered. Further pledging of these unencumbered assets, however, may be limited by negative pledge restrictions in outstanding indebtedness. Substantially all of TWA's other strategic assets have been pledged to secure various issues of outstanding indebtedness of the Company. To the extent that the pledged assets are sold, the applicable financing agreements generally require the sale proceeds to be applied to repay the corresponding indebtedness. 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. 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. Additionally, certain of the Company's major competitors have established or announced plans to establish alliances with one or more foreign or domestic carriers to expand their international operations and increase the domestic market presence. 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 most 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. (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 30 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, 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):
1997 1996 ---------- ---------- Routes......................... $248,100 $248,100 Gates.......................... 83,649 86,649 Slots.......................... 95,800 95,800 -------- -------- 427,549 430,549 Accumulated Amortization....... 49,858 28,890 -------- -------- $377,691 $401,659 ======== ========
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, 1997 and 1996 was $97,891,000 and $55,937,000, 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. (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 131,000 and 180,000 vouchers were outstanding at December 31, 1997 and 1996, respectively. (i) Interest Capitalized: Interest cost associated with funds expended for the acquisition of qualifying assets is capitalized. Interest capitalized was $4,784,000 in 1997 and $5,463,000 in 1996. 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, 1997 and 1996, the unamortized balances of the deferred credits were $23,154,000 and $31,408,000, respectively. (m) Environmental Contingencies: TWA is subject to numerous environmental laws and regulations and is subject to liabilities and compliance costs arising from its past and current handling, processing, recycling, storing and disposing of hazardous substances and hazardous wastes. It is TWA's policy to accrue environmental remediation costs when it is probable that a liability has been incurred and an amount can be reasonably estimated. As potential environmental liabilities are identified and assessments and remediation proceed, these 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 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128"), which specifies the computation, presentation, and disclosure requirements for earnings per share ("EPS"). SFAS No. 128 replaces the presentation of primary EPS with a presentation of basic EPS and fully diluted EPS with diluted EPS. Basic EPS, unlike primary EPS, excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. As a result of the losses reported in the periods presented, the adoption of SFAS No. 128 did not impact previously reported earnings per share data. In computing the loss applicable to common shares for 1997 and 1996 and the four months ended December 31, 1995, the net loss has been increased by dividend requirements on the 9 1/4% Cumulative Convertible Exchangeable Preferred Stock from the date of issuance in December 1997, 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 (47.1 million in 1997, 38.5 million in 1996 and 28.0 million in 1995) and Employee Preferred Stock (6.4 million in 1997, 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. Diluted EPS has not been presented as the impact of stock options, warrants, conversion of preferred stock or potential issuances of additional Employee Preferred Stock would have been anti-dilutive. For a description of securities which represent potential common shares and which could materially dilute basic EPS in the future, see Notes 11, 12, & 13. 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, 1997 most of the Company's receivables were related to tickets sold to individual passengers through the use of major credit cards (40%) or to tickets sold by other airlines (14%) 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. (t) New Accounting Standards: The FASB recently issued SFAS No. 130, Reporting Comprehensive Income, SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, and SFAS No. 132, Employers' Disclosure about Pensions and Other Postretirement Benefits. SFAS No. 130 provides for the reporting and presentation of comprehensive income and its components. SFAS No. 131 establishes standards for defining operating segments and reporting certain information about such segments. SFAS No. 132 revised disclosure requirements relative to pension and other postretirement benefits. Since these statements only impact how financial information is disclosed in interim and annual periods, the adoption of these standards in 1998 will not impact the Company's financial condition or results of operations. 3. Chapter 11 Reorganizations: On January 31, 1992, TWA commenced a reorganization case (the "'93 Reorganization") by filing a voluntary petition for relief under Chapter 11, Title 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the U.S. Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). TWA's subsidiary 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 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," 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. Ticket sales under the Ticket Program, which commenced in September 1995, were $236.1 million in 1997, $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 $129.9 million in 1997, $76.9 million in 1996 and $8.8 million in 1995. Of these amounts, $116.0 million, $71.5 million and $4.4 million is included as passenger revenues for 1997, 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. Through December 31, 1997, approximately $118.6 million of such proceeds had been applied to the principal balance of the Icahn Loans, and $76.7 million had been applied to the PBGC Notes, which resulted in an $11.5 million extraordinary charge related to the early extinguishment of PBGC Notes ($9.9 million in 1997 and $1.6 million in 1996) (See Note 14). On December 30, 1997, TWA completed a $100 million private placement of 9.8% Airline Receivable Asset Backed Notes due 2001. Proceeds from this financing were used, in part, to retire the remaining balance of Icahn Loans, including approximately $71.4 million of principal and $2.7 million in accrued interest. 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 purchased by Karabu pursuant to the Ticket Agreement are required to be at fares specified in the Ticket Agreement, net to TWA, and exclusive of tax. No commissions will be paid by TWA for tickets sold under the Ticket Agreement, and TWA believes that under the applicable provisions of the Ticket Agreement, Karabu may not market or sell System Tickets through travel agents or directly to the general public. Karabu, however, has been marketing System Tickets through travel agents and directly to the general public. TWA has demanded that Karabu cease doing so and Karabu has stated that it disagrees with the Company's interpretation concerning sales through travel agents or directly to the general public. In December 1995, the Company filed a lawsuit against Karabu, Mr. Icahn and affiliated companies seeking damages and to enjoin further violations of the Ticket Agreement. Mr. Icahn countered by threatening to file his own lawsuit and declare a default on the Icahn Loans, which financing was secured by receivables and certain flight equipment pledged under one or more security agreements (the "Karabu Security Agreements"). Mr. Icahn's position was based on a variety of claims related to his various interpretations of the Karabu Security Agreements as well as with respect to certain alleged violations of the Ticket Agreement by the Company. The parties negotiated a series of standstill agreements pursuant to which TWA's original lawsuit was withdrawn, while the Company and Mr. Icahn endeavored to negotiate a settlement of their differences and respective claims. Those negotiations reached an impasse and the Company re-filed its suit on March 20, 1996 in the St. Louis County Circuit Court. In response to such lawsuit, Karabu and another Icahn-affiliated company asserted counterclaims alleging that the Company had breached its obligations under the Ticket Agreement by, among other things, seeking to restrict Karabu and Icahn-affiliated companies from selling System Tickets through travel agents or directly to the general public. If Karabu's interpretation as to sales of System Tickets through travel agents or directly to the general public was determined by a court or otherwise to be correct and the Company did not otherwise take appropriate action to mitigate the effect of such sales, the Company could suffer significant loss of revenue collected that could reduce overall passenger yields on a continuing basis during the term of the Ticket Agreement. The trial of this case was completed on January 7, 1998. A decision regarding this matter is pending. 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 $11,305,000 for the year ended December 31, 1997, $11,919,000 for the year ended December 31, 1996, $(11,535,000) for the four months ended December 31, 1995 and $3,607,000 for the eight months ended August 31, 1995, 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, 1997 and 1996, the unamortized balance of this excess amounted to approximately $30.1 million and $32.0 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 (amounts in thousands): Year Ended December 31, 1997........................ $48,902 Year Ended December 31, 1996........................ $54,611 Four Months Ended December 31, 1995................. $16,566 Eight Months Ended August 31, 1995.................. $29,604
Summary financial data for Worldspan is as follows (amounts in thousands):
December 31, ------------------------ 1997 1996 ---------- --------- Current assets........................ $220,602 $172,368 Non-current assets.................... 360,728 384,653 -------- -------- Total assets......................... $581,330 $557,021 ======== ======== Current liabilities................... $128,159 $126,774 Non-current liabilities............... 102,957 125,255 Partners' equity...................... 350,214 304,992 -------- -------- Total liabilities and equity......... $581,330 $557,021 ======== ========
Year Ended December 31, --------------------------------------- 1997 1996 1995 ---------- --------- --------- Revenues................ $578,340 $548,419 $498,138 Costs and expenses...... 533,119 500,743 529,852 -------- -------- -------- Net income (loss)...... $45,221 $47,676 $(31,714) ======== ======== ========
5. Income Taxes: Income tax liabilities at December 31, 1997 and 1996, included in other noncurrent liabilities, consist of the following (in millions):
1997 1996 ----------- --------- Current taxes........................... $ -- $ -- Deferred taxes: Federal................................ 10.7 10.7 Other income and franchise taxes....... 0.3 0.3 ----------- -------- Total income tax liability.............. $ 11.0 $ 11.0 =========== ========
Significant components of the Company's deferred tax liabilities and assets as of December 31, 1997 and 1996 are as follows (in millions):
1997 1996 -------- -------- Deferred tax assets: Postretirement benefits, other than pensions..... $ 199.8 $ 198.5 Pension obligations.............................. 51.0 82.3 Employee compensation and other benefits......... 40.0 36.5 Capital leases, net.............................. 58.8 54.3 Net operating loss carryforwards................. 337.7 247.1 Other, net....................................... 77.9 84.0 --------- --------- Total deferred tax assets...................... 765.2 702.7 --------- --------- Deferred tax liabilities: Property and spare parts, net.................... (45.0) (34.6) Routes, gates, and slots, net.................... (149.2) (158.7) Investment in affiliate.......................... (46.1) (42.7) --------- --------- Total deferred tax liabilities................. (240.3) (236.0) --------- --------- Net deferred tax asset before valuation allowance. 524.9 466.7 Deferred tax asset valuation allowance........... (535.9) (477.7) --------- --------- Net deferred tax 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. A summary of the provision (credit) for income taxes is as follows (amounts in thousands):
Predecessor Reorganized Company Company --------------------------------------------------- --------------- Year Ended Four Months Eight Months ------------------------------- Ended Ended December 31, December 31, December 31, August 31, 1997 1996 1995 1995 ------------ ------------ ------------ -------------- Current, primarily foreign.......................... $527 $450 $1,370 $(96) Deferred............................................ -- -- -- -- --------- -------- ---------- -------- Total provision (benefit) for income taxes, net.... $527 $450 $1,370 $(96) ========= ======== ========== ========
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 (amounts in thousands):
Predecessor Reorganized Company Company --------------------------------------------------- --------------- Year Ended Four Months Eight Months ------------------------------- Ended Ended December 31, December 31, December 31, August 31, 1997 1996 1995 1995 ------------ ------------ ------------ -------------- Income tax benefit at United States statutory rates.. $ (31,268) $ (93,652) $ (11,294) $ (118,408) Amortization of reorganization value in excess of amounts allocable to identifiable assets............ 14,684 14,683 4,894 1,976 Meals and entertainment disallowance................. 4,124 4,257 1,419 2,838 Foreign and state taxes.............................. 527 450 1,370 (96) Net operating loss not benefited and other items..... 12,460 74,712 4,981 113,594 ----------- ----------- ------------- ----------- Income tax expense (benefit)........................ $ 527 $ 450 $ 1,370 $ (96) =========== =========== ============= ===========
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 ("NOLs") amounting to approximately $855 million at December 31, 1997 expiring in 2008 through 2012 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. Changes in ownership in future periods 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 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 (amounts in thousands).
Predecessor Reorganized Company Company --------------------------------------------------- --------------- Year Ended Four Months Eight Months ------------------------------- Ended Ended December 31, December 31, December 31, August 31, 1997 1996 1995 1995 ------------ ------------ ------------ -------------- Service cost....................... $ 875 $ 577 $ 274 $ 493 Interest cost...................... 4,652 992 583 1,040 Actual return on assets............ (4,592) (505) (100) (200) Net amortization and deferral...... (289) (355) -- -- -------- ------- ------- ------- Net pension expense............... $ 646 $ 709 $ 757 $ 1,333 ======== ======= ======= =======
Actuarial assumptions used for determining pension costs were:
Predecessor Reorganized Company Company --------------------------------------------------- --------------- Year Ended Four Months Eight Months ------------------------------- Ended Ended December 31, December 31, December 31, August 31, 1997 1996 1995 1995 ------------ ------------ ------------ -------------- Discount rate for interest cost.................. 7.50% 7.50% 7.00% 8.50% Rate of increase in future compensation levels... 5.50% 5.50% 5.50% 5.50% Expected long-term rate of return on plan assets. 9.00% 9.00% 11.00% 11.00%
The funded status (with benefit obligations determined using the current estimated discount rate of 7.25% and 7.50% at December 31, 1997 and 1996, respectively) and amounts recognized in the Consolidated Balance Sheets at December 31, 1997 and 1996, for defined benefit plans covering foreign employees, are as follows (amounts in thousands):
December 31, ---------------------------------------------------------------------- 1997 1996 --------------------------------- --------------------------------- Plans in Which Plans in Which --------------------------------- --------------------------------- Assets Exceed Accumulated Assets Exceed Accumulated Accumulated Benefits Exceed Accumulated Benefits Exceed Benefits Assets Benefits Assets ------------- --------------- ------------- --------------- Actuarial present value of benefit obligations: Vested benefit obligation........................... $47,979 $12,108 $44,200 $7,153 Nonvested benefit obligation........................ -- 431 -- 1,198 ------- ------- ------- ------ Accumulated benefit obligation...................... 47,979 12,539 44,200 8,351 Projected benefit obligation more than accumulated benefit obligation.................... 4,273 8,832 3,983 5,882 ------- ------- ------- ------ Projected benefit obligation........................ 52,252 21,371 48,183 14,233 Plan assets at fair value(a)......................... 54,366 -- 50,703 -- ------- ------- ------- ------ Projected benefit obligation more (less) than plan assets at fair value................................ (2,114) 21,371 (2,520) 14,233 Unrecognized net gain (loss)......................... 6,578 4,176 7,307 11,696 ------- ------- ------- ------ Pension liability (asset) recognized in Consolidated Balance Sheets................................... $4,464 $25,547 $4,787 $25,929 ======= ======= ======= ======
(a) Plan assets are invested in cash equivalents, international stocks, fixed income securities and real estate. (b) 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 $53.4 million, $58.0 million, $14.1 million and $26.8 million for the years ended December 31, 1997, December 31, 1996, the four months ended December 31, 1995 and the eight months ended August 31, 1995, respectively. Such defined contribution plans include: (a) trust plans established pursuant to collective bargaining agreements with certain employee groups providing for defined Company contributions generally determined as a percentage, ranging from 2% to 11%, of pay; and (b) retirement savings plan for Noncontract Employees to which the Company contributes amounts equal to 25% of voluntary employee after-tax 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, 1997 and 1996 (in millions):
December 31, December 31, 1997 1996 ------------ ------------ Accumulated postretirement benefit obligation: Actives fully eligible..................... $ 184 $ 163 Other actives.............................. 130 144 Retirees................................... 215 225 ------------ ------------ Total APBO................................ 529 532 Unrecognized cumulative loss.................. (12) (29) ------------ ------------ Accrued postretirement benefit cost........... $ 517 $ 503 ============ ============
The components of net periodic postretirement benefit cost are as follows (in millions):
Predecessor Reorganized Company Company --------------------------------------------------- --------------- Year Ended Four Months Eight Months ------------------------------- Ended Ended December 31, December 31, December 31, August 31, 1997 1996 1995 1995 ------------ ------------ ------------ -------------- Service Cost........... $ 9.9 $ 10.0 $ 3.0 $ 5.4 Interest Cost.......... 39.0 35.4 11.0 25.5 ------ ------ ------ ------ Total............... $ 48.9 $ 45.4 $ 14.0 $ 30.9 ====== ====== ====== ======
The discount rate used to determine the APBO was 7.25% at December 31, 1997 and 7.50% at December 31, 1996. The discount rate used to determine net periodic postretirement benefit costs was 7.50% for the year ended December 31, 1997, 7.0% for the year ended December 31, 1996, 7.0% for the four months ended December 31, 1995 and 8.5% for the eight months ended August 31, 1995. 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, 1997 would be increased by approximately 6.5% and 1997 periodic postretirement benefit cost would increase approximately 4.0%. 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, which to date has not been determined. The National Transportation Safety Board held hearings relating to the crash in December 1997 and is continuing its investigation. While TWA is currently a defendant in a number of lawsuits relating to the crash, it is unable to predict the amount of claims which may ultimately be made against the Company or how those claims might be resolved. TWA maintains substantial insurance coverage, and at this time management has no reason to believe that such insurance coverage will not be sufficient to cover the claims arising from the crash. Therefore, TWA believes that the resolution of such claims will not have a material adverse effect on its financial condition or results of operations. The Company is unable to identify or predict the extent of any adverse effect on its revenues, yields, or results of operations which has resulted, or may result, from the public perception of the crash. On October 22, 1991, a 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 and claimed that the cash undertaking constituted a preference payment. Following prolonged litigation with respect to jurisdiction, the United States Supreme Court determined that the entire 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. On January 20, 1998, the Court of Appeals for the Third Circuit reversed the District Court and affirmed the findings of the Bankruptcy Court. Travellers sought reconsideration by the Third Circuit which reconsideration was denied. Travellers has advised they will appeal this decision. TWA has agreed that amounts received pursuant to this proceeding will be applied to reduce the PBGC Notes or contributed to the settlement trust established for defined benefit pension plans covering certain TWA employees. 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 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 its 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 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. A final order has not yet been entered; however, an interim order approving the settlement has been entered. On November 9, 1995, ValuJet Air Lines, Inc., now known as AirTran Airlines, Inc. ("ValuJet") instituted a lawsuit against TWA and 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 the 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. ValuJet has settled its claim with Delta and appealed the grant of summary judgment to the 11th Circuit Court of Appeals. Settlement discussions are ongoing. The Company does not expect that the resolution of this matter will have a material adverse effect on its results of operations or financial position. In addition, based on certain written grievances or complaints filed by ValuJet, the Company was informed that the United States Department of Justice ("DOJ"), Antitrust Division, was investigating the circumstances of the slot lease of certain takeoff and landing slots to Delta at LaGuardia to determine whether an antitrust violation has occurred. During the course of its investigation, the DOJ was informed of the summary judgment described above. Since the date of the judgment, TWA is unaware of whether the DOJ has undertaken further investigative efforts, the status of the investigation or any future plans of the DOJ or other regulatory bodies with respect to the ValuJet allegations. While TWA believes the summary judgment should be persuasive to the various regulatory bodies petitioned by ValuJet, it will cooperate with any further investigations. 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 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 believe that the liquidation of TWE has had or will have a material adverse impact on the financial position or results of operations of TWA. Pursuant to the '92 Labor Agreements, the Company agreed to pay to employees represented by the IAM a cash bonus for the amount by which overtime incurred by the IAM from September 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 liability in the accompanying balance sheets. Such amount reflects a reduction of approximately $10.0 million pursuant to an agreement to reduce proportionately the obligation based upon the size of the reduction of indebtedness achieved by the '95 Reorganization. The IAM, while not providing a calculation of its own, has disputed the method by which management has computed the net overtime bonus and has indicated that it believes the amount due to the IAM is much greater than the amount which has been estimated by management. In addition, in connection with certain wage scale adjustments afforded to non-contract employees, employees previously represented by the IFFA have asserted and won an arbitration ruling with respect to the comparability of wage concessions made in 1994 that, if sustained, would require that the Company provide additional compensation to such employees. The Company estimates that at December 31, 1997 such additional compensation that would be payable pursuant to the arbitration ruling would be approximately $12.0 million. The Company denies any such obligation and is pursuing an appeal of the arbitration ruling and a court award affirming the ruling. Effective September 1, 1997, the Company also reduced the overall compensation and benefits package for non-contract employees so as to offset, in the Company's view, any claims by such employees previously represented by IFFA for any retroactive or prospective wage increases. As such, no liability has been recorded by the Company. In connection with the '95 Reorganization, the Company entered into a letter agreement with employees represented by ALPA whereby if the Company's flight schedule, as measured by block hours, does not exceed certain thresholds, a defined cash payment would be made to ALPA. The defined thresholds were exceeded during the measurements periods through December 31, 1996 and no amount was therefore owed to ALPA as of that date. A payment of approximately $2.6 million was due under the agreement on August 14, 1997 for the period January through June 1997. The Company made this payment in January 1998. Management estimates that its aggregate obligation for 1997 will be approximately $9.1 million. 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. 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, -------------------------- 1997 1996 --------- ------------- (Amounts in Thousands) 9.80% Airline Receivable Asset Backed Notes, Series 1997-1(a)................. $ 100,000 $ -- 12% Senior Secured Notes due 2002(b).......................................... 43,254 -- 11 1/2% Senior Secured Notes due 2004(c)................................... 138,360 -- 12% Senior Secured Reset Notes due 1998(d).................................... -- 111,799 8% IAM Backpay Notes(e)....................................................... 13,354 12,090 PBGC Notes(f)................................................................. 141,243 198,672 Icahn Financing Facilities(g)................................................. -- 125,102 Equipment Trust Certificates(h)............................................... -- 8,963 Various Secured Notes, 4.0% to 12.4%, due 1998-2001(i)........................ 43,799 75,478 Installment Purchase Agreements, 10.0% to 10.53%, due 1998-2003(j)............ 267,199 109,034 Predelivery Financing Agreements(k)........................................... 3,166 19,862 IRS Deferral Note(l).......................................................... 6,333 8,708 WORLDSPAN Note(m)............................................................. 31,224 31,224 ----------- ------------- Total long-term debt..................................................... 787,932 700,932 Less current maturities.................................................. 51,392 92,447 ----------- ------------- Long-term debt, less current maturities....................................... $ 736,540 $ 608,485 =========== =============
(a) In December 1997, TWA agreed to sell certain receivables on an ongoing basis to Constellation Finance LLC ("Constellation"), a special purpose limited liability company wholly owned by TWA, and TWA agreed to service the related receivables. Concurrently, the 9.80% Airline Receivable Asset Backed Notes, Series 1997-1 were issued in December 1997 by Constellation in the principal amount of $100.0 million. Interest on the 1997-1 Notes is payable monthly on the 15th day of each month at the rate of 9.80% per annum. No principal payments are due under the 1997-1 Notes until January 2001, except under certain circumstances. The terms of the 1997-1 Notes provide for the maintenance of certain minimum levels of receivables as defined, or in the event of a deficiency, the deposit of funds with the trustee in the amount of such deficiency. At December 31, 1997, $9.7 million was held by the Company Trustee and is included in the accompanying balance sheet as prepaid expenses and other current assets. This amount was returned by the Company Trustee to the Company by January 9, 1998 at which time the deficiency was eliminated. (b) The 12% Senior Secured Notes due 2002 were issued in March 1997 in the principal amount of $50.0 million. The notes are reflected net of the unamortized discount of $6.7 million at December 31, 1997, to reflect an effective interest rate of approximately 16.4%. Interest is payable semi-annually on April 1 and October 1. The notes are not redeemable prior to their maturity on April 1, 2002. The notes are secured by (i) TWA's beneficial interest in certain take-off and landing slots at three high-density, capacity-controlled airports, (ii) certain ground equipment at certain domestic airports and (iii) all stock of (a) a subsidiary holding the leasehold interest in a hangar at Los Angeles International Airport and (b) three subsidiaries holding leasehold interests in gates and related support space at certain domestic airports. (c) The 11 1/2% Senior Secured Notes due 2004 were issued in December 1997 in the principal amount of $140.0 million. The notes are reflected net of the unamortized discount of $1.6 million at December 31, 1997, to reflect an effective interest rate of approximately 11.7%. Interest is payable semi-annually in arrears on each June 15 and December 15, commencing June 15, 1998. The Company purchased $23.1 million of U.S. Government Obligations with a portion of the net proceeds from the sale of the notes which was deposited in an escrow account to fund interest payments through June 15, 1999. The notes are secured by a lien on (i) a pool of aircraft spare parts, (ii) TWA's beneficial interest in 30 take-off and landing slots at Ronald Reagan Washington National Airport and (iii) securities pledged to provide for the first three scheduled interest payments. (d) The 12% Senior Secured Reset Notes due 1998 were scheduled to 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. During 1996 and continuing through August 1997, 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 $97.1 million principal amount of 12% Senior Secured Reset Notes and $2.9 million in accrued interest thereon in exchange for the issuance of approximately 12.2 million shares of Company Common Stock. The remaining outstanding notes were retired in December 1997 with a portion of the proceeds related to the issuance of 11 1/2% Senior Secured Notes. The principal balance remaining at retirement was $72.5 million. As a result of the privately negotiated exchanges and the retirement of the balance of the 12% Senior Secured Reset Notes, certain slots, equipment, subsidiary stock and spare parts were released and used to secure the 12% Senior Secured Notes and the 11 1/2% Senior Secured Notes. A number of aircraft and engines were also released and remain free and clear. (e) The 8% IAM Backpay Notes have a stated principal amount of $22.0 million at December 31, 1997 and 1996. The notes are reflected net of the unamortized discount of $8.7 million and $9.9 million at December 31, 1997 and 1996, respectively, which reflects an effective interest rate of approximately 24.4% at December 31, 1997. 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 liens on one JT8D engine and one JT9D engine. 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) The PBGC Notes have a stated unpaid principal balance of $158.7 million and $232.9 million at December 31, 1997 and 1996, respectively. The notes are reflected net of unamortized discounts of $17.4 million and $34.3 million at December 31, 1997 and 1996, 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). Such prepayments would result in extraordinary charges related to the early extinguishment of debt. 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. (g) The Icahn Financing Facilities include a $75 million Asset Based Facility and a $125 million Receivables Facility, the remaining outstanding balance of which was retired in December 1997 in conjunction with the issuance of the 9.8% Airline Receivable Asset Backed Notes due 2001. The principal balance of the Icahn Financing Facilities had been reduced to $71.4 million by the election of Karabu to apply the purchase price for tickets purchased under the Ticket Agreement to a reduction of the Icahn Loans. Collateral for the Icahn Loans included a number of aircraft, engines, and related equipment, along with substantially all of the Company's receivables, which were released on retirement of the Facilities on December 30, 1997. (h) The Equipment Trust Certificates paid interest semi-annually at a rate of 11% per annum and were subject to mandatory redemptions beginning in April 1994 and continuing until September 1997. The certificates were retired on March 31, 1997. The certificates were secured by certain aircraft, engines and other equipment which also secured the 12% Senior Secured Reset Notes. (i) Various Secured Notes represent borrowings to finance the purchase or lease of certain flight equipment and other property. (j) 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. (k) 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 July 1998 and continuing through September 1999. Interest is payable quarterly at a rate of LIBOR plus 3.5%. (l) 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. (m) 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. (n) At December 31, 1997, aggregate principal payments due for long-term debt for the succeeding five years were as follows: (Amounts in Year Thousands) ---- ---------- 1998.............................. $51,392 1999.............................. 126,851 2000.............................. 80,973 2001.............................. 184,848 2002.............................. 88,829 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. Certain of the Company's long-term debt agreements contain various covenants which limit, among other things, the incurrence of additional indebtedness, the payment of dividends on capital stock, certain investments, transactions with affiliates, incurrence of liens and sale and leaseback transactions, and sale of assets. The Company was in compliance with these covenants as of December 31, 1997. 9. Leases and Related Guarantees: Sixteen of the aircraft in the Company's fleet at December 31, 1997 were leased under capital leases. The remaining lease periods for these aircraft range from zero to nine 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 1998 will be approximately $36.3 million for the 15 aircraft held under capital leases (one lease expired on December 31, 1997). One hundred forty-four of the aircraft in TWA's fleet at December 31, 1997 were leased under operating leases. Other than four leases on a month-to-month basis, the remaining lease periods range from two months to eighteen 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, 1997, the Company's contingent indemnification obligations in connection with the tax benefit transfers were collateralized by bank letters of credit aggregating $9,803,000 for which the Company has posted $9,803,000 in cash collateral to secure its reimbursement obligations and the bank letters of credit. In addition, the Company has pledged $4,398,000 in cash collateral to secure its obligation with respect to four of the tax benefit transfers and has pledged flight equipment having a net book value of $23,147,000 to secure its obligation with respect to two of the tax benefit transfers. At December 31, 1997 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 ---------- ------------ (Amounts in Thousands) Year - ---- 1998.................................... $ 54,660 $ 393,686 1999.................................... 52,360 378,166 2000.................................... 49,314 356,681 2001.................................... 45,008 334,295 2002.................................... 27,109 292,216 Subsequent.............................. 60,064 1,782,677 --------- ------------ Total.................................. 288,515 $ 3,537,721 ============ Less imputed interest................... 68,525 --------- Present value of capital leases......... 219,990 Less current portion.................... 37,068 --------- Obligations under capital leases, less current portion.................. $ 182,922 ========= Included in the Minimum Lease Payments for Operating Leases are increased rental rates related to lessor financing of engine hush-kits for 25 aircraft. 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, accordingly, the Company elected to pay the February 1, 1996 dividend in Common Stock and subsequently issued 317,145 shares. For purposes of determining the number of shares of Common Stock to distribute, such Common Stock was valued at 90% of the fair market value, based upon trading prices for the twenty days prior to the record date for the dividend payment. On March 22, 1996, the Company announced a call for redemption on April 26, 1996 (the "Redemption Date") of all of its issued and outstanding 12% Preferred Stock at a redemption price per share equal to $75.00, plus accrued dividends to and including the Redemption Date of $2.8667 per share. On April 26, 1996, the Company paid an aggregate of $84.9 million in redemption of the 12% Preferred Stock and payment of accrued dividends. 11. Capital Stock: The Company has the authority to issue 287.5 million shares of capital stock, consisting of 150 million shares of Common Stock and 137.5 million additional shares of preferred stock. On the '95 Effective Date of the '95 Reorganization, TWA issued approximately 17.2 million shares of Common Stock, 6.4 million shares of Employee Preferred Stock (including approximately 1.7 million shares which are attributable to ALPA represented employees, see Note 12), Equity Rights for the purchase of approximately 13.2 million shares of Common Stock, warrants for the purchase of approximately 1.7 million shares of Common Stock exercisable over a seven year period at $14.40 per share (the "Seven Year Warrants"), warrants for the purchase of up to 1.15 million shares of Common Stock (for nominal consideration), and $109.0 million aggregate liquidation value of Mandatorily Redeemable 12% Preferred Stock (the "12% Preferred Stock"). In addition, each of the 12.5 million shares of the then existing preferred stock were converted into, and holders received, 0.1024 shares of Common Stock, 0.0512 Equity Rights and 0.1180 Seven Year Warrants. Holders of then existing common stock, other than shares held by trusts for employees, received 0.0213 shares of Common Stock, 0.0107 Equity Rights and 0.0246 Seven Year Warrants. In October 1995, TWA received approximately $55.3 million in gross proceeds from the exercise of 13,206,247 Equity Rights and issued 13,206,247 shares of Common Stock. The Company paid a fee of approximately $3.4 million in September to certain standby purchasers of shares covered by the Equity Rights. TWA subsequently issued 2.07 million additional shares of Common Stock to previous holders of TWA's 10% Senior Secured Notes based upon the trading prices of securities distributed pursuant to the '95 Reorganization. The Employee Preferred Stock is the functional equivalent of Common Stock except for an exclusive right to elect a certain number of directors to the Board of Directors and its liquidation preference of $0.01 per share. Employee Preferred Stock does not have redemption rights. Each share will automatically convert into one share of Common Stock upon the withdrawal of such share from the employee stock trust in which such share is held. There were 1,742,920 and 1,742,922 Seven Year Warrants outstanding at December 31, 1997 and 1996, respectively. All warrants to purchase shares of Common Stock for nominal consideration had been exercised at December 31, 1997. In March 1997, the Company issued 50,000 Redeemable Warrants in conjunction with the sale of $50.0 million 12% Senior Secured Notes Due 2002. The Warrants are exercisable commencing on the first anniversary of the date of original issuance through their expiration on April 1, 2002 and entitles the holders thereof to purchase 126.26 shares of Common Stock per Warrant at an exercise price of approximately $7.92 per share. In December 1997, the Company completed an offering, pursuant to Rule 144A of the Securities Act of 1933, of 1,725,000 shares of its 9 1/4% Cumulative Convertible Exchangeable Preferred Stock, with a liquidation preference of $50 per share. Each share of the 9 1/4% Preferred Stock may be converted at any time at the option of the holder, unless previously redeemed or exchanged, into shares of the Company's Common Stock at a conversion price of $7.90 per share (equivalent to a conversion rate of approximately 6.329 shares of Common Stock for each share of 9 1/4% Preferred Stock), subject to adjustment. The 9 1/4% Preferred Stock may not be redeemed prior to December 15, 2000. On or after December 15, 2000, the 9 1/4% Preferred Stock may be redeemed in whole or in part, at the option of the Company, at specified redemption prices. The 9 1/4% Preferred Stock may be exchanged, in whole but not in part, at the option of the Company, for the Company's 9 1/4% Convertible Subordinated Debentures due 2007 on any dividend payment date beginning on December 15, 1999 at the rate of $50 principal amount of Debentures for each share of 9 1/4% Preferred Stock outstanding at the time of exchange; provided that all accrued and unpaid dividends on the 9 1/4% Preferred Stock to the date of exchange have been paid or set aside for payment and certain other conditions are met. The Company was required to file a registration statement (the "Shelf Registration Statement") with the Securities and Exchange Commission to register resales of 9 1/4% Preferred Stock, the Debentures and the underlying shares of Common Stock issuable upon conversion thereof. In addition the Company must use its reasonable best efforts to cause the Shelf Registration Statement to be effective until the earlier of (i) the sale of all securities covered by the registration or (ii) two years after the date of original issuance. 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% 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. 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 that 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 distributed to an employee benefit plan (the "ESOP") one-third of the shares annually beginning August 1995. Accordingly, operating results for 1997, 1996, the four months ended December 31, 1995 and the eight months ended August 31, 1995 include charges of approximately $3.9 million, $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. 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. 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 an ESIP pursuant to which the Company would grant, commencing in 1997, to certain trusts established for the benefit of its union and non-union employees certain additional shares of Common Stock and Employee Preferred Stock. The ESIP provides that the first stock grant under the plan would be made on July 15, 1997 in an amount sufficient to increase the employee ownership of the combined total number of then outstanding shares of Common Stock and Employee Preferred Stock by 2.0% if the average closing price of the Common Stock exceeded a target price of $11.00 per share during the period from January 1, 1997 to July 14, 1997. If the target price of $11.00 per share is not exceeded, the grant would instead be made, if at all, on July 15 of the next year (up to and including July 15, 2002) in which the market price of the Common Stock exceeds such target price prior to July 14 of that year. In each of 1998 through 2002, additional shares of Employee Preferred Stock and Common Stock will become subject to grant under this program in an amount sufficient to increase the employee ownership by 1.5% in 1998, 1.5% in 1999, 1.0% in 2000, 1.0% in 2001 and 1.0% in 2002 (subject to adjustment as described below) based on the combined total number of shares of Common Stock and Employee Preferred Stock outstanding as of the applicable July 15 grant date, with the target price applicable to the additional shares to be issued in such year equal to $12.10 in 1998, $13.31 in 1999, $14.64 in 2000, $16.11 in 2001 and $17.72 in 2002. Each such grant is cumulative and, where the applicable target price is not met in the initial grant year, the applicable grant is carried forward and is subject to grant in future years up to and including July 15, 2002 in the manner described above. To prevent against the dilutive effect of certain stock issuances, the ESIP provides for an adjustment (the "Adjustment") to the grants described above in the event the Company issues additional Common Stock to third parties for cash or property or in lieu of cash payments on the 12% Reset Notes or the Mandatorily Redeemable 12% Preferred Stock. To the extent that a sale of additional capital stock for cash results in a decline in the percentage of employee ownership of the combined total number of shares of Common Stock and Employee Preferred Stock below a level equal to the Adjusted Base Ownership Percentage (as defined in the ESIP), one-quarter of the difference between the new percentage of employee ownership and the level just determined (but in no event greater than 1.0% in each year) would be added to the amount of Employee Preferred Stock to be granted to union employees and Common Stock to be granted 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. Furthermore, if TWA issues additional shares of Common Stock with an aggregate value of more than $20 million to third parties for cash or a reduction in debt at a price equal to or greater than $11.00 per share (the "Equity Issuance Acceleration Trigger"), the last two scheduled grants under the ESIP are to be aggregated and these shares allocated equally to the remaining installments in the program. In addition, pursuant to the ESIP, employees have the right commencing as of July 15, 1997, to purchase over the seven year term of the ESIP additional shares of Employee Preferred Stock in amounts up to an aggregate of 2% of the combined total number of outstanding Common Stock and Employee Preferred Stock at a discount of 20% from the then current market price. Should all of the target prices be met or exceeded within the time periods specified and should the entire discount stock purchase option be exercised, the various employee stock trusts would receive a total of 10.0% (as adjusted as described below) of the outstanding stock, with the exact amount issued dependent upon the outstanding shares as of the date of each grant and option exercise. The ESIP separately 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 Employee Preferred Stock and Common Stock such that the employees will retain the same level of ownership. Union representatives and the Company agreed to a one-time distribution pursuant to this provision of the ESIP in an aggregate amount of 525,856 shares of Employee Preferred Stock and Common Stock. As part of that agreement, since additional ESIP shares were not issued to the employees in July 1997, an additional 405,750 shares of Employee Preferred Stock and Common Stock were issued to the employee trusts and, to the extent that additional shares are granted under the ESIP, the Company will receive a credit towards the new grant for these previously issued shares, in that amount. While the $11.00 target price was not exceeded as of July 15, 1997 and no target price grant was made on that date, on February 17, 1998, the Average Closing Price for the Company's Common Stock did exceed the $11.00 target price with respect to the first scheduled grant. As a result, the initial grant in an amount sufficient to increase the employee ownership by 2.0% based on the then outstanding Common Stock and Employee Preferred Stock will be made on July 15, 1998. Based on the current outstanding Voting Equity (as defined in the ESIP) of 57,890,907 shares, the number of shares of Employee Preferred Stock and Common Stock to be issued to the employees under the ESIP on that date is 1,515,472. TWA is entitled to a credit against this number in the amount of 405,750 shares due to the prior grant to employees as described above. On March 4, 1998, the Average Closing Price for the Company's Common Stock did exceed the $12.10 target price with respect to the 1998 grant of 1.5%. As a result, the 1998 grant in an amount sufficient to increase the employee ownership by 1.5% based on the then outstanding Common Stock and Employee Preferred Stock will also be made on July 15, 1998. Based on the current outstanding Voting Equity, the number of additional shares of Employee Preferred Stock and Common Stock to be issued to the employees under the ESIP on that date for the 1998 grant is 1,172,354 shares. The number of shares to be granted could be increased if the last two grants are accelerated pursuant to the Equity Issuance Acceleration Trigger. Furthermore, based on issuances of Common Stock to date, the Adjustment has resulted in a revised grant schedule of 1.5% in 1998, 1.84% in 1999, 1.34% in 2000, 1.34% in 2001 and 1.34% in 2002. Assuming the consummation of a planned transaction involving the issuance of Common Stock, the grants for the years 1999-2002 would further increase pursuant to the Adjustment to: 1.91% in 1999, 1.41% in 2000, 1.41% in 2001 and 1.41% in 2002. Finally, in the event that the planned transaction is consummated and that the price per share is in excess of $11.00, the Equity Issuance Acceleration Trigger will be met and the final two scheduled installments will be aggregated and these shares will be allocated equally to the remaining installments in the program. As a result, the remaining grants would be as follows: 2.705% in 1997 (already vested and payable on July 15, 1998); 2.205% on July 15, 1998 (already vested and payable on July 15, 1998); 2.615% on July 15, 1999 if the target price exceeds $13.31 and 2.115% on July 15, 2000 if the target price exceeds $14.64. Shares granted or purchased at a discount under the ESIP will generally result in a charge to earnings in an amount equal to the fair value of shares granted and the discount for shares purchased at the time when such shares are earned. 13. Stock Option Plans: The Company's 1994 Key Employee Stock Incentive Plan (the "KESIP"), as amended, provides for the award of incentive and nonqualified stock options for up to 14% of the Common Stock and Employee Preferred Stock outstanding as of the start of each fiscal year (approximately 7.0 million shares at January 1, 1998). Generally, 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, 1997 and 1996, and changes during the years ended on those dates is presented below:
1997 1996 1995 ------------------------- ------------------------ ------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price --------- --------- --------- ---------- ---------- ----------- Outstanding at beginning of year............... 2,026,384 $5.61 2,228,000 $4.68 1,398,576 $4.64 Granted........................................ 2,027,155 6.80 453,000 11.65 829,424 4.74 Exercised...................................... (565,545) 4.66 (191,316) 4.64 -- -- Forfeited...................................... (145,814) 7.88 (463,300) 7.43 -- -- --------- --------- --------- Outstanding at end of year..................... 3,342,180 6.39 2,026,384 5.61 2,228,000 4.68 ========= ========= ========= Options exercisable at year-end................ 1,812,020 1,302,700 475,516 Weighted average fair value of options granted during the year............................... $3.32 $6.79 $3.03
The per share weighted average fair value of options granted during 1997, 1996, and 1995 were estimated using the Black Scholes option pricing model assuming risk-free interest rates of 5.97%, 6.6%, and 6.0% in 1997, 1996 and 1995, respectively, an expected volatility factor of 67.14% in 1997 and 85.00% in 1996 and 1995 and an expected life of three years. The following table summarizes information about fixed stock options at December 31, 1997:
Options Outstanding Options Exercisable -------------------------------------------------- ----------------------------------- Number Weighted-Average Number Outstanding Remaining Weighted-Average Exercisable Weighted-Average Range of Exercise Prices at 12/31/97 Contractual Life Exercise Price at 12/31/97 Exercise Price - ------------------------ ----------- ---------------- ---------------- --------------- ----------------- $ 4.64 to 6.78 2,158,350 3.12 years $5.31 1,625,485 $5.11 7.06 to 8.12 833,350 5.19 years 7.47 12,575 8.01 8.47 to 15.81 339,380 5.42 years 10.24 166,820 11.88 16.25 to 18.37 11,100 3.05 years 17.85 7,140 18.10 --------- --------- $ 4.64 to 18.37 3,342,180 1,812,020 ========= =========
As permitted under Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 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 No. 123 in 1997 and 1996 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 pro forma net loss, and net loss per common share for 1997, 1996 and the four months ended December 31, 1995 would approximate the amounts below (in thousands except per share data):
Year Ended Year Ended Four Months Ended December 31, 1997 December 31, 1996 December 31, 1995 ------------------------- ------------------------- ------------------------- As Reported Pro forma As Reported Pro forma As Reported Pro forma ------------ --------- ------------ --------- ------------ --------- Net loss.................. $ (110,835) $(114,942) $ (284,815) $(285,716) $ (30,138) $ (30,350) Net loss per common share. $ (2.37) $ (2.45) $ (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 and $0.02 million for the year ended December 31, 1996 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. There were no such charges in 1997. 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 1997 and 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 $51.8 million, in 1997, and $45.3 million, in 1996, in 12% Senior Secured Reset Notes and approximately $1.4 million, in 1997, and $1.5 million, in 1996, in accrued interest thereon in exchange for the issuance of approximately 7.7 million, in 1997, and 4.5 million, in 1996, in shares of Company Common Stock. As a result of the exchange of the 12% Senior Secured Reset Notes, the Company recorded an extraordinary non-cash charge of $7.2 million in 1997 and $8.2 million in 1996 representing the difference between the fair value of the common stock issued (based upon the trading price of the Company's common stock on the dates of exchanges) and the carrying value of the Senior Secured Reset Notes retired. During December 1997, the Company prepaid the remaining 12% Senior Secured Reset Notes, incurring an extraordinary non-cash charge of $3.9 million relative to the write off of the unamortized discount on the Notes. The Company recorded extraordinary charges of approximately $9.9 million in 1997 and $1.6 million in 1996 due to the early extinguishment of a portion of the PBGC Notes as a result of Karabu applying approximately $90.4 million in 1997 and $6.4 million in 1996 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 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. 15. Disposition of Assets: Disposition of assets resulted in net losses of approximately $1.1 million and $0.2 million during 1996 and for the eight months ended August 31, 1995, respectively, and net gains of $16.0 million and $3.3 million during 1997 and for the four months ended December 31, 1995, respectively. In 1997, TWA recorded gains of $7.4 million in connection with the sale of three gates at Newark International Airport and $8.6 million in connection with the sale of spare flight equipment, aircraft, engines and other miscellaneous property. 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 of $0.8 million 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. 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 management's 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 $36 million over the next six 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. 17. Other Charges and Credits-net:
(Amounts in Thousands) Predecessor Reorganized Company Company -------------------------------------------- -------------- Year Year Four Months Eight Months Ended Ended Ended Ended December 31, December 31, December 31, August 31, 1997 1996 1995 1995 ------------- ------------ ------------ -------------- Expenses associated with the restructuring of debt and flight equipment leases............................................. $ -- $ -- $ 3,000 $ 11,000 Provisions for losses resulting from claims and litigation judgments against TWA........................................ 143 235 26 351 Foreign currency transaction (gains) losses-net............... 578 (642) 1,156 384 Finance charge income earned on receivables carried by TWA.......................................................... (8,112) (8,030) (2,662) (6,198) Credits related to settlement of various contract disputes, litigation and other matters................................. (289) (2,500) -- -- Credits related to vendor discounts applied................... (5,412) (7,074) (2,282) (4,109) Equity in (earnings)/losses of TWA's investment in Worldspan (Note 4)........................................... (11,305) (11,919) 11,535 (3,607) Miscellaneous other nonoperating charges (credits)-net........ (1,035) (668) (3,162) (200) ------------ ------------ ---------- ------------ Total Other Charges and Credits-net.......................... $ (25,432) $ (30,598) $ 7,611 $ (2,379) ============ ============ ========== ============
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 $1.0 billion. The agreements, as amended, require the delivery of the aircraft in 2001 and 2002 and provide for the purchase of up to ten additional aircraft. TWA has not yet made arrangements for the permanent financing of the purchases subject to the agreements. In the event of cancellation, predelivery payments of approximately $18 million would be subject to forfeiture. In February 1996, TWA executed definitive agreements providing for the operating lease of 10 new B-757 aircraft, all of which have been delivered. These aircraft have an initial lease term of 10 years. Although individual aircraft rentals escalate over the term of the leases, aggregate rental obligations are estimated to average approximately $59 million per annum over the lease terms. The Company also entered into an agreement in February 1996 with Boeing for the purchase of ten B-757 aircraft and related engines, spare parts and equipment for an aggregate purchase price of approximately $500 million. The agreement also provides for the purchase of up to ten additional aircraft. As of February 1, 1998, TWA had taken delivery of five of such aircraft and had five on firm order. Furthermore, to the extent TWA exercises its options for additional aircraft, the Company will have the right to an equal number of additional option aircraft. Four of the five aircraft already delivered were manufacturer financed and one was leased. TWA has obtained commitments for debt financing for approximately 80% of the total costs associated with the acquisition of four of the remaining five aircraft which have not been delivered and obtained commitments for 100% lease financing of the total costs of the remaining fifth aircraft. Such commitments are subject to, among other things, so-called material adverse change clauses which make the availability of such debt and lease financing dependent upon the financial condition of the Company. 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 ---- ------ 1998.................. $52.1 $48.5 1999.................. 52.4 194.0 2000.................. -- -- 2001.................. 610.7 -- 2002.................. 272.0 -- During 1997, TWA reached agreements for the lease of two new B-767-300ER aircraft, one of which has been delivered in March 1998 and the second is scheduled to be delivered in April 1998. The longer-range 300ER series aircraft will be utilized on TWA's international routes. The Company has entered into an agreement to acquire from the manufacturer fifteen new MD-83s. The long-term leasing arrangement provides for delivery of the aircraft between the second quarter of 1997 and the first quarter of 1999. The Company has taken delivery of seven of the MD-83 aircraft and expects to take delivery of six additional planes during the remainder of 1998 and two additional planes in 1999. On February 25, 1998, the Company's Board of Directors approved letters of intent to acquire 24 new MD-83 aircraft from the manufacturer. The proposed long-term leasing arrangement provides for delivery of the aircraft in 1999. Although the Company anticipates that rental payments for such aircraft would represent a substantial financial commitment, it is not possible to accurately estimate the amount of such payments at this time. There can be no assurance that such aircraft acquisition program will be concluded or as to the final terms of any such program. 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. 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 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. 20. Supplemental Financial Information (Unaudited): Selected consolidated financial data (unaudited) for each quarter within 1997 and 1996 are as follows:
First Quarter Second Quarter Third Quarter Fourth Quarter ---------------- --------------- ---------------- --------------- (Amounts in Thousands) Year Ended December 31, 1997 Operating revenues.............................. $ 762,306 $ 844,442 $ 908,381 $ 812,823 ========= ========= ========== ========= Operating income (loss)......................... $ (99,486) $ 5,932 $ 63,757 $ 537 ========= ========= ========== ========= Disposition of assets, gains (losses) - net..... $ 9,350 $ 3,030 $ 2,828 $ 796 ========= ========= ========== ========= Income (loss) before extraordinary items........ $ (70,032) $ (11,995) $ 13,276 $ (21,111) ========= ========= ========== ========= Extraordinary items............................. $ (1,532) $ (2,405) $ (6,985) $ (10,051) ========= ========= ========== ========= Net income (loss)............................... $ (71,564) $ (14,400) $ 6,291 $ (31,162) ========= ========= ========== ========= Per share amounts: Basic: Earnings (loss) before extraordinary items... $ (1.51) $ (0.31) $ 0.17 $ (0.44) ========= ========= ========== ========= Extraordinary items.......................... $ (0.03) $ (0.05) $ (0.13) $ (0.18) ========= ========= ========== ========= Net income (loss)............................ $ (1.54) $ (0.36) $ 0.04 $ (0.62) ========= ========= ========== ========= Diluted(a): Net income (loss)............................ $ (1.54) $ (0.36) $ 0.04 $ (0.62) ========= ========= ========== ========= 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 items........ $ (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: Basic: Earnings (loss) before extraordinary items and special dividend requirements........... $ (0.98) $ 0.48 $ (0.24) $ (5.51) Extraordinary items and special dividend ========= ========= ========== ========= requirements................................ $ (0.48) $ -- $ (0.16) $ (0.05) ========= ========= ========== ========= Net income (loss)............................ $ (1.46) $ 0.48 $ (0.40) $ (5.56) ========= ========= ========== ========= Diluted(a) Net income (loss)............................ $ (1.46) $ 0.44 $ (0.40) $ (5.56) ========= ========= ========== =========
- ---------- (a) Amounts have been restated pursuant to SFAS No. 128. 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 include an adjustment to reduce aircraft fuel and oil costs by approximately $8.8 million, as a result of federal fuel excise taxes paid which were refunded to the Company. 21. Foreign Operations: TWA conducts operations in various foreign countries, principally in Europe and the Middle East. Operating revenues from foreign operations were approximately $518.1 million in 1997, $719.2 million in 1996, $228.7 million in the four months ended December 31, 1995 and $474.4 million in the eight months ended August 31, 1995. 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, 1997 and 1996. (a) Cash, cash equivalents and receivables: The carrying amounts of these assets are estimated to approximate fair value due to the generally short maturities of these instruments. (b) Other investments and receivables: The carrying amounts 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 amounts of these liabilities are estimated to approximate fair value due to the generally short maturities of these instruments. (d) Debt: On December 31, 1997, none of TWA's debt was publicly traded, while at December 31, 1996, the Company's publicly-traded debt had a carrying value of $111.8 million and a market value of $126.0 million. The Company believes the fair value of the remaining debt which had an aggregate carrying value of approximately $787.9 million and $589.1 million at December 31, 1997 and 1996, respectively, was approximately $800.4 million and $466.4 million on those dates. In connection with credit card sales, the Company has agreed to maintain specified levels of deposits or a letter of credit. At December 31, 1997, a letter of credit of $15.0 million had been issued for the Company's benefit to provide the required level of deposits. Additionally, in 1997, a letter of credit in the amount of $2.6 million was issued to secure the Company's obligations under certain workers compensation agreements. PART II. INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. Indemnification of Directors and Officers Under the Delaware General Corporation Law (the "DGCL"), directors, officers, employees and other individuals may be indemnified against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with specified actions, suits or proceedings, whether civil, criminal, administrative or investigative (other than a derivative action) if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of TWA and, with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. A similar standard of care is applicable in the case of a derivative action, except that indemnification only extends to expenses (including attorneys' fees) incurred in connection with the defense or settlement of such an action, and the DGCL requires court approval before there can be any indemnification of expenses where the person seeking indemnification has been found liable to TWA. The eleventh article of TWA's Third Amended and Restated Certificate of Incorporation ("Article Eleventh") provides that the Company shall indemnify any person who was or is a party or is threatened to be made a party to, or testifies in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative in nature, by reason of the fact that such person is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding to the full extent permitted by law, and the Company may adopt By-Laws or enter into agreements with any such person for the purpose of providing for such indemnification. To the extent that a director or officer of the Company has been successful on the merits or otherwise (including without limitation settlement by nolo contendere) in defense of any action, suit or proceeding referred to in the immediately preceding paragraph, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. Expenses incurred by an officer, director, employee or agent in defending or testifying in a civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such director or officer is not entitled to be indemnified by the Company against such expenses as authorized by Article Eleventh and the Company may adopt By-Laws or enter into agreements with such persons for the purpose of providing for such advances. The indemnification permitted by Article Eleventh shall not be deemed exclusive of any other rights to which any person may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding an office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person. The Company shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, employee benefit plan trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Company would have the power to indemnify such person against such liability under the provisions of Article Eleventh or otherwise. If the DGCL is amended to further expand the indemnification permitted to directors, officers, employees or agents of the Company, then the Company shall indemnify such persons to the fullest extent permitted by the DGCL, as so amended. The obligations of the Company to indemnify any person serving as one of its directors, officers or employees as of or following the Company's '93 Reorganization, by reason of such person's past or future service in such a capacity, or as a director, officer or employee of another corporation, partnership or other legal entity, to the extent provided in Article Eleventh or in similar constituent documents or by statutory law or written agreement of or with the Company, shall be deemed and treated as executory contracts assumed by the Company pursuant to the Company's '93 Reorganization. Accordingly, such indemnification obligations survive and were unaffected by the entry of the order confirming the Company's '93 Reorganization. The obligations of the Company to indemnify any person who, as of the '93 Reorganization, was no longer serving as one of its directors, officers or employees, which indemnity obligation arose by reason of such person's prior service in any such capacity, or as a director, officer or employee of another corporation, partnership or other legal entity, to the extent provided in the certificate of incorporation, by-laws or other constituent documents or by statutory law or written agreement of or with TWA were terminated and discharged pursuant to Section 502(e) of the United States Bankruptcy Code or otherwise, as of the date the '93 Reorganization was confirmed. Nothing contained in the Second Amended and Restated Certificate of Incorporation of the Company shall be deemed to reinstate any obligation of the Corporation to indemnify any person or entity, which was otherwise released under or in connection with the Comprehensive Settlement Agreement entered into pursuant to the '93 Reorganization. ITEM 21. Exhibits (a) Exhibits *2.1 -- Joint Plan of Reorganization, dated May 12, 1995 (Appendix B to the Registrant's Registration Statement on Form S-4, Registration Number 33-84944, as amended) *2.2 -- Modifications to Joint Plan of Reorganization, dated July 14, 1995 and Supplemental Modifications to Joint Plan of Reorganization dated August 2, 1995 (Exhibit 2.5 to 6/95 10-Q) *2.3 -- Findings of Fact, Conclusions of Law and Order Confirming Modified Joint Plan of Reorganization, dated August 4, 1995, with Exhibits A-B attached (Exhibit 2.6 to 6/95 10-Q) *2.4 -- Final Decree, dated December 28, 1995, related to the '95 Reorganization (Exhibit 2.7 to 12/31/95 Form 10-K) *3(i)-- Third Amended and Restated Certificate of Incorporation of the Registrant (Exhibit 3(i) to the Registrant's Registration Statement on Form S-4, Registration Number 333-26645) *3(ii)-- Amended and Restated By-Laws of Trans World Airlines, Inc., effective May 24, 1996 (Exhibit 3(ii) to 6/96 10-Q) *4.1 -- Voting Trust Agreement, dated November 3, 1993, between TWA and LaSalle National Trust, N.A. as trustee (Exhibit 4.3 to 9/93 10-Q) *4.2 -- IAM Trans World Employees' Stock Ownership Plan and related Trust Agreement, dated August 31, 1993, between TWA, the IAM Plan Trustee Committee and the IAM Trustee (Exhibit to 9/93 10-Q) *4.3 -- IFFA Trans World Employees' Stock Ownership Plan and related Trust Agreement, dated August 31, 1993, between TWA, the IFFA Plan Trustee Committee and the IFFA Trustee (Exhibit 4.5 to 9/93 10-Q) *4.4 -- Trans World Airlines, Inc. Employee Stock Ownership Plan, dated August 31, 1993, First Amendment thereto, dated October 31, 1993, and related Trust Agreement, dated August 31, 1993, between TWA and the ESOP Trustee (Exhibit 4.6 to 9/93 10-Q) *4.5 -- ALPA Stock Trust, dated August 31, 1993, between TWA and the ALPA Trustee (Exhibit 4.7 to 9/93 10-Q) *4.6 -- Stockholders Agreement, dated November 3, 1993, among TWA, LaSalle National Trust, N.A., as Voting Trustee and the ALPA Trustee, IAM Trustee, IFFA Trustee and Other Employee Trustee (each as defined therein), as amended by the Addendum to Stockholders dated November 3, 1993 (Exhibit 4.8 to 9/93 10-Q) *4.7 -- Registration Rights Agreement, dated November 3, 1993, between TWA and the Initial Significant Holders (Exhibit 4.9 to 9/93 10-Q) *4.8 -- Indenture between TWA and Harris Trust and Savings Bank, dated November 3, 1993 relating to TWA's 8% Senior Secured Notes Due 2000 (Exhibit 4.11 to 9/93 10-Q) *4.9 -- Indenture between TWA and American National Bank and Trust Company of Chicago, N.A., dated November 3, 1993 relating to TWA's 8% Secured Notes Due 2001 (Exhibit 4.12 to 9/93 10-Q) *4.10-- The TWA Air Line Pilots 1995 Employee Stock Ownership Plan, effective as of January 1, 1995 (Exhibit 4.12 to 9/95 10-Q) *4.11-- TWA Air Line Pilots Supplemental Stock Plan, effective September 1, 1994 (Exhibit 4.13 to 9/95 10-Q) *4.12-- TWA Air Line Pilots Supplemental Stock Plan Trust, effective August 23, 1995 (Exhibit 4.14 to 9/95 10-Q) *4.13-- TWA Air Line Pilots Supplemental Stock Plan Custodial Agreement, effective August 23, 1995 (Exhibit 4.15 to 9/95 10-Q) *4.14-- Form of Indenture relating to TWA's 8% Convertible Subordinated Debentures Due 2006 (Exhibit 4.16 to Registrant's Registration Statement on Form S-3, No. 333-04977) *4.15-- Indenture dated as of March 31, 1997 between TWA and First Security Bank, National Association relating to TWA's 12% Senior Secured Notes due 2002 (Exhibit 4.15 to Registrant's Registration Statement on Form S-4, No. 333-26645) *4.16-- Form of 12% Senior Secured Note due 2002 (contained in Indenture filed as Exhibit 4.15 to 12/31/97 Form 10-K) *4.17-- Registration Rights Agreement dated as of March 31, 1997 between the Company and the Initial Purchaser relating to the 12% Senior Secured Notes due 2002 and the warrants to purchase 126.26 shares of TWA Common Stock (Exhibit 4.17 to Registrant's Registration Statement on Form S-4, No. 333-26645) *4.18-- Warrant Agreement dated as of March 31, 1997 between the Company and American Stock Transfer & Trust Company, as Warrant Agent, relating to warrants to purchase 126.26 shares of TWA Common Stock (Exhibit 4.18 to Registrant's Registration Statement on Form S-4, No. 333-26645) *4.19-- Form of Indenture relating to TWA's 9 1/4% Convertible Subordinated Debentures due 2007 (Exhibit 4.19 to Registrant's Registration Statement on Form S-3, No. 33-44689) *4.20-- Registration Rights Agreement dated as of December 2, 1997 between the Company and the Initial Purchasers (Exhibit 4.20 to Registrant's Registration Statement on Form S-3, No. 33-44689) *4.21-- Indenture dated as of December 9, 1997 by and between TWA and First Security Bank, National Association, as Trustee, relating to TWA's 11 1/2% Senior Secured Notes due 2004 (Exhibit 4.21 to Registrant's Registration Statement on Form S-3, No. 33-44661) *4.22-- Form of 11 1/2% Senior Secured Note due 2004 (contained in Indenture filed as Exhibit 4.21 to 12/31/97 Form 10-K) *4.23-- Registration Rights Agreement dated as of December 9, 1997 among the Company and Lazard Freres & Co. LLC and PaineWebber Incorporated, as initial purchasers, relating to TWA's 11 1/2% Senior Secured Notes due 2004 (Exhibit 4.23 to Registrant's Registration Statement on Form S-3, No. 33-44661) *4.24-- Sale and Service Agreement dated as of December 30, 1997 between TWA and Constellation Finance LLC, as purchaser, relating to TWA's receivables (Exhibit 4.24 to Registrant's Registration Statement on Form S-3, No. 33-44661) 4.25-- Registration Rights Agreement dated as of March 3, 1998 between the Company and the Initial Purchaser 4.26-- Indenture dated as of March 3, 1998 by and between TWA and First Security Bank, National Association, as Trustee, relating to TWA's 11 3/8% Senior Notes due 2006 4.27-- Aircraft Sale and Note Purchase Agreement dated as of April 9, 1998 among TWA, First Security Bank, National Association, as Owner Trustee and Seven Sixty Seven Leasing, Inc. 4.28-- Indenture dated as of April 21, 1998 by and between TWA and First Security Bank, National Association, as Trustee, relating to TWA's 11 3/8% Senior Secured Notes due 2003 4.29-- Form of 11 3/8% Senior Secured Notes due 2003 (contained as Exhibit 1 to Rule 144A/Regulation Appendix to Indenture in Exhibit 4.28) 4.30-- Form of Mandatory Conversion Equity Note due 1999 (contained as Exhibit A to Indenture in Exhibit 4.28) 5 -- Opinion of Davis Polk & Wardwell, Counsel of the Registrant, regarding the validity of the securities being registered *10.1.1-- Asset Purchase Agreement, dated as of November 4, 1993, between TWA and St. Louis (Exhibit 10.2 to 9/93 10-Q) *10.1.2-- Equipment Operating Lease Agreement, dated November 4, 1993, between TWA and St. Louis (Exhibit 10.2 to 9/93 10-Q) *10.1.3-- Cargo Use Amendment, dated November 4, 1993 between TWA and St. Louis (Exhibit F to the Asset Purchase Agreement) (Exhibit 10.2 to 9/93 10-Q) *10.1.4-- Use Amendment 1993, dated November 4, 1993, between TWA and St. Louis (Exhibit E to the Asset Purchase Agreement) (Exhibit 10.2 to 9/93 10-Q) *10.2.1-- Amendment Number One to the Note Purchase and Security Agreement, dated October 26, 1993, between TWA and Rolls-Royce (Exhibit 10.3 to 9/93 10-Q) *10.2.2-- Amendment Number One to the Equipment Purchase Contract, dated October 26, 1993, between TWA and Rolls-Royce (Exhibit 10.3 to 9/93 10-Q) *10.3-- Amendment Number Two to the AVSA Agreement dated June 1, 1989 between TWA and AVSA, dated August 25, 1993 (Exhibit 10.4 to 9/93 10-Q) *10.4.1-- First Amendment to Aircraft Installment Sale Agreement, dated November 1, 1993, among TWA, the Vendors, and ITOCHU with respect to aircraft N605TW (Exhibit 10.5 to 9/93 10-Q) *10.4.2-- First Amendment to Aircraft Installment Sale Agreement, dated November 1, 1993, among TWA, the Vendors, and ITOCHU with respect to aircraft N603TW (Exhibit 10.5 to 9/93 10-Q) *10.4.3-- First Amendment to Security Agreement and Chattel Mortgage, dated November 1, 1993, among TWA, the Vendors, and ITOCHU, as to ITOCHU Amendment No. 1 (Exhibit 10.5 to 9/93 10-Q) *10.4.4-- First Amendment to Security Agreement and Chattel Mortgage, dated November 1, 1993, among TWA, the Vendors, and ITOCHU, as to ITOCHU Amendment No. 2 (Exhibit 10.5 to 9/93 10-Q) *10.5.1-- Deferral Agreement and First Amendment to Aircraft Installment Sale Agreement No. 1, dated November 1, 1993, among TWA, the Vendors, and ORIX with respect to aircraft N601TW (Exhibit 10.6 to 9/93 10-Q) *10.5.2-- Deferral Agreement and First Amendment to Aircraft Installment Sale Agreement, dated November 1, 1993, among TWA, the Vendors, and ORIX with respect to aircraft N603TW (Exhibit 10.6 to 9/93 10-Q) *10.5.3-- First Amendment to Security Agreement and Chattel Mortgage, dated November 1, 1993, among TWA, the Vendors, and ORIX, as to ORIX Amendment No. 1 (Exhibit 10.6 to 9/93 10-Q) *10.5.4-- First Amendment to Security Agreement and Chattel Mortgage, dated November 1, 1993, among TWA, the Vendors, and ORIX, as to ORIX Amendment No. 2 (Exhibit 10.6 to 9/93 10-Q) *10.6.1-- Purchase Agreement, dated October 5, 1993, between TWA and Pacific AirCorp 747, Inc. with respect to aircraft N93107 and N93108 (Exhibit 10.7 to 9/93 10-Q) *10.6.2-- Lease Agreement 107, dated October 5, 1993, between Pacific AirCorp 747, Inc. and TWA with respect to aircraft N93107 (Exhibit 10.7 to 9/93 10-Q) *10.6.3-- Lease Agreement 108, dated October 5, 1993, between Pacific AirCorp 747, Inc. and TWA with respect to aircraft N93108 (Exhibit 10.7 to 9/93 10-Q) *10.7-- '92 Labor Agreements (Exhibits 2.1, 2.2 and 2.3 to 9/92 8-K) *10.8-- Comprehensive Settlement Agreement, dated January 5, 1993 (Exhibit 10(iv)(1) to '92 10-K) *10.8.1-- Omnibus Amendment and Supplement to Agreements between TWA and Karabu Corp. dated as of March 28, 1994 (Exhibit 10.9.1 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.9-- Letter Agreement, dated April 15, 1994, between TWA and Richard P. Magurno relating to employment by TWA (Exhibit 10.14 to 3/94 10-Q) *10.10-- Form of Indemnification Agreement between TWA and individual members of the TWA Board of Directors relating to indemnification of director (Exhibit 10.16 to 6/94 10-Q) *10.11.1-- Purchase Agreement, dated as of December 15, 1993 between TWA and Pacific AirCorp DC9, Inc. with respect to aircraft N927L and N928L (Exhibit 10.20.1 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.11.2-- Lease Agreement 927, dated as of December 15, 1993, between Pacific AirCorp DC9, Inc. and TWA with respect to aircraft N927L (Exhibit 10.20.2 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.11.3-- Lease Agreement 928, dated as of December 15, 1993, between Pacific AirCorp DC9, Inc. and TWA with respect to aircraft N928L (Exhibit 10.20.3 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.12.1-- Aircraft Purchase Agreement between TWA and Mitsui & Co. (U.S.A.), Inc. dated March 31, 1994, with respect to aircraft N950U (Exhibit 10.21.1 to Registrant's Registration Statement on Form S-4, No. 33- 84944) *10.12.2-- Aircraft Purchase Agreement between TWA and Mitsui & Co. (U.S.A.), Inc., dated March 31, 1994, with respect to aircraft N953U (Exhibit 10.21.2 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.12.3-- Lease Agreement, dated as of March 31, 1994 between Mitsui & Co. (U.S.A.), Inc. and TWA with respect to aircraft N950U and N953U (Exhibit 10.21.3 to Registrant's Registration Statement on Form S-4 No. 33-84944) *10.12.4-- Aircraft Purchase Agreement between TWA and McDonnell Douglas Finance Corporation, dated March 31, 1994, with respect to aircraft N951U (Exhibit 10.21.4 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.12.5-- Aircraft Purchase Agreement between TWA and McDonnell Douglas Finance Corporation, dated March 31, 1994, with respect to aircraft N952U (Exhibit 10.21.5 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.12.6-- Lease Agreement, dated as of March 31, 1994 between McDonnell Douglas Finance Corporation and TWA with respect to aircraft N951U and N952U (Exhibit 10.21.6 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.13.1-- Aircraft Purchase Agreement, dated March 31, 1994, between McDonnell Douglas Finance Corporation and TWA with respect to aircraft N306TW (formerly N534AW) (Exhibit 10.22.1 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.13.2-- Purchase Money Chattel Mortgage, dated as of March 31, 1994, by TWA, as Mortgagor, and McDonnell Douglas Finance Corporation, as Mortgagee, with respect to N306TW (formerly N534AW) (Exhibit 10.22.2 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.13.3-- Chattel Mortgage, dated as of March 31, 1994 by TWA as Mortgagor, in favor of McDonnell Douglas Finance Corporation, as Mortgagee, with respect to aircraft N306TW (formerly N534AW) (Exhibit 10.22.3 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.14-- Commuter Air Service Agreement dated July 22, 1992, between TWA and Trans World Express, Inc. (Exhibit 10.23 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.15-- Commuter Air Service Agreement dated October 27, 1993, between TWA and Alpha Air (Exhibit 10.24 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.16-- Air Service Agreement dated October 1, 1994, between TWA and Trans States Airlines, Inc. (Exhibit 10.25 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.17-- Consulting Agreement between TWA and Fieldstone, Private Capital Group, L.P. dated July 11, 1994 (Exhibit 10.26 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.18-- Consulting Agreement dated July 15, 1994, between TWA and Simat, Helliesen & Eichner, Inc. (Exhibit 10.27 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.19.1-- Agreement for Purchase and Sale dated as of August 29, 1994, between TWA and Browsh & Associates, Inc. (Exhibit 10.28.1 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.19.2-- Agreement for Purchase and Sale dated as of August 29, 1994, between TWA and Travel Marketing Holding Corporation (Exhibit 10.28.2 to Registrant's Registration Statement on Form S-4, No. 33- 84944) *10.20.1-- Addendum to Stock Purchase Agreement (identified in 10.29.2) dated October 31, 1994 (Exhibit 10.29.3 to 9/94 10-Q) *10.20.2-- Addendum to Stock Purchase Agreement (identified in 10.29.2) dated November 2, 1994 (Exhibit 10.29.4 to 9/94 10-Q) *10.21.1-- Form of Agreement dated as of August 31, 1994, between TWA and the Air Line Pilots Association, International (Exhibit 10.31.1 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.21.2-- Form of Agreement dated as of September 1, 1994, between TWA and the International Association of Machinists and Aerospace Workers (Exhibit 10.31.2 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.21.3-- Form of Agreement dated as of September 1, 1994, between TWA and the Independent Federation of Flight Attendants (Exhibit 10.31.3 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.21.4-- Form of Agreement dated as of September 1, 1994, between TWA and the Transport Workers Union of America (Exhibit 10.31.4 to 9/94 10-Q) *10.22.1-- Trust Agreement dated as of August 24, 1994 between and among TWA, the International Association of Machinists and Aerospace Workers, the Independent Federation of Flight Attendants, the Air Line Pilots Association, International, United States Trust Company of New York (Exhibit 10.32.1 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.22.2-- Stock Pledge and Intercreditor Agreement dated as of August 24, 1994 among TWA, TWA Stock Holding Company, Inc. and United States Trust Company of New York (Exhibit 10.32.2 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.23.1-- Key Employee Stock Incentive Plan (Exhibit 10.33.1 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.23.2-- Form of Option Agreements for options issued pursuant to the 1994 Key Employee Stock Incentive Plan (Exhibit 10.33.2 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.24-- Extension, Refinancing and Consent Agreement between TWA, Karabu Corp, Pichin Corp, and Carl C. Icahn and the "Icahn Entities" dated as of June 14, 1995 (Exhibit 10.37 to 9/95 10-Q) *10.24.1-- Karabu Ticket Program Agreement between TWA and Karabu Corp. dated as of June 14, 1995 (Exhibit 10.37.1 to 12/95 10-K) *10.25-- Trans World Airlines, Inc. Stock Purchase Warrant to Purchase Shares of Common Stock, dated August 23, 1995 (Exhibit 10.38 to 9/95 10-Q) *10.26-- Stand-By Purchase Agreement dated as of August 8, 1995 between Trans World Airlines, Inc., M.D. Sass Re/Enterprise Partners L.P., a Delaware limited partnership and M.D. Sass Re/Enterprise International Ltd. a British Virgin Islands Company (Exhibit 10.39 to 9/95 10-Q) *10.27-- Voucher Purchase Agreement dated as of October 18, 1995 between TWA and M.D. Sass Re/Enterprise Partners L.P., a Delaware limited partnership and M.D. Sass Re/Enterprise International Ltd. a British Virgin Islands Company (Exhibit 10.40 to 9/95 10-Q) *10.28-- Equity Rights Put Agreement dated as of September 15, 1995 between TWA and Elliott Associates L.P., a Delaware limited partnership (Exhibit 10.41 to 9/95 10-Q) *10.29-- Equity Rights Put Agreement dated as of September 15, 1995 between TWA and Westgate International L.P., a Cayman Islands limited partnership (Exhibit 10.42 to 9/95 10-Q) *10.30-- Equity Rights Put Agreement dated as of September 15, 1995 between TWA and United Equities (Commodities) Company, a New York general partnership (Exhibit 10.43 to 9/95 10-Q) *10.31-- Equity Rights Put Agreement dated as of September 15, 1995 between TWA and Grace Brothers, Ltd., an Illinois limited partnership (Exhibit 10.44 to 9/95 10-Q) *10.32-- Equity Rights Put Agreement dated as of September 15, 1995 between TWA and First Capital Alliance, L.P., an Illinois limited partnership (Exhibit 10.45 to 9/95 10-Q) *10.33-- Equity Rights Put Agreement dated as of September 15, 1995 between TWA and Romulus Holdings Corp. a Delaware Corporation (Exhibit 10.46 to 9/95 10-Q) *10.34-- Purchase Agreement, dated February 9, 1996 between The Boeing Company and TWA relating to Boeing Model 757-231 Aircraft (Purchase Agreement Number 1910) (Exhibit 10.48 to 12/31/95 Form 10-K/A) *10.35-- Employee Stock Incentive Program dated as of August 23, 1995 by TWA (Exhibit 10.49 to 12/31/95 Form 10-K) *10.36-- Trans World Airlines, Inc. 1995 Outside Directors' Stock Ownership and Stock Option Plan (Exhibit 10.51 to Registrant's Registration Statement on Form S-3, No. 333-04977) *10.37-- Letter Agreement dated July 30, 1996 between Trans World Airlines, Inc. and Robert A. Peiser (Exhibit 10.52 to Registrant's Registration Statement on Form S-3, No. 333-04977) *10.38-- Letter Agreement dated July 26, 1996 between Trans World Airlines, Inc. and Mark J. Coleman (Exhibit 10.53 to Registrant's Registration Statement on Form S-3, No. 333-04977) *10.39-- Agreement dated as of September 3, 1996 between the Company and Roden A. Brandt (Exhibit 10.6 to 9/96 Form 10-Q) *10.40-- Letter Agreement dated January 6, 1997 between the Company and Edward Soule (Exhibit 10.33 to 12/31/96 Form 10-K) *10.41-- Agreement dated as of October 1, 1996 between the Company and Michael J. Palumbo (Exhibit 10.34 to 12/31/96 Form 10-K) *10.42-- Agreement dated as of November 11, 1996 between the Company and Jeffrey H. Erickson (Exhibit 10.35 to 12/31/96 Form 10-K) *10.43-- Consulting Agreement between the Company and David M. Kennedy dated as of June 6, 1997 (Exhibit 10.1 to 6/97 Form 10-Q) *10.44-- Separation Agreement dated July 25, 1997 between the Company and Charles J. Thibaudeau (Exhibit 10.2 to 6/97 form 10-Q) *10.45-- Agreement between the Company and Gerald L. Gitner dated as of February 12, 1997 (Exhibit 10.1 to 9/97 Form 10-Q) *10.46.1-- Pledge and Security Agreement dated as of December 9, 1997 from the Company to First Security Bank, National Association, as Collateral Agent, in connection with the 11(1)/(2)% Senior Secured Notes due 2004 (Exhibit 10.46.1 to Registrant's Registration Statement on Form S-4, No. 333-44661) *10.46.2-- Acquired Slot Trust Agreement Declaration of Trust dated as of December 9, 1997 between the Company and First Security Bank, National Association, as Slot Trustee, in connection with the 11(1)/(2)% Senior Secured Notes due 2004 (Exhibit 10.46.2 to Registrant's Registration Statement on Form S-4, No. 333-44661) *10.46.3-- Master Sub-License Agreement dated as of December 9, 1997 between the Company and First Security Bank, National Association, in connection with the 11(1)/(2)% Senior Secured Notes due 2004 (Exhibit 10.46.3 to Registrant's Registration Statement on Form S-4, No. 333-44661) *10.46.4-- Collateral Pledge and Security Agreement dated as of December 9, 1997 between the Company and First Security Bank, National Association, as Trustee, in connection with the 11(1)/(2)% Senior Secured Notes due 2004 (Exhibit 10.46.4 to Registrant's Registration Statement on Form S-4, No. 333-44661) *10.47.1-- Exchange Agreement dated as of June 10, 1996 between TWA and Elliott Associates, L.P. as amended (Exhibit 10.1 to 9/20/96 Form 8-K) *10.47.2-- Exchange Agreement dated as of June 10, 1996 between TWA and Westgate International, L.P., as amended (Exhibit 10.2 to 9/20/96 Form 8-K) *10.48.1-- Form of Letter Agreement between TWA and executive officers (continuing employment) (Exhibit 10.1 to 3/97 Form 10-Q) *10.48.2-- Form of Letter Agreement between TWA and executive officers (new hire) (Exhibit 10.2 to 3/97 Form 10-Q) *10.49 -- Change in Control Agreement for executive officers (Exhibit 10.49 to 12/31/97 Form 10-K) *10.50 -- Termination Agreement with Richard P. Magurno dated March 2, 1998 (Exhibit 10.50 to 12/31/97 Form 10-K) *11 -- Statement of Computation of Per Share Earnings (included in 12/31/97 Form 10-K) *12 -- Statement of Computation of Ratio of Earnings to Fixed Charges (included in 12/31/97 Form 10-K) *13.1-- 1997 Annual Report to Stockholders 23.1-- Consent of KPMG Peat Marwick LLP 23.2-- Consent of Davis Polk & Wardwell, counsel of the Registrant (included in Exhibit 5) 24 -- Powers of Attorney 25 -- Statement of Eligibility of First Security Bank, National Association *27 -- Financial Data Schedule (included in 12/31/97 Form 10-K) +99.1-- Form of Letter of Transmittal +99.2-- Form of Notice of Guaranteed Delivery +99.3-- Form of Instruction to Registered Holder and/or Book-Entry Transfer Facility Participant from Owner of Old Notes +99.4-- Form of Letter to Clients of Depository Trust Company Participants +99.5-- Form of Letter to Registered Holders and Depository Trust Company Participants - ---------- * Incorporated by reference + To be filed (b) Schedules All supplementary schedules relating to the Registration Statement are omitted because they are not required or because the required information, where material, is contained in the Financial Statements. Item 22. Undertakings (a) The undersigned registrant hereby undertakes: (1) To file, during any period 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 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. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized in the City of St. Louis, State of Missouri, May 1, 1998. TRANS WORLD AIRLINES, INC. May 1, 1998 By /s/ Michael J. Palumbo -- ---------------------------- Michael J. Palumbo, Senior Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-4 has been signed by the following persons in the capacities and on the dates indicated. Signatures Title Date /s/ Gerald L. Gitner Director, Chairman of the Board and May 1, 1998 - ------------------------------------- Chief Executive Officer (Principal Gerard L. Gitner Executive Officer) /s/ Michael J. Palumbo Senior Vice President and Chief May 1, 1998 - ------------------------------------- Financial Officer (Principal Financial Michael J. Palumbo Officer and Principal Accounting Officer) * Director May 1, 1998 - ------------------------------------- John W. Bachmann * Director May 1, 1998 - ------------------------------------- William F. Compton * Director May 1, 1998 - ------------------------------------- Eugene P. Conese * Director May 1, 1998 - ------------------------------------- William M. Hoffman * Director May 1, 1998 - ------------------------------------- Edgar M. House * Director May 1, 1998 - ------------------------------------- Thomas H. Jacobsen * Director May 1, 1998 - ------------------------------------- Myron Kaplan * Director May 1, 1998 - ------------------------------------- David M. Kennedy * Director May 1, 1998 - ------------------------------------- Merrill A. McPeak * Director May 1, 1998 - ------------------------------------- Thomas F. Meagher Director - ------------------------------------- William O'Driscoll * Director May 1, 1998 - ------------------------------------- G. Joseph Reddington * Director May 1, 1998 - ------------------------------------- Blanche M. Touhill * Director May 1, 1998 - ------------------------------------- Stephen M. Tumblin *By: /s/ Kathleen A. Soled May 1, 1998 - ------------------------------------- Kathleen A. Soled, as Attorney-in-fact
EXHIBIT INDEX *2.1 -- Joint Plan of Reorganization, dated May 12, 1995 (Appendix B to the Registrant's Registration Statement on Form S-4, Registration Number 33-84944, as amended) *2.2 -- Modifications to Joint Plan of Reorganization, dated July 14, 1995 and Supplemental Modifications to Joint Plan of Reorganization dated August 2, 1995 (Exhibit 2.5 to 6/95 10-Q) *2.3 -- Findings of Fact, Conclusions of Law and Order Confirming Modified Joint Plan of Reorganization, dated August 4, 1995, with Exhibits A-B attached (Exhibit 2.6 to 6/95 10-Q) *2.4 -- Final Decree, dated December 28, 1995, related to the '95 Reorganization (Exhibit 2.7 to 12/31/95 Form 10-K) *3(i)-- Third Amended and Restated Certificate of Incorporation of the Registrant (Exhibit 3(i) to the Registrant's Registration Statement on Form S-4, Registration Number 333-26645) *3(ii)-- Amended and Restated By-Laws of Trans World Airlines, Inc., effective May 24, 1996 (Exhibit 3(ii) to 6/96 10-Q) *4.1 -- Voting Trust Agreement, dated November 3, 1993, between TWA and LaSalle National Trust, N.A. as trustee (Exhibit 4.3 to 9/93 10-Q) *4.2 -- IAM Trans World Employees' Stock Ownership Plan and related Trust Agreement, dated August 31, 1993, between TWA, the IAM Plan Trustee Committee and the IAM Trustee (Exhibit to 9/93 10-Q) *4.3 -- IFFA Trans World Employees' Stock Ownership Plan and related Trust Agreement, dated August 31, 1993, between TWA, the IFFA Plan Trustee Committee and the IFFA Trustee (Exhibit 4.5 to 9/93 10-Q) *4.4 -- Trans World Airlines, Inc. Employee Stock Ownership Plan, dated August 31, 1993, First Amendment thereto, dated October 31, 1993, and related Trust Agreement, dated August 31, 1993, between TWA and the ESOP Trustee (Exhibit 4.6 to 9/93 10-Q) *4.5 -- ALPA Stock Trust, dated August 31, 1993, between TWA and the ALPA Trustee (Exhibit 4.7 to 9/93 10-Q) *4.6 -- Stockholders Agreement, dated November 3, 1993, among TWA, LaSalle National Trust, N.A., as Voting Trustee and the ALPA Trustee, IAM Trustee, IFFA Trustee and Other Employee Trustee (each as defined therein), as amended by the Addendum to Stockholders dated November 3, 1993 (Exhibit 4.8 to 9/93 10-Q) *4.7 -- Registration Rights Agreement, dated November 3, 1993, between TWA and the Initial Significant Holders (Exhibit 4.9 to 9/93 10-Q) *4.8 -- Indenture between TWA and Harris Trust and Savings Bank, dated November 3, 1993 relating to TWA's 8% Senior Secured Notes Due 2000 (Exhibit 4.11 to 9/93 10-Q) *4.9 -- Indenture between TWA and American National Bank and Trust Company of Chicago, N.A., dated November 3, 1993 relating to TWA's 8% Secured Notes Due 2001 (Exhibit 4.12 to 9/93 10-Q) *4.10-- The TWA Air Line Pilots 1995 Employee Stock Ownership Plan, effective as of January 1, 1995 (Exhibit 4.12 to 9/95 10-Q) *4.11-- TWA Air Line Pilots Supplemental Stock Plan, effective September 1, 1994 (Exhibit 4.13 to 9/95 10-Q) *4.12-- TWA Air Line Pilots Supplemental Stock Plan Trust, effective August 23, 1995 (Exhibit 4.14 to 9/95 10-Q) *4.13-- TWA Air Line Pilots Supplemental Stock Plan Custodial Agreement, effective August 23, 1995 (Exhibit 4.15 to 9/95 10-Q) *4.14-- Form of Indenture relating to TWA's 8% Convertible Subordinated Debentures Due 2006 (Exhibit 4.16 to Registrant's Registration Statement on Form S-3, No. 333-04977) *4.15-- Indenture dated as of March 31, 1997 between TWA and First Security Bank, National Association relating to TWA's 12% Senior Secured Notes due 2002 (Exhibit 4.15 to Registrant's Registration Statement on Form S-4, No. 333-26645) *4.16-- Form of 12% Senior Secured Note due 2002 (contained in Indenture filed as Exhibit 4.15 to 12/31/97 Form 10-K) *4.17-- Registration Rights Agreement dated as of March 31, 1997 between the Company and the Initial Purchaser relating to the 12% Senior Secured Notes due 2002 and the warrants to purchase 126.26 shares of TWA Common Stock (Exhibit 4.17 to Registrant's Registration Statement on Form S-4, No. 333-26645) *4.18-- Warrant Agreement dated as of March 31, 1997 between the Company and American Stock Transfer & Trust Company, as Warrant Agent, relating to warrants to purchase 126.26 shares of TWA Common Stock (Exhibit 4.18 to Registrant's Registration Statement on Form S-4, No. 333-26645) *4.19-- Form of Indenture relating to TWA's 9 1/4% Convertible Subordinated Debentures due 2007 (Exhibit 4.19 to Registrant's Registration Statement on Form S-3, No. 33-44689) *4.20-- Registration Rights Agreement dated as of December 2, 1997 between the Company and the Initial Purchasers (Exhibit 4.20 to Registrant's Registration Statement on Form S-3, No. 33-44689) *4.21-- Indenture dated as of December 9, 1997 by and between TWA and First Security Bank, National Association, as Trustee, relating to TWA's 11 1/2% Senior Secured Notes due 2004 (Exhibit 4.21 to Registrant's Registration Statement on Form S-3, No. 33-44661) *4.22-- Form of 11 1/2% Senior Secured Note due 2004 (contained in Indenture filed as Exhibit 4.21 to 12/31/97 Form 10-K) *4.23-- Registration Rights Agreement dated as of December 9, 1997 among the Company and Lazard Freres & Co. LLC and PaineWebber Incorporated, as initial purchasers, relating to TWA's 11 1/2% Senior Secured Notes due 2004 (Exhibit 4.23 to Registrant's Registration Statement on Form S-3, No. 33-44661) *4.24-- Sale and Service Agreement dated as of December 30, 1997 between TWA and Constellation Finance LLC, as purchaser, relating to TWA's receivables (Exhibit 4.24 to Registrant's Registration Statement on Form S-3, No. 33-44661) 4.25-- Registration Rights Agreement dated as of March 3, 1998 between the Company and the Initial Purchaser 4.26-- Indenture dated as of March 3, 1998 by and between TWA and First Security Bank, National Association, as Trustee, relating to TWA's 11 3/8% Senior Notes due 2006 4.27-- Aircraft Sale and Note Purchase Agreement dated as of April 9, 1998 among TWA, First Security Bank, National Association, as Owner Trustee and Seven Sixty Seven Leasing, Inc. 4.28-- Indenture dated as of April 21, 1998 by and between TWA and First Security Bank, National Association, as Trustee, relating to TWA's 11 3/8% Senior Secured Notes due 2003 4.29-- Form of 11 3/8% Senior Secured Notes due 2003 (contained as Exhibit 1 to Rule 144A/Regulation Appendix to Indenture in Exhibit 4.28) 4.30-- Form of Mandatory Conversion Equity Note due 1999 (contained as Exhibit A to Indenture in Exhibit 4.28) 5 -- Opinion of Davis Polk & Wardwell, Counsel of the Registrant, regarding the validity of the securities being registered *10.1.1-- Asset Purchase Agreement, dated as of November 4, 1993, between TWA and St. Louis (Exhibit 10.2 to 9/93 10-Q) *10.1.2-- Equipment Operating Lease Agreement, dated November 4, 1993, between TWA and St. Louis (Exhibit 10.2 to 9/93 10-Q) *10.1.3-- Cargo Use Amendment, dated November 4, 1993 between TWA and St. Louis (Exhibit F to the Asset Purchase Agreement) (Exhibit 10.2 to 9/93 10-Q) *10.1.4-- Use Amendment 1993, dated November 4, 1993, between TWA and St. Louis (Exhibit E to the Asset Purchase Agreement) (Exhibit 10.2 to 9/93 10-Q) *10.2.1-- Amendment Number One to the Note Purchase and Security Agreement, dated October 26, 1993, between TWA and Rolls-Royce (Exhibit 10.3 to 9/93 10-Q) *10.2.2-- Amendment Number One to the Equipment Purchase Contract, dated October 26, 1993, between TWA and Rolls-Royce (Exhibit 10.3 to 9/93 10-Q) *10.3-- Amendment Number Two to the AVSA Agreement dated June 1, 1989 between TWA and AVSA, dated August 25, 1993 (Exhibit 10.4 to 9/93 10-Q) *10.4.1-- First Amendment to Aircraft Installment Sale Agreement, dated November 1, 1993, among TWA, the Vendors, and ITOCHU with respect to aircraft N605TW (Exhibit 10.5 to 9/93 10-Q) *10.4.2-- First Amendment to Aircraft Installment Sale Agreement, dated November 1, 1993, among TWA, the Vendors, and ITOCHU with respect to aircraft N603TW (Exhibit 10.5 to 9/93 10-Q) *10.4.3-- First Amendment to Security Agreement and Chattel Mortgage, dated November 1, 1993, among TWA, the Vendors, and ITOCHU, as to ITOCHU Amendment No. 1 (Exhibit 10.5 to 9/93 10-Q) *10.4.4-- First Amendment to Security Agreement and Chattel Mortgage, dated November 1, 1993, among TWA, the Vendors, and ITOCHU, as to ITOCHU Amendment No. 2 (Exhibit 10.5 to 9/93 10-Q) *10.5.1-- Deferral Agreement and First Amendment to Aircraft Installment Sale Agreement No. 1, dated November 1, 1993, among TWA, the Vendors, and ORIX with respect to aircraft N601TW (Exhibit 10.6 to 9/93 10-Q) *10.5.2-- Deferral Agreement and First Amendment to Aircraft Installment Sale Agreement, dated November 1, 1993, among TWA, the Vendors, and ORIX with respect to aircraft N603TW (Exhibit 10.6 to 9/93 10-Q) *10.5.3-- First Amendment to Security Agreement and Chattel Mortgage, dated November 1, 1993, among TWA, the Vendors, and ORIX, as to ORIX Amendment No. 1 (Exhibit 10.6 to 9/93 10-Q) *10.5.4-- First Amendment to Security Agreement and Chattel Mortgage, dated November 1, 1993, among TWA, the Vendors, and ORIX, as to ORIX Amendment No. 2 (Exhibit 10.6 to 9/93 10-Q) *10.6.1-- Purchase Agreement, dated October 5, 1993, between TWA and Pacific AirCorp 747, Inc. with respect to aircraft N93107 and N93108 (Exhibit 10.7 to 9/93 10-Q) *10.6.2-- Lease Agreement 107, dated October 5, 1993, between Pacific AirCorp 747, Inc. and TWA with respect to aircraft N93107 (Exhibit 10.7 to 9/93 10-Q) *10.6.3-- Lease Agreement 108, dated October 5, 1993, between Pacific AirCorp 747, Inc. and TWA with respect to aircraft N93108 (Exhibit 10.7 to 9/93 10-Q) *10.7-- '92 Labor Agreements (Exhibits 2.1, 2.2 and 2.3 to 9/92 8-K) *10.8-- Comprehensive Settlement Agreement, dated January 5, 1993 (Exhibit 10(iv)(1) to '92 10-K) *10.8.1-- Omnibus Amendment and Supplement to Agreements between TWA and Karabu Corp. dated as of March 28, 1994 (Exhibit 10.9.1 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.9-- Letter Agreement, dated April 15, 1994, between TWA and Richard P. Magurno relating to employment by TWA (Exhibit 10.14 to 3/94 10-Q) *10.10-- Form of Indemnification Agreement between TWA and individual members of the TWA Board of Directors relating to indemnification of director (Exhibit 10.16 to 6/94 10-Q) *10.11.1-- Purchase Agreement, dated as of December 15, 1993 between TWA and Pacific AirCorp DC9, Inc. with respect to aircraft N927L and N928L (Exhibit 10.20.1 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.11.2-- Lease Agreement 927, dated as of December 15, 1993, between Pacific AirCorp DC9, Inc. and TWA with respect to aircraft N927L (Exhibit 10.20.2 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.11.3-- Lease Agreement 928, dated as of December 15, 1993, between Pacific AirCorp DC9, Inc. and TWA with respect to aircraft N928L (Exhibit 10.20.3 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.12.1-- Aircraft Purchase Agreement between TWA and Mitsui & Co. (U.S.A.), Inc. dated March 31, 1994, with respect to aircraft N950U (Exhibit 10.21.1 to Registrant's Registration Statement on Form S-4, No. 33- 84944) *10.12.2-- Aircraft Purchase Agreement between TWA and Mitsui & Co. (U.S.A.), Inc., dated March 31, 1994, with respect to aircraft N953U (Exhibit 10.21.2 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.12.3-- Lease Agreement, dated as of March 31, 1994 between Mitsui & Co. (U.S.A.), Inc. and TWA with respect to aircraft N950U and N953U (Exhibit 10.21.3 to Registrant's Registration Statement on Form S-4 No. 33-84944) *10.12.4-- Aircraft Purchase Agreement between TWA and McDonnell Douglas Finance Corporation, dated March 31, 1994, with respect to aircraft N951U (Exhibit 10.21.4 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.12.5-- Aircraft Purchase Agreement between TWA and McDonnell Douglas Finance Corporation, dated March 31, 1994, with respect to aircraft N952U (Exhibit 10.21.5 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.12.6-- Lease Agreement, dated as of March 31, 1994 between McDonnell Douglas Finance Corporation and TWA with respect to aircraft N951U and N952U (Exhibit 10.21.6 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.13.1-- Aircraft Purchase Agreement, dated March 31, 1994, between McDonnell Douglas Finance Corporation and TWA with respect to aircraft N306TW (formerly N534AW) (Exhibit 10.22.1 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.13.2-- Purchase Money Chattel Mortgage, dated as of March 31, 1994, by TWA, as Mortgagor, and McDonnell Douglas Finance Corporation, as Mortgagee, with respect to N306TW (formerly N534AW) (Exhibit 10.22.2 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.13.3-- Chattel Mortgage, dated as of March 31, 1994 by TWA as Mortgagor, in favor of McDonnell Douglas Finance Corporation, as Mortgagee, with respect to aircraft N306TW (formerly N534AW) (Exhibit 10.22.3 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.14-- Commuter Air Service Agreement dated July 22, 1992, between TWA and Trans World Express, Inc. (Exhibit 10.23 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.15-- Commuter Air Service Agreement dated October 27, 1993, between TWA and Alpha Air (Exhibit 10.24 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.16-- Air Service Agreement dated October 1, 1994, between TWA and Trans States Airlines, Inc. (Exhibit 10.25 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.17-- Consulting Agreement between TWA and Fieldstone, Private Capital Group, L.P. dated July 11, 1994 (Exhibit 10.26 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.18-- Consulting Agreement dated July 15, 1994, between TWA and Simat, Helliesen & Eichner, Inc. (Exhibit 10.27 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.19.1-- Agreement for Purchase and Sale dated as of August 29, 1994, between TWA and Browsh & Associates, Inc. (Exhibit 10.28.1 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.19.2-- Agreement for Purchase and Sale dated as of August 29, 1994, between TWA and Travel Marketing Holding Corporation (Exhibit 10.28.2 to Registrant's Registration Statement on Form S-4, No. 33- 84944) *10.20.1-- Addendum to Stock Purchase Agreement (identified in 10.29.2) dated October 31, 1994 (Exhibit 10.29.3 to 9/94 10-Q) *10.20.2-- Addendum to Stock Purchase Agreement (identified in 10.29.2) dated November 2, 1994 (Exhibit 10.29.4 to 9/94 10-Q) *10.21.1-- Form of Agreement dated as of August 31, 1994, between TWA and the Air Line Pilots Association, International (Exhibit 10.31.1 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.21.2-- Form of Agreement dated as of September 1, 1994, between TWA and the International Association of Machinists and Aerospace Workers (Exhibit 10.31.2 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.21.3-- Form of Agreement dated as of September 1, 1994, between TWA and the Independent Federation of Flight Attendants (Exhibit 10.31.3 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.21.4-- Form of Agreement dated as of September 1, 1994, between TWA and the Transport Workers Union of America (Exhibit 10.31.4 to 9/94 10-Q) *10.22.1-- Trust Agreement dated as of August 24, 1994 between and among TWA, the International Association of Machinists and Aerospace Workers, the Independent Federation of Flight Attendants, the Air Line Pilots Association, International, United States Trust Company of New York (Exhibit 10.32.1 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.22.2-- Stock Pledge and Intercreditor Agreement dated as of August 24, 1994 among TWA, TWA Stock Holding Company, Inc. and United States Trust Company of New York (Exhibit 10.32.2 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.23.1-- Key Employee Stock Incentive Plan (Exhibit 10.33.1 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.23.2-- Form of Option Agreements for options issued pursuant to the 1994 Key Employee Stock Incentive Plan (Exhibit 10.33.2 to Registrant's Registration Statement on Form S-4, No. 33-84944) *10.24-- Extension, Refinancing and Consent Agreement between TWA, Karabu Corp, Pichin Corp, and Carl C. Icahn and the "Icahn Entities" dated as of June 14, 1995 (Exhibit 10.37 to 9/95 10-Q) *10.24.1-- Karabu Ticket Program Agreement between TWA and Karabu Corp. dated as of June 14, 1995 (Exhibit 10.37.1 to 12/95 10-K) *10.25-- Trans World Airlines, Inc. Stock Purchase Warrant to Purchase Shares of Common Stock, dated August 23, 1995 (Exhibit 10.38 to 9/95 10-Q) *10.26-- Stand-By Purchase Agreement dated as of August 8, 1995 between Trans World Airlines, Inc., M.D. Sass Re/Enterprise Partners L.P., a Delaware limited partnership and M.D. Sass Re/Enterprise International Ltd. a British Virgin Islands Company (Exhibit 10.39 to 9/95 10-Q) *10.27-- Voucher Purchase Agreement dated as of October 18, 1995 between TWA and M.D. Sass Re/Enterprise Partners L.P., a Delaware limited partnership and M.D. Sass Re/Enterprise International Ltd. a British Virgin Islands Company (Exhibit 10.40 to 9/95 10-Q) *10.28-- Equity Rights Put Agreement dated as of September 15, 1995 between TWA and Elliott Associates L.P., a Delaware limited partnership (Exhibit 10.41 to 9/95 10-Q) *10.29-- Equity Rights Put Agreement dated as of September 15, 1995 between TWA and Westgate International L.P., a Cayman Islands limited partnership (Exhibit 10.42 to 9/95 10-Q) *10.30-- Equity Rights Put Agreement dated as of September 15, 1995 between TWA and United Equities (Commodities) Company, a New York general partnership (Exhibit 10.43 to 9/95 10-Q) *10.31-- Equity Rights Put Agreement dated as of September 15, 1995 between TWA and Grace Brothers, Ltd., an Illinois limited partnership (Exhibit 10.44 to 9/95 10-Q) *10.32-- Equity Rights Put Agreement dated as of September 15, 1995 between TWA and First Capital Alliance, L.P., an Illinois limited partnership (Exhibit 10.45 to 9/95 10-Q) *10.33-- Equity Rights Put Agreement dated as of September 15, 1995 between TWA and Romulus Holdings Corp. a Delaware Corporation (Exhibit 10.46 to 9/95 10-Q) *10.34-- Purchase Agreement, dated February 9, 1996 between The Boeing Company and TWA relating to Boeing Model 757-231 Aircraft (Purchase Agreement Number 1910) (Exhibit 10.48 to 12/31/95 Form 10-K/A) *10.35-- Employee Stock Incentive Program dated as of August 23, 1995 by TWA (Exhibit 10.49 to 12/31/95 Form 10-K) *10.36-- Trans World Airlines, Inc. 1995 Outside Directors' Stock Ownership and Stock Option Plan (Exhibit 10.51 to Registrant's Registration Statement on Form S-3, No. 333-04977) *10.37-- Letter Agreement dated July 30, 1996 between Trans World Airlines, Inc. and Robert A. Peiser (Exhibit 10.52 to Registrant's Registration Statement on Form S-3, No. 333-04977) *10.38-- Letter Agreement dated July 26, 1996 between Trans World Airlines, Inc. and Mark J. Coleman (Exhibit 10.53 to Registrant's Registration Statement on Form S-3, No. 333-04977) *10.39-- Agreement dated as of September 3, 1996 between the Company and Roden A. Brandt (Exhibit 10.6 to 9/96 Form 10-Q) *10.40-- Letter Agreement dated January 6, 1997 between the Company and Edward Soule (Exhibit 10.33 to 12/31/96 Form 10-K) *10.41-- Agreement dated as of October 1, 1996 between the Company and Michael J. Palumbo (Exhibit 10.34 to 12/31/96 Form 10-K) *10.42-- Agreement dated as of November 11, 1996 between the Company and Jeffrey H. Erickson (Exhibit 10.35 to 12/31/96 Form 10-K) *10.43-- Consulting Agreement between the Company and David M. Kennedy dated as of June 6, 1997 (Exhibit 10.1 to 6/97 Form 10-Q) *10.44-- Separation Agreement dated July 25, 1997 between the Company and Charles J. Thibaudeau (Exhibit 10.2 to 6/97 form 10-Q) *10.45-- Agreement between the Company and Gerald L. Gitner dated as of February 12, 1997 (Exhibit 10.1 to 9/97 Form 10-Q) *10.46.1-- Pledge and Security Agreement dated as of December 9, 1997 from the Company to First Security Bank, National Association, as Collateral Agent, in connection with the 11(1)/(2)% Senior Secured Notes due 2004 (Exhibit 10.46.1 to Registrant's Registration Statement on Form S-4, No. 333-44661) *10.46.2-- Acquired Slot Trust Agreement Declaration of Trust dated as of December 9, 1997 between the Company and First Security Bank, National Association, as Slot Trustee, in connection with the 11(1)/(2)% Senior Secured Notes due 2004 (Exhibit 10.46.2 to Registrant's Registration Statement on Form S-4, No. 333-44661) *10.46.3-- Master Sub-License Agreement dated as of December 9, 1997 between the Company and First Security Bank, National Association, in connection with the 11(1)/(2)% Senior Secured Notes due 2004 (Exhibit 10.46.3 to Registrant's Registration Statement on Form S-4, No. 333-44661) *10.46.4-- Collateral Pledge and Security Agreement dated as of December 9, 1997 between the Company and First Security Bank, National Association, as Trustee, in connection with the 11(1)/(2)% Senior Secured Notes due 2004 (Exhibit 10.46.4 to Registrant's Registration Statement on Form S-4, No. 333-44661) *10.47.1-- Exchange Agreement dated as of June 10, 1996 between TWA and Elliott Associates, L.P. as amended (Exhibit 10.1 to 9/20/96 Form 8-K) *10.47.2-- Exchange Agreement dated as of June 10, 1996 between TWA and Westgate International, L.P., as amended (Exhibit 10.2 to 9/20/96 Form 8-K) *10.48.1-- Form of Letter Agreement between TWA and executive officers (continuing employment) (Exhibit 10.1 to 3/97 Form 10-Q) *10.48.2-- Form of Letter Agreement between TWA and executive officers (new hire) (Exhibit 10.2 to 3/97 Form 10-Q) *10.49 -- Change in Control Agreement for executive officers (Exhibit 10.49 to 12/31/97 Form 10-K) *10.50 -- Termination Agreement with Richard P. Magurno dated March 2, 1998 (Exhibit 10.50 to 12/31/97 Form 10-K) *11 -- Statement of Computation of Per Share Earnings (included in 12/31/97 Form 10-K) *12 -- Statement of Computation of Ratio of Earnings to Fixed Charges (included in 12/31/97 Form 10-K) *13.1-- 1997 Annual Report to Stockholders 23.1-- Consent of KPMG Peat Marwick LLP 23.2-- Consent of Davis Polk & Wardwell, counsel of the Registrant (included in Exhibit 5) 24 -- Powers of Attorney 25 -- Statement of Eligibility of First Security Bank, National Association *27 -- Financial Data Schedule (included in 12/31/97 Form 10-K) +99.1-- Form of Letter of Transmittal +99.2-- Form of Notice of Guaranteed Delivery +99.3-- Form of Instruction to Registered Holder and/or Book-Entry Transfer Facility Participant from Owner of Old Notes +99.4-- Form of Letter to Clients of Depository Trust Company Participants +99.5-- Form of Letter to Registered Holders and Depository Trust Company Participants - -------------- * Incorporated by reference + To be filed EX-4.25 2 Exhibit 4.25 TRANS WORLD AIRLINES, INC. 11 3/8% Senior Notes Due 2006 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made and entered into as of March 3, 1998, by Trans World Airlines, Inc., a Delaware corporation (the "Company"), and Lazard Freres & Co. LLC (the "Initial Purchaser"). Subject to the terms and conditions stated in the Purchase Agreement dated as of February 25, 1998 between the Company and the Initial Purchaser (the "Purchase Agreement"), the Company shall issue and sell to the Initial Purchaser $150,000,000 aggregate principal amount of 11 3/8% Senior Notes Due 2006 (the "Notes"). The Notes will be issued pursuant to an indenture dated as of March 3, 1998 (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 150 days (or if the 150th day is not a business day, the first business day thereafter) after the Issue Date of the Notes and shall keep the Exchange Offer Registration Statement effective for not less than 30 days (or longer if required by applicable law) after the date on which notice of the Registered Exchange Offer is mailed to the Holders (such period being called the "Exchange Offer Registration Period"). If the Company effects the Registered Exchange Offer, the Company will be entitled to close the Registered Exchange Offer 30 days after the commencement thereof; 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 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 the Initial Purchaser upon the written request of the Initial Purchaser, in exchange (the "Private Exchange") for the Notes held by the 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. 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 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 provision of this Agreement to the contrary, the Company shall cause the Shelf Registration Statement and the related prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement, amendment or supplement, (i) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission and (ii) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) No Holder of Securities may include any of its Securities in the Shelf Registration Statement unless such Holder furnishes to the Company in writing, within 10 business days after receipt of a request therefor (which initial request shall be made within 40 days after the Closing to the Holders of record on a date not more than 5 days prior to such request), such information and representations and warranties as the Company may reasonably request for use in connection with the Shelf Registration Statement or prospectus or preliminary prospectus included therein. No Holder of Securities shall be entitled to Special Interest, pursuant to Section 6 hereof, if such Holder's Securities are excluded from the Shelf Registration Statement because such Holder failed to furnish the Company in writing such information and representations and warranties reasonably requested by the Company for use in connection with 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. (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 or Participating Broker-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). (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 Exchanging Dealer, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer in connection with the offering and sale of the Exchange Notes covered by the prospectus, or any amendment or supplement thereto, included in such Exchange Offer Registration Statement. (h) Prior to any public offering of the Securities, pursuant to any Registration Statement, the Company shall use its best efforts to register or qualify or cooperate with the Holders of the Securities included therein and their respective counsel in connection with the registration or qualification of the Securities for offer and sale under the securities or "blue sky" laws of such states of the United States as any Holder of the Securities reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities covered by such Registration Statement; provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified, (ii) take any action which would subject it to general service of process or to taxation in any jurisdiction where it is not then so subject or (iii) register or qualify Securities or take any other action under the securities or "blue sky" laws of any jurisdiction if, in the judgment of the Board of Directors of the Company, the consequences of such registration, qualification or other action would be unduly burdensome to the Company. (i) The Company shall cooperate with the Holders of the Securities to facilitate the timely preparation and delivery of certificates representing the Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders may request a reasonable period of time prior to sales of the Securities pursuant to such Registration Statement. (j) Upon the occurrence of any event contemplated by paragraphs (ii) through (v) of Section 3(b) above during the period for which the Company is required to maintain an effective Registration Statement, the Company shall promptly prepare and file a post-effective amendment to the Registration Statement or a supplement to the related prospectus and any other required document so that, as thereafter delivered to Holders of the Notes or the Exchange Notes or purchasers of Securities, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Initial Purchaser, the Holders of the Securities and any known Exchanging Dealer or 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 Exchanging Dealer or Participating Broker-Dealer 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 Exchanging Dealer or Participating Broker-Dealer shall have received such amended or supplemented prospectus pursuant to this Section 3(j) or (ii) if earlier, until the date when none of the Securities represent Transfer Restricted Notes (as defined in Section 6(d)). (k) Not later than the effective date of the applicable Registration Statement, the Company will provide a CUSIP number for the Notes, the Exchange Notes or the Private Exchange Notes, as the case may be, and provide the applicable trustee with printed certificates for the Notes, the Exchange Notes or the Private Exchange Notes, as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company will comply with all rules and regulations of the Commission to the extent and so long as they are applicable to the Registered Exchange Offer or the Shelf Registration and will make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Securities Act, no later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement, which statement shall cover such 12-month period. (m) The Company shall cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended, in a timely manner and containing such changes, if any, as shall be necessary for such qualification. In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture. (n) The Company may require each Holder of Securities to be sold pursuant to the Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of the Securities as the Company may from time to time reasonably require for inclusion in the Shelf Registration Statement, and the Company may exclude from such registration the Securities of any Holder that unreasonably fails to furnish such information within a reasonable time after receiving such request. (o) The Company shall enter into such customary agreements (including if requested an underwriting agreement in customary form) and take all such other action, if any, as may be required in order to facilitate the disposition of the Securities pursuant to any Shelf Registration. (p) In the case of any Shelf Registration, subject to appropriate confidentiality arrangements being entered into, the Company shall (i) make available at reasonable times for inspection by the Holders of the Securities, any underwriter participating in any disposition pursuant to the Shelf Registration Statement and any attorney, accountant or other agent retained 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 Exchanging Dealer or Participating Broker-Dealer, the Company shall cause (i) its counsel to deliver to the Initial Purchaser or such Exchanging Dealer or 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 Exchanging Dealer or Participating Broker-Dealer a comfort letter, in customary form, meeting the requirements as to the substance thereof as set forth in Section 5(g) of the Purchase Agreement, with appropriate date changes. (s) If a Registered Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Notes by Holders to the Company (or to such other Person as directed by the Company) in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be, the Company shall mark, or cause to be marked, on the Notes so exchanged that such Notes are being cancelled in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be; in no event shall the Notes be marked as paid or otherwise satisfied. (t) In the event that any broker-dealer registered under the Exchange Act shall underwrite any Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Rules of Fair Practice and the By-Laws of the National Association of Securities Dealers, Inc. ("NASD")) thereof, whether as a Holder of such Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Company shall assist such broker- dealer in complying with the requirements of such Rules and By- Laws (including without limitation the indemnification of any "qualified independent underwriter" required thereby). (u) The Company will use its best efforts to cause the Transfer Restricted Notes to be eligible for inclusion in the National Association of Securities Dealers, Inc. Private Offerings, Resales and Trading through Automated Linkages trading system. (v) The Company shall use its best efforts to take all other steps necessary to effect the registration of the Securities covered by a Registration Statement contemplated hereby. (w) The Company agrees that it will not include in the registration contemplated by the Shelf Registration Statement any securities other than the Securities. (x) The Company hereby agrees to list the Notes on the American Stock Exchange or on such other stock exchange or market as the Common Stock is then principally traded no later than the earliest to occur of (i) the effectiveness of the initial Exchange Offer Registration Statement and (ii) the effectiveness of the initial Shelf Registration Statement, provided that such Notes meet the minimum requirements for listing on any such exchange or market, and, if applicable, to maintain such listing for so long as any of the Notes is outstanding. SECTION 4. REGISTRATION EXPENSES The Company shall bear all fees and expenses incurred in connection with the performance of its obligations under Sections 1 through 3 hereof (including the reasonable fees and expenses of Hughes Hubbard & Reed LLP, counsel for the Initial 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 Exchanging Dealer, any Participating Broker-Dealer and each person, if any, who controls such Holder, Exchanging Dealer or Participating Broker-Dealer within the meaning of the Securities Act or the Exchange Act (each Holder, Exchanging Dealer, Participating Broker-Dealer and such controlling persons being referred to in this Section 5(a) and the Company and its controlling persons referred to in Section 5(b), being collectively referred to herein, as the case may be, 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 in any preliminary prospectus relating to a Registration Statement, 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 Registration Statement in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein, (ii) with respect to any untrue statement or omission or alleged untrue statement or omission made in any prospectus relating to such Registration Statement, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any person as to which there is a prospectus delivery requirement (a "Delivering Seller") that sold the Securities to the person asserting any such losses, claims, damages or liabilities to the extent that any such loss, claim, damage or liability of such Delivering Seller results from the fact that there was not sent or given to such person, on or prior to the written confirmation of such sale, a copy of the relevant prospectus, as amended and supplemented, provided that (I) the Company shall have previously furnished copies thereof to such Delivering Seller in accordance with this Agreement and (II) such furnished prospectus, as amended and supplemented, would have corrected any such untrue statement or omission or alleged untrue statement or omission, and (iii) this indemnity agreement will be in addition to any liability which the Company may otherwise have to such indemnified party. The Company shall also indemnify underwriters, selling brokers, dealer-managers and similar securities industry professionals participating in the distribution (in each case as described in the Registration Statement), their officers and directors and each person who controls such persons within the meaning of the Securities Act or the Exchange Act to the same extent as provided above with respect to the indemnification of the Holders of the Securities if requested by such Holders; provided, however, that the Company shall not indemnify any such party to the extent its liability arises from its failure to comply with the requirements described in Annexes A, B and C hereto. (b) Each Holder of the Securities, severally and not jointly, will indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act from and against any losses, claims, damages or liabilities or any actions in respect thereof to which the Company or any such controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating 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, except to the extent that it is prejudiced or harmed in any material respect by failure to give such prompt notice. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with one counsel (and local counsel as necessary) reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof the indemnifying party will not be liable to such indemnified party under this Section 5 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof. No indemnifying party shall, without the prior written consent of the indemnified party, not to be unreasonably withheld, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action and does not include any injunctive relief against such indemnified party. No indemnifying party shall be liable for any amounts paid in settlement of any action or claim without its written consent, which consent shall not be unreasonably withheld. (d) If the indemnification provided for in this Section 5 is unavailable or insufficient to hold harmless an indemnified party under subsections (a) or (b) above for any reason, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from (x) in the case of a Holder of Notes, such Holder's exchange of its proportionate share of Notes pursuant to the Registered Exchange Offer, and (y) in the case of the Company, the Company's initial issuance of the Notes, 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. (e) The Company and each Holder agree that it would not be just and equitable if contributions pursuant to Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable consideration referred to in Section 5(d). (f) The agreements contained in this Section 5 shall survive the sale of the Securities pursuant to a Registration Statement and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any indemnified party. SECTION 6. SPECIAL INTEREST (a) If any of the following events occurs (each such event in clauses (i) through (iii) below a "Registration Default"): (i) if by May 4, 1998, neither the Exchange Offer Registration Statement nor a Shelf Registration Statement has been filed with the Commission; (ii) if by July 31, 1998, neither the Exchange Offer Registration Statement nor the Shelf Registration Statement is declared effective; (iii) if by August 31, 1998 neither the Registered Exchange Offer is consummated nor, if required in lieu thereof, the Shelf Registration Statement is declared effective by the Commission; (iv) if, notwithstanding the filing of the Exchange Offer Registration Statement or the effectiveness thereof or the consummation of the Registered Exchange Offer, pursuant to the terms of subparagraph (i) of Section 2(a) hereof, by the later of (x) May 4, 1998 and (y) 30 days after a request made pursuant to Section 2, a Shelf Registration Statement has not been filed with the Commission or such Shelf Registration Statement has not been declared effective by the Commission within 150 days after any such request; or (v) if after either the Exchange Offer Registration Statement or the Shelf Registration Statement is declared effective (A) such Registration Statement thereafter ceases to be effective; or (B) such Registration Statement or the related prospectus ceases to be usable (except as permitted in paragraph (b)) in connection with resales of Transfer Restricted Notes during the periods specified herein, the Company will pay special interest ("Special Interest") to each Holder of Transfer Restricted Notes, during the first 90-day period immediately following such Registration Default at a per annum rate of 0.50% per Transfer Restricted Note held by such Holder. The amount of Special Interest will increase by an additional 0.50% per annum per Transfer Restricted Note, for each subsequent 90-day period until the date on which the Exchange Offer Registration Statement or Shelf Registration Statement is filed or declared effective, as the case may be, or such Registration Statement again becomes effective, or such Registration Statement prospectus becomes usable as the case may be, up to a maximum Special Interest with respect to any Registration Default of 2.00% per annum per Transfer Restricted Note. Such Special Interest is payable in addition to any other interest payable from time to time with respect to the Securities. (b) A Registration Default referred to in Section 6(a)(v) shall be deemed not to have occurred and be continuing in relation to a Shelf Registration Statement or the related prospectus if (i) such Registration Default has occurred solely as a result of (x) the filing of a post-effective amendment to such Shelf Registration Statement to incorporate annual audited or, if required by the rules and regulations under the Securities Act, quarterly unaudited financial information with respect to the Company where such post-effective amendment is not yet effective and needs to be declared effective to permit Holders to use the related prospectus or (y) other material events or developments with respect to the Company that would need to be described in such Shelf Registration Statement or the related prospectus and (ii) in the case of clause (y), the Company is proceeding promptly and in good faith to amend or supplement such Shelf Registration Statement and related prospectus to describe such events; provided, however, that in no event shall the Company be required to disclose the business purpose for such suspension if the Company determines in good faith that such business purpose must remain confidential; provided further, however, that in any case if such Registration Default occurs for a continuous period in excess of 45 days, Special Interest shall be payable in accordance with the above paragraph from the day following such 45 day period until the date on which such Registration Default is cured. (c) All accrued Special Interest shall be payable by the Company in cash on the regular interest payment dates with respect to the Notes, the Private Exchange Notes or the Exchange Notes to the Holders of record on the applicable record dates. The parties hereto agree that Special Interest provided in this Section constitutes a reasonable estimate of the damages that will be incurred by the Holders by reason of the failure of the Exchange Offer Registration Statement or the Shelf Registration Statement to be filed, declared effective or to remain effective or such Registration Statement or related prospectus to be usable, as the case may be. (d) "Transfer Restricted Notes" means each Note until (i) the date on which such Transfer Restricted Note has been exchanged by a person other than a broker-dealer for a freely transferable Exchange Note in the Registered Exchange Offer, (ii) following the exchange by a broker-dealer in the Registered Exchange Offer of a Transfer Restricted Note for an Exchange Note, the date on which such Exchange Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such Transfer Restricted Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Transfer Restricted Note is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. SECTION 7. RULE 144 AND RULE 144A The Company shall use its reasonable best efforts to file on a timely basis all such reports required to be filed under the Exchange Act as, and endeavor in good faith to take such other actions as, are reasonably necessary to enable Holders to sell Transfer Restricted Notes without registration under the Securities Act within the limitation of the exemptions provided under (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, (b) Rule 144A under the Securities Act, as such Rule may be amended from time to time, and (c) any similar rules or regulations hereafter adopted by the Commission. Upon request of any Holder of Transfer Restricted Notes, the Company will provide a written statement as to whether it has complied with such requirements and will, at its expense, forthwith upon the request of the Initial 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 Notes covered by any Shelf Registration Statement are to be sold in an underwritten offering, the investment banker(s) and manager(s) that will manage the offering will be selected by the Holders of a majority of the then outstanding Transfer Restricted Notes (determined in accordance with Section 9(d)) included in such offering (after consultation with the Company as to such selection and upon the written consent of the Company, which consent will not be unreasonably withheld or delayed). If requested by the underwriters, the Company will promptly enter into an underwriting agreement reasonably acceptable to the Company with such underwriters for such offering, such agreement to contain such representations and warranties by the Company and such other terms and conditions as are customary for underwriting agreements with respect to secondary offerings, including without limitation, indemnities to the effect and to the extent provided in Section 5 hereof. The Holders of Transfer Restricted Notes on whose behalf such securities are being distributed shall be party to any such underwriting agreement. Such Holders shall not be required by the Company to make any representations or warranties to the underwriters with respect to the Company or the Transfer Restricted Notes (other than that the Holders are conveying such securities free and clear of all pledges, securities interests, liens, charges, encumbrances, agreements, equities, claims and options of whatever nature), and the Holders shall not be required to indemnify the Company or the underwriters (other than with respect to the matters, and to the extent, provided in Section 5). Furthermore, the Company shall make available for inspection by the Holders, any underwriter participating in any disposition pursuant to such Shelf Registration Statement, and any attorney, accountant or other agent retained by the Holders or underwriter, all financial and other records and other information, pertinent corporate documents and properties of the Company as shall be reasonably necessary to enable them to exercise their due diligence responsibilities. No Holder of Transfer Restricted Notes may participate in any underwritten distribution hereunder unless such holder (a) agrees to sell such Holder's Transfer Restricted Notes on the basis provided in any underwriting arrangements approved in accordance with the terms hereof, and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. SECTION 9. MISCELLANEOUS (a) Remedies. Each Holder of Securities, in addition to being entitled to exercise all rights provided herein, and as provided in the Purchase Agreement and granted by law, including the recovery of damages, shall be entitled to specific performance of such Holder's rights under this Agreement. Except with respect to the payment of Special Interest in the event of the occurrence of a Registration Default, the Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees in any action for specific performance to waive the defense that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company has not and shall not on or after the date of this Agreement enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders of Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders of Securities hereunder do not and will not in any way conflict with and are not and will not be inconsistent with the rights granted to the holders of the Company's other securities under any other agreements. No Holder of any securities of the Company has rights to the registration of any securities of the Company because of the execution, delivery or performance by the Company of this Agreement or as a result of the filing of the Exchange Offer Registration Statement or the Shelf Registration Statement. (c) No Adverse Action Affecting the Securities. The Company has not taken and will not take, any action, or permit any change to occur with respect to the Securities which would adversely affect the ability of any of the Holders of Securities to include such Securities in a registration undertaken pursuant to this Agreement. (d) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of a majority of the outstanding principal amount of Transfer Restricted Notes. Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders of Transfer Restricted Notes whose Transfer Restricted Notes are being sold pursuant to the Shelf Registration Statement and that does not directly or indirectly affect the rights of other Holders of Transfer Restricted Notes may be given by the Holders of a majority of the Transfer Restricted Notes being sold. (e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telex, telecopier, or air courier guaranteeing overnight delivery: (i) if to a Holder of Securities, at the address set forth on the records of the Company or the Trustee under the Indenture, with a copy to the Trustee, and if to the Initial Purchaser, at the address set forth in the Purchase Agreement; and (ii) if to the Company, initially at its address set forth in the Purchase Agreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Section. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and on the next business day, if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee under the Indenture at the address specified in the Indenture. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Securities. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE. (j) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (k) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Company with respect to the Securities except as provided in the Indenture and in the Purchase Agreement. Except as set forth in the prior sentence this Agreement supersedes all prior agreements and understandings between the parties with respect to the subject matter hereof. [Remainder of this page is blank.] IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. TRANS WORLD AIRLINES, INC. By: ------------------------------- Name: Title: LAZARD FRERES & CO. LLC By: ------------------------------- Name: Title: 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." 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." 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. 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. EX-4.26 3 Exhibit 4.26 =============================================================================== TRANS WORLD AIRLINES, INC. and FIRST SECURITY BANK, NATIONAL ASSOCIATION, as Trustee INDENTURE Dated as of March 3, 1998 $150,000,000 11 3/8% Senior Notes due 2006 ================================================================================ TABLE OF CONTENTS Page ---- ARTICLE 1. DEFINITIONS AND RULES OF CONSTRUCTION Section 1.1 Definitions........................................................1 Section 1.2 Rules of Construction..............................................1 ARTICLE 2. THE SECURITIES Section 2.1 Designation, Form and Dating......................................1 Section 2.2 Execution, Amount, Authentication and Delivery....................2 Section 2.3 Registrar and Paying Agent........................................4 Section 2.4 Paying Agent to Hold Payments In Trust............................4 Section 2.5 Securityholder Lists..............................................6 Section 2.6 Transfer and Exchange.............................................6 Section 2.7 Mutilated, Defaced, Destroyed, Lost and Stolen Securities........................................................7 Section 2.8 Treasury Securities...............................................8 Section 2.9 Temporary Securities..............................................9 Section 2.10 Cancellation......................................................9 Section 2.11 Defaulted Interest; Interest on Defaulted Principal ........................................................9 Section 2.12 CUSIP Numbers....................................................10 ARTICLE 3. REDEMPTIONS AND CERTAIN REPURCHASES Section 3.1 Optional Redemption-General.......................................10 Section 3.2 Redemption Notice to Trustee......................................10 Section 3.3 Selection of Securities to be Redeemed............................11 Section 3.4 Notice of Redemption..............................................11 Section 3.5 Effect of Notice of Redemption....................................12 Section 3.6 Deposit of Redemption Price.......................................12 Section 3.7 Securities Redeemed in Part.......................................12 Section 3.8 Optional Redemption Upon Public Equity Offering...................12 ARTICLE 4. COVENANTS, REPRESENTATIONS AND WARRANTIES Section 4.1 Payment of Securities...........................................12 Section 4.2 Maintenance of Office or Agency.................................13 Section 4.3 Limitation on Restricted Payments...............................13 Section 4.4 Corporate Existence.............................................16 Section 4.5 Payment of Taxes and Other Claims...............................17 Section 4.6 Notices.........................................................17 Section 4.7 Maintenance of Properties and Insurance.........................17 Section 4.8 Default Notices and Compliance Certificates.....................18 Section 4.9 SEC Reports.....................................................18 Section 4.10 Waiver of Stay, Extension or Usury Laws.........................19 Section 4.11 Amendment to Indenture..........................................19 Section 4.12 Limitation on Liens.............................................19 Section 4.13 Books, Records, Access; Confidentiality.........................20 Section 4.14 Repurchase of Securities Upon a Change in Control...............20 Section 4.15 Restrictions on Becoming an Investment Company..................21 Section 4.16 Limitation on Indebtedness......................................21 Section 4.17 Limitation on Restrictions on Distributions from Restricted Subsidiaries.........................................24 Section 4.18 Limitation on Sales of Assets and Subsidiary Stock..............26 Section 4.19 Limitation on Affiliate Transactions............................27 Section 4.20 Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries......................................27 Section 4.21 Limitation on Guarantees by Restricted Subsidiaries ...................................................28 Section 4.22 Limitation on Sale/Leaseback Transactions.......................29 Section 4.23 Application for Rating..........................................29 Section 4.24 Listing.........................................................29 ARTICLE 5. SUCCESSOR CORPORATION Section 5.1 Covenant Not to Consolidate, Merge, Convey or Transfer Except Under Certain Conditions........................29 Section 5.2 Successor Person Substituted....................................30 Section 5.3 Optional Right of Redemption....................................31 ARTICLE 6. DEFAULT AND REMEDIES Section 6.1 Events of Default...............................................31 Section 6.2 Acceleration....................................................33 Section 6.3 Other Remedies..................................................33 Section 6.4 Waiver of Past Defaults.........................................33 Section 6.5 Control by Majority.............................................34 Section 6.6 Limitation on Suits.............................................34 Section 6.7 Rights of Holders to Receive Payment............................35 Section 6.8 Collection Suit by Trustee......................................35 Section 6.9 Trustee May File Proofs of Claim................................35 Section 6.10 Application of Proceeds.........................................36 Section 6.11 Undertaking for Costs...........................................37 Section 6.12 Restoration of Rights on Abandonment of Proceedings.....................................................37 Section 6.13 Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default...........................................37 ARTICLE 7. TRUSTEE Section 7.1 Duties of Trustee................................................38 Section 7.2 Rights of Trustee................................................39 Section 7.3 Individual Rights of Trustee.....................................39 Section 7.4 Trustee's Disclaimer.............................................39 Section 7.5 Notice of Defaults...............................................39 Section 7.6 Reports by Trustee to Holders....................................40 Section 7.7 Compensation and Indemnity.......................................40 Section 7.8 Replacement of Trustee...........................................41 Section 7.9 Successor Trustee by Merger, etc.................................42 Section 7.10 Eligibility; Disqualification...................................42 Section 7.11 Preferential Collection of Claims Against Company...............42 ARTICLE 8. DISCHARGE OF INDENTURE; DEFEASANCE Section 8.1 Discharge of Liability on Securities; Defeasance.................42 Section 8.2 Conditions to Defeasance.........................................43 Section 8.3 Application of Trust Money.......................................44 Section 8.4 Repayment to Company.............................................44 Section 8.5 Indemnity for Government Obligations.............................45 Section 8.6 Reinstatement....................................................45 ARTICLE 9. AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 9.1 Without Consent of Holders.......................................45 Section 9.2 With Consent of Holders..........................................46 Section 9.3 Compliance with Trust Indenture Act..............................47 Section 9.4 Revocation and Effect of Consents................................47 Section 9.5 Notation on or Exchange of Securities............................47 Section 9.6 Trustee to Sign Amendments, etc..................................47 Section 9.7 Effect of Supplement and/or Amendment............................48 ARTICLE 10. MISCELLANEOUS Section 10.1 Conflict with Trust Indenture Act of 1939......................48 Section 10.2 Notices; Waivers...............................................48 Section 10.3 Communications by Holders with Other Holders...................49 Section 10.4 Certificate and Opinion as to Conditions Precedent.............49 Section 10.5 Statements Required in Certificate or Opinion..................50 Section 10.6 Rules by Trustee, Paying Agent, Registrar......................51 Section 10.7 Holidays.......................................................51 Section 10.8 Governing Law; Waiver of Jury Trial............................51 Section 10.9 No Adverse Interpretation of Other Agreements..................51 Section 10.10 No Recourse Against Others.....................................51 Section 10.11 Benefits of Indenture and the Securities Restricted ....................................................52 Section 10.12 Successors and Assigns.........................................52 Section 10.13 Counterpart Originals..........................................52 Section 10.14 Severability...................................................52 Section 10.15 Rating Agencies................................................52 Section 10.16 Effect of Headings.............................................53 APPENDIX I Definitions Appendix APPENDIX II Rule 144A/Regulation S Appendix (including forms of 11 3/8% Senior Note as Exhibits 1 and 2 thereto) EXHIBIT A Form of Subsidiary Guaranty INDENTURE dated as of March 3, 1998 between TRANS WORLD AIRLINES, INC., a Delaware corporation (the "Company"), and FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, as Trustee (the "Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Company's 11 3/8% Senior Notes due 2006 (the "Initial Securities") and, if and when issued pursuant to a registered exchange for Initial Securities, the Company's 11 3/8% Senior Notes due 2006 (the "Exchange Securities", and, if and when issued pursuant to a private exchange for Initial Securities, the Company's 11 3/8% Senior Notes due 2006 (the "Private Exchange Securities", together with the Exchange Securities and the Initial Securities, the "Securities"). ARTICLE 1. DEFINITIONS AND RULES OF CONSTRUCTION Section 1.1 Definitions. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in Section 1 of the Definitions Appendix attached hereto as Appendix I, which shall be a part of this Indenture as if fully set forth in this place. Section 1.2 Rules of Construction. The rules of construction for this Indenture are set forth in Section 2 of the Definitions Appendix. ARTICLE 2. THE SECURITIES Section 2.1 Designation, Form and Dating. Provisions relating to the Initial Securities, the Private Exchange Securities and the Exchange Securities are set forth in the Rule 144A/Regulation S Appendix attached hereto as Appendix II (the "Rule 144A Appendix") which is hereby incorporated in and expressly made part of this Indenture. The Initial Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit 1 to the Rule 144A Appendix (with such appropriate insertions, omissions, substitutions and other variations as are required by this Indenture) and are hereby incorporated in and expressly made a part of this Indenture. The Exchange Securities, the Private Exchange Securities, and the Trustee's certificates of authentication shall be substantially in the form of Exhibit 2 to the Rule 144A Appendix (with such appropriate insertions, omissions, substitutions and other variations as are required by this Indenture) and are hereby incorporated in and expressly made a part of this Indenture. The 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 Person in whose name any Security is registered at the close of business on any Record Date with respect to any Interest Payment Date shall be entitled to receive the interest and Special Interest, if any, payable on such Interest Payment Date to the extent provided by such Security, except if and to the extent the Company shall default in the payment of the interest or Special Interest due on such Interest Payment Date, in which case defaulted interest or Special Interest, as the case may be, shall be paid to the Person in whose name the Outstanding Security is registered at the close of business on the subsequent record date (which shall be not less than five (5) Business Days prior to the date of payment of such defaulted interest) established by notice given by mail by or on behalf of the Company to the Holders of Securities not less than fifteen (15) days preceding such subsequent record date (a "Special Record Date"). Section 2.2 Execution, Amount, Authentication and Delivery. The Securities shall be signed for the Company by the manual or facsimile signatures of an Officer and a Certifying Officer. The Company's seal shall be affixed to or reproduced on the Securities. Typographical or other errors or defects in any such reproduction of the seal or any such signature shall not affect the validity or enforceability of any Security which has been duly authenticated and delivered by the Trustee. If an officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to $150,000,000 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, 4.14, or 9.5 or in conjunction with a Registered Exchange Offer or any Private Exchange (as such terms are defined in the Rule 144A Appendix). The Securities shall be known and designated as the "11 3/8% Senior Notes due 2006" of the Company. Their Stated Maturity shall be March 1, 2006, and they shall bear interest at the rate of 11 3/8% per annum, from March 3, 1998 or from the most recent Interest Payment Date to which interest and Special Interest, if any, have been paid or duly provided for, as the case may be, payable semi-annually in arrears on March 1 and September 1, commencing September 1, 1998, until the principal thereof is paid or made available for payment. Subject to the limits set forth in the second preceding paragraph of this Indenture, the Trustee shall authenticate Securities for original issue upon written order of the Company signed by an Officer and by a Certifying Officer of the Company. The order shall specify the amount of Securities to be authenticated and the date on which the original issue of Securities is to be authenticated, shall provide instructions with respect to the delivery thereof and shall be accompanied by the documents specified in Section 10.4 and by the following (provided, however, that the Trustee is authorized conclusively to rely upon the documents specified in Section 10.4): (a) an Officers' Certificate confirming all representations and warranties of the Company contained in this Indenture as of the date of authentication; (b) 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 this 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, and constitute valid and binding obligations of the Company, enforceable in accordance with their terms; 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 this 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; (c) 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 this 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 (d) execution and delivery by the Company of the Securities and by all parties thereto of this Indenture; 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 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 Section 10.4 or above in this sentence; The Securities shall be issuable only in registered form, without coupons, in denominations of $1,000 and any integral multiple thereof, except that the Global Securities may be issued in a different denomination. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. An authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company, any guarantor or any Affiliate of the Company. Section 2.3 Registrar and Paying Agent. The Company shall maintain an office or agency where Securities eligible for transfer or exchange may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Securities may be presented for payment or repurchase ("Paying Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange ("Register"). Such Register shall be in written form in the English language or any other form capable of being converted into such form within a reasonable time. At all reasonable times such Register shall be open for inspection by the Trustee. The Company may have one or more co-Registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Company may enter into an appropriate agency agreement with any Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such. The Company initially appoints the Trustee as Registrar and Paying Agent. Section 2.4 Paying Agent to Hold Payments In Trust. Each Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all Payments held by the Paying Agent for the payment of principal of, repurchase or redemption price, if any, of, interest on, and Special Interest, if any, with respect to, the Securities (whether such Payment has been paid to it by the Company or any other obligor on the Securities), and shall notify the Trustee of any default by the Company (or any other obligor on the Securities) in making any such Payment. The Company at any time may require a Paying Agent to Pay all Payments held by it to the Trustee and account for any funds disbursed and the Trustee may at any time during the continuance of any payment default, upon written request to a Paying Agent, require such Paying Agent to Pay all Payments held by it to the Trustee and to account for any Payments distributed. Upon doing so the Paying Agent shall have no further liability for the Payments. If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of, repurchase or redemption price, if any, of, interest on, or Special Interest, if any, with respect to, any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto Payments sufficient to pay the principal, repurchase or redemption price, if any, of, interest or Special Interest, if any, so becoming due until such Payments shall be Paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of such action or any failure so to act. The Company will, on or before each due date for the payment of the principal of, repurchase or redemption price, if any, of, interest on, or Special Interest, if any, with respect to any of the Securities, deposit with a Paying Agent Payments (in same day funds) sufficient to pay the principal, repurchase or redemption price, if any, of, interest or Special Interest, if any, so becoming due, such Payments to be held in trust for the benefit of the Persons entitled to such principal, repurchase or redemption price, if any, of, interest, or Special Interest, if any, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of such action or any failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (a) hold all Payments received by it as such agent for the payment of the principal of, repurchase or redemption price, if any, of, interest on, or Special Interest, if any, with respect to the Securities (whether such Payments have been paid to it by the Company or by any other obligor on the Securities) in trust for the benefit of the Persons entitled thereto until such Payments shall be paid to such Persons or otherwise disposed of as herein provided; (b) promptly give the Trustee notice of any failure by the Company (or any other obligor upon the Securities) to make any payment of the principal of, repurchase or redemption price, if any, of, interest on, or Special Interest, if any, with respect to, the Securities when the same shall be due and payable; and (c) at any time during the continuance of any such failure, upon the written request of the Trustee, forthwith pay to the Trustee all Payments so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, Pay, or direct any Paying Agent to Pay, to the Trustee all Payments held in trust by the Company or such Paying Agent, such Payments to be held by the Trustee upon the same trusts as those upon which such Payments were held by the Company or such Paying Agent; and, upon such Payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such Payments held by it as Paying Agent. Any Payments deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, redemption or repurchase price, if any, of, interest on or Special Interest, if any, with respect to, any Security and unclaimed for two (2) years after such principal, redemption, repurchase price, interest or Special Interest 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 Payment Date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders. Section 2.6 Transfer and Exchange. When Securities are presented to the Registrar or a co- Registrar with a request to register the transfer or to exchange them for an equal principal amount of Securities of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements, for such transactions are met. To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's request. All Securities presented for registration of transfer, exchange, redemption or payment shall (if so required by the Company or the Trustee) be duly endorsed by, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Company and the Trustee, duly executed by the Holder or his attorney duly authorized in writing. The Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with any registration of transfer or exchange, but not for any exchange pursuant to Sections 2.9, 3.7, 4.14 or 9.5 or any other Tender not involving any transfer of Securities (other than to the Company). No service charge shall be made for any such transaction. In the case of any Security which is Tendered in part only, upon such Tender the Company shall execute and the Trustee shall authenticate and make available for delivery to the Holder thereof, without service charge, a new Security or Securities of any authorized denomination as requested by such Holder in aggregate principal amount equal to the non-Tendered portion of the principal of such Security. No Securities will be issued in denominations of less than $1,000 upon tender of the Securities. All Securities issued upon any transfer or exchange of Securities shall be valid obligations of the Company, evidencing the same debt of the same series and entitled to the same benefits under this Indenture, as the Securities surrendered upon such transfer or exchange. Section 2.7 Mutilated, Defaced, Destroyed, Lost and Stolen Securities. In case any temporary or definitive Security shall become mutilated, defaced or be apparently destroyed, lost or stolen, subject to compliance with the following sentence and in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute, and the Trustee shall authenticate and deliver, a new Security, bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated or defaced Security, or in lieu of and substitution for the Security so apparently destroyed, lost or stolen. In every case the applicant for a substitute Security shall furnish to the Company and to the Trustee and any agent of the Company or the Trustee such security or indemnity as may be required by them to indemnify and defend and to save each of them harmless and, in every case of destruction, loss or theft, evidence to their satisfaction of the apparent destruction, loss or theft of such Security and of the ownership thereof. Upon the issuance of any substitute Security pursuant to the preceding paragraph, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. In case any Security which has matured or is about to mature, or has been tendered for repurchase pursuant to any of the provisions hereof (as evidenced by an irrevocable written notice from the Holder to the Company and the Trustee), shall become mutilated or defaced or be apparently destroyed, lost or stolen, the Company may, instead of issuing a substitute Security, pay or authorize the payment of such Security (without surrender of such Security except in the case of a mutilated or defaced Security), as applicable, if the applicant for such payment shall furnish to the Company and to the Trustee and any agent of the Company or the Trustee such security or indemnity as any of them may require to save each of them harmless from all risks, however remote, and, in every case of apparent destruction, loss or theft, the applicant shall also furnish to the Company and the Trustee and any agent of the Company or the Trustee evidence to their satisfaction of the apparent destruction, loss or theft of such Security and of the ownership thereof. Every substitute Security issued pursuant to the provisions of this Section by virtue of the fact that any Security is apparently destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the apparently destroyed, lost or stolen Security shall be at any time enforceable by anyone and shall be entitled to all the benefits of (but shall also be subject to all the limitations of rights set forth in) this Indenture equally and proportionately with any and all other Securities duly authenticated and delivered hereunder. Every substitute Security issued pursuant to the provisions of this Section by virtue of the fact that any Security is mutilated or defaced shall constitute an additional contractual obligation of the Company and shall be entitled to all the benefits of (but shall also be subject to all the limitations of rights set forth in) this Indenture equally and proportionately with any and all other Securities of the same series duly authenticated and delivered hereunder. All Securities shall be held and owned upon the express condition that, to the extent permitted by law, the foregoing provisions are exclusive with respect to the replacement or payment of mutilated or defaced or 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, Securities owned by the Company (including Securities Tendered), an Affiliate of the Company, any other obligor upon the Securities, any Affiliate of such obligor upon the Securities or any Person who has given or concurred in any such amendment, request, demand, authorization, direction, notice, consent or waiver under the direction of, by agreement with, or as a condition or in consideration of any exchange offer by or transfer of such Person's Securities to the Company, an Affiliate of the Company, any other obligor, any Affiliate of such obligor or any such Person, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination, except that, for the purposes of determining whether the Trustee shall be protected in relying on any such amendment, request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows are so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee that neither the Company nor any such other obligor, Affiliate or Person is affiliated with the pledgee or any Affiliate of the pledgee and that the pledgee has the present right (subject to no contrary obligation or understanding) so to act with respect to the Securities on the basis of its best interests as a Holder independently of any direction by or interest of the Company. In case of a dispute as to such right, the Trustee in good faith shall be entitled to rely upon the advice of counsel, including counsel for the Company. Upon request of the Trustee, the Company shall promptly furnish to the Trustee a certificate of a Certifying Officer listing and identifying all Securities, if any, known by the Company to be owned or held by or for the account of any of the above-described Persons; and subject to Sections 7.1 and 7.2 herein, the Trustee shall be entitled to accept such certificate as conclusive evidence of the facts therein set forth and of the fact that all Securities not listed therein are Outstanding for the purpose of any such determination. The Company shall not, directly or indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any additional security, to any Holder of Securities as consideration for or as an inducement to giving or concurring in any amendment, request, demand, authorization, direction, notice, consent or waiver under this Indenture 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). For purposes of this Section and without limiting the generality of the foregoing, Securities which are subject to a binding contract or irrevocable tender offer (including an offer which is in any way conditioned upon or simultaneous with, or requires as a condition precedent (whether by contract or otherwise) or which cannot be effected without, the agreement or consent of the transferor to any amendment, request, demand, authorization, direction, notice, consent or waiver hereunder) pursuant to which ownership (direct or indirect) is to be transferred (including for example, Securities tendered to the Company or any other Person in an exchange transaction) shall be deemed owned by such transferee, and therefore, any such simultaneous agreement or consent by the transferor shall be invalid. Section 2.9 Temporary Securities. Until definitive Securities are ready for delivery, the Company may prepare, and, upon written order of the Company, the Trustee shall authenticate, temporary Securities in any authorized denominations. Temporary Securities shall be substantially in the form of definitive Securities of the same series but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate and deliver definitive Securities in exchange for temporary Securities. Until so exchanged, the temporary Securities shall be entitled to the same benefits under this Indenture as definitive Securities of the same series. Section 2.10 Cancellation. The Company may at any time deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for transfer, exchange (including without limitation, Initial Securities exchanged for Exchange Securities, Private Exchange Securities or both), repurchase or payment. All Securities purchased pursuant to any Offer to Purchase shall be canceled. The Trustee and no one else shall cancel all Securities surrendered for transfer, exchange, repurchase or cancellation. The Company may not issue new Securities to replace Securities it has paid (upon Tender or otherwise) or which have been delivered to the Trustee for cancellation. The Trustee shall destroy all canceled Securities and, if requested, deliver a certificate of such destruction to the Company. If the Company shall acquire any of the Securities, such acquisition shall not operate as a satisfaction of the indebtedness represented by such Securities unless and until the same are delivered to the Trustee for cancellation. Section 2.11 Defaulted Interest; Interest on Defaulted Principal. If the Company defaults in a payment of interest on, or Special Interest, if any, with respect to, the Securities, it shall pay the defaulted interest, plus interest on the defaulted interest or Special Interest, as the case may be, at the rate then borne on the Securities to the extent permitted by law and the terms thereof, to the persons who are Securityholders on a subsequent Special Record Date. The Company shall fix the Special Record Date and payment date. At least fifteen (15) days before the Special Record Date, the Company shall mail to each Securityholder a notice that states the Special Record Date, the payment date and the amount of defaulted interest or Special Interest, as the case may be, to be paid. If the Company defaults in the payment of principal on the Securities (whether on acceleration, at maturity, upon tender for repurchase, or otherwise), it shall pay interest on such defaulted principal at the rate then borne by the Securities to the Trustee upon demand. The Trustee shall apply any such payment in accordance with the provisions of Section 6.10. Section 2.12 CUSIP Numbers. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. ARTICLE 3 REDEMPTIONS AND CERTAIN REPURCHASES Section 3.1 Optional Redemption-General Except as set forth in Sections 3.8 and 5.3, the Securities Outstanding shall not be subject to redemption in whole or in part at the option of the Company prior to March 1, 2002. On or after March 1, 2002, the Securities may be redeemed at any time in whole or in part (in any integral multiple of $1,000) by the Company at its sole option at redemption prices (expressed as a percentage of principal amount) as set forth below during the twelve month periods beginning March 1 of the years shown below, plus in each case an amount equal to accrued and unpaid interest and Special Interest, if any, with respect to, the Securities to and including the redemption date: Redemption Year Price ---- 2002 105.688% 2003 102.844% 2004 and thereafter 100.000% Section 3.2 Redemption Notice to Trustee. If the Company elects to redeem Securities as provided in Section 3.1, 3.8 or 5.3, it shall notify the Trustee of the redemption date, the principal amount of Securities and all other information needed for the notice to be given by the Trustee pursuant to Section 3.4. The Company shall give the notice provided for in this Section at least ten (10) days (unless a shorter notice shall be satisfactory to the Trustee) prior to the date the Trustee must give notice pursuant to Section 3.4. Section 3.3 Selection of Securities to be Redeemed. If less than all the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed on either a pro rata basis or by lot. The Trustee shall make the selection from Securities outstanding not previously called for redemption. The Trustee may select for redemption portions of the principal of Securities that have denominations larger than $1,000. Securities and portions of them it selects shall be in amounts of $1,000 or whole multiples of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. Section 3.4 Notice of Redemption. At least 30 days but not more than 60 days before a redemption date, the Company shall mail by first-class mail a notice of redemption to each Holder whose Securities are to be redeemed. The notice shall identify the Securities and the principal amount thereof to be redeemed and shall state: (a) the principal amount of each Security held by each such Holder to be redeemed; (b) the redemption date; (c) the redemption price (including the amount of accrued and unpaid interest, Special Interest and Applicable Premium, if any, to be paid on the Securities called for redemption); (d) if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the redemption date, upon surrender of such Security, a new Security or Securities in principal amount equal to the unredeemed portion will be issued; (e) the name and address of the Paying Agent; (f) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; and (g) that, unless the Company defaults in making the redemption payment, interest on the Securities to be redeemed ceases to accrue on and after the redemption date and the only remaining right of the Holders of such Securities is to receive payment of the redemption price upon surrender to the Paying Agent of the Securities. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. Section 3.5 Effect of Notice of Redemption. Once a notice of redemption is mailed, Securities called for redemption become due and payable on the redemption date at the redemption price and, on and after such date (unless the Company shall default in the payment of the redemption price), such Securities shall cease to bear interest. Upon surrender to the Paying Agent, such Securities shall be paid at the redemption price plus accrued interest, Special Interest and Applicable Premium, if any, to the redemption date. Section 3.6 Deposit of Redemption Price. On or before 10:00 a.m., Eastern Time, on the redemption date, the Company shall deposit with the Paying Agent money in funds immediately available on the redemption date sufficient to pay the redemption price of and accrued interest on and Special Interest and Applicable Premium, if any, with respect to, all Securities to be redeemed on that date. Section 3.7 Securities Redeemed in Part. Upon surrender of a Security that is redeemed in part, the Trustee shall authenticate for the Holder a new Security equal in principal amount to the unredeemed portion of the Security surrendered. Section 3.8 Optional Redemption Upon Public Equity Offering. The Securities may be redeemed in part by the Company at its sole option if, on or before March 1, 2001, the Company receives Net Cash Proceeds of one or more Public Equity Offerings. The Company may use all or a portion of any such Net Cash Proceeds to redeem up to $52,500,000 aggregate principal amount of the Securities, within 90 days of such Public Equity Offering, at a redemption price (expressed as a percentage of the aggregate principal amount of Securities Outstanding) of 111.375% plus accrued and unpaid interest and Special Interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest and Special Interest, if any, due on the relevant Interest Payment Date); provided, however, that at least $97,500,000 aggregate principal amount of the Securities shall remain Outstanding after each such redemption. Any such redemption shall be subject to the provisions of Sections 3.2 through 3.7, inclusive. ARTICLE 4. COVENANTS, REPRESENTATIONS AND WARRANTIES Section 4.1 Payment of Securities. The Company shall pay the principal of, interest on and Special Interest, if any, with respect to, the Securities on the dates and in the manner provided in this Indenture and in the Securities. The Company shall pay interest semi-annually in arrears on each Interest Payment Date, commencing September 1, 1998. Interest shall be paid on each Interest Payment Date in an amount equal to the interest accrued for the period beginning from the Issue Date, or from the most recent date to which interest and Special Interest, if any, have been paid. All interest and Special Interest, if any, due and payable on the Securities shall be paid in cash, except that the Company may at its option, make such Payments by check mailed to the address of the Person entitled thereto as it appears in the Register. An installment of principal, interest or Special Interest, if any, shall be considered paid on the date due if the Trustee or Paying Agent (other than the Company or any Affiliate thereof) holds on that date Payments designated for and sufficient to pay such installment and the Trustee or Paying Agent has not received instructions from the Company not to make such payment or is not prohibited from Paying such Payments to the Holders of the Securities pursuant to this Indenture. The Company shall pay interest at the rate set forth in the Securities and the Company shall pay interest on unpaid interest or Special Interest, if any, at the same rate to the extent legally permitted. Section 4.2 Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be surrendered for registration of transfer or exchange or for presentation for payment or repurchase and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. At the request of the Company, said office or agency may be the office of an agent appointed by the Trustee for such purpose. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency not designated or appointed by the Trustee. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. Section 4.3 Limitation on Restricted Payments. (a) The Company shall not, and shall not permit any Restricted Subsidiary, directly or indirectly, to make a Restricted Payment if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result therefrom); (2) the Company is not able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of Section 4.16; or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments since the Issue Date (the amount of any such Restricted Payment, if other than cash, as determined in good faith by the Company, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors or a certificate of the chief financial or accounting officer of the Company delivered to the Trustee prior to the making of such Restricted Payment) would exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the fiscal quarter immediately following the fiscal quarter during which the Securities are originally issued to the end of the most recent fiscal quarter for which financial statements are publicly available prior to the date of such Restricted Payment (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the aggregate net proceeds (including 50% of the fair market value of property other than cash (as determined in good faith by the Company, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors or a certificate of the chief financial or accounting officer of the Company delivered to the Trustee prior to the making of such Restricted Payment)) received by the Company or any Restricted Subsidiary from the issuance or sale, subsequent to the Issue Date, of its Capital Stock (other than Disqualified Stock) and Indebtedness of the Company or any Restricted Subsidiary that has been converted into or exchanged for its Capital Stock (other than Disqualified Stock) subsequent to the Issue Date (other than an issuance or sale to a Restricted Subsidiary and other than an issuance or sale to an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees); and (C) an amount equal to the sum of (i) the net reduction in Investments in Unrestricted Subsidiaries resulting from dividends, repayments of loans or advances or other transfers of assets, in each case to the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided, however, that the foregoing sum shall not exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary. (b) The provisions of the foregoing paragraph (a) shall not prohibit: (i) any Restricted Payment made by exchange for, or out of the net proceeds (including 50% of the fair market value of property other than cash (as determined in good faith by the Company, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors or a certificate of the chief financial or accounting officer of the Company delivered to the Trustee prior to the making of such Restricted Payment)) of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company or an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees); provided, however, that (A) such Restricted Payment shall be excluded in the calculation of the amount of Restricted Payments and (B) to the extent used to make such Restricted Payment, the net proceeds from such sale shall be excluded from the calculation of amounts under clause (3)(B) of paragraph (a) above; (ii) any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness of the Company which is permitted to be Incurred pursuant to Section 4.16; provided, however, that such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments; (iii) dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with this Section 4.3; provided, however, that such dividend shall be included in the calculation of the amount of Restricted Payments; (iv) the declaration or payment of dividends on or payment of liquidated damages with respect to (A) any Preferred Stock outstanding on the Issue Date or (B) any Preferred Stock (other than Disqualified Stock) issued after the Issue Date that ranks on parity with or junior to Preferred Stock outstanding on the Issue Date; provided, however, that any dividend referred to in the foregoing clause (A) or, subject to the following proviso, clause (B), shall be included in the calculation of the amount of Restricted Payments and provided further, that the Company may elect to exclude from the calculation of amounts under clause 3(B) of paragraph (a) above any Net Cash Proceeds received by the Company from the issue or sale of Preferred Stock pursuant to the foregoing clause (B) (which election must be made by written notice to the Trustee within ten (10) Business Days of the receipt of such Net Cash Proceeds) and, if such election is made, any dividend, distribution, purchase, redemption, acquisition or retirement on or of the Preferred Stock for which such election is made shall not be a Restricted Payment; (v) (A) the payment of cash in lieu of issuing fractional shares of Capital Stock of the Company in connection with the exercise of options or warrants, the conversion of convertible securities or the redemption of interests in employee stock ownership or benefits plans, (B) the purchase or redemption of its Capital Stock by the Company from employee stock ownership or benefit plans subject to ERISA to the extent required by ERISA, (C) repurchases of its Capital Stock which occur upon the exercise of stock options if such Capital Stock represents a portion of the exercise price of such options, (D) the purchase, redemption, acquisition, cancellation or other retirement for value of shares of Capital Stock of the Company or any Restricted Subsidiary, options on any such shares or related stock appreciation rights or similar securities held by officers or employees or former officers or employees (or their estates or beneficiaries under their estates), upon their death, disability, retirement, termination of employment or pursuant to any agreement under which such shares of stock or related rights were issued; provided that the aggregate cash consideration paid pursuant to this clause (D) for such purchase, redemption, acquisition, cancellation or other retirement of such shares of Capital Stock or related rights after the Issue Date does not exceed an aggregate amount of $10,000,000; provided further that the amount of any payment, purchase, redemption, repurchase, acquisition, cancellation or other retirement paid pursuant to this clause (D) shall be included in the amount of Restricted Payments; (vi) any purchase or redemption of Capital Stock of the Company resulting from the consolidation or merger with or into any Person or conveyance, transfer or lease of all or substantially all of the Company's or any Restricted Subsidiary's property to one or more Persons substantially as an entirety not prohibited by Section 5.1 (other than any consolidation, merger or other transactions involving only the Company and a Restricted Subsidiary of the Company or involving only Restricted Subsidiaries of the Company); provided that the amount of such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; or (vii) the exchange of Preferred Stock (other than Disqualified Capital Stock) for Indebtedness of the Company permitted to be incurred under Section 4.16; provided that the liquidation value of the Preferred Stock exchanged shall be included in the calculation of the amount of Restricted Payments but only to the extent of the Net Cash Proceeds of such Preferred Stock received after the Issue Date. Section 4.4 Corporate Existence. (a) Except as otherwise provided in Article 5, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate existence of each Restricted Subsidiary and the corporate existence of each other Subsidiary of the Company engaged in substantial business activity each in accordance with the respective organizational documents of the Company and each such Subsidiary and the rights (charter and statutory), licenses, permits, approvals and governmental franchises of the Company and each such Subsidiary necessary to the conduct of its respective business; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or (other than with respect to the Restricted Subsidiaries) to preserve the corporate existence of any such Subsidiary, if the Board of Directors shall determine that the preservation thereof is no longer in the interest of the Company and that termination of the corporate existence is not disadvantageous to the Holders in any material respect. (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, 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 of its Subsidiaries 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 and (b) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon the 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 this Indenture, to the extent applicable, and for which adequate reserves have been established in accordance with GAAP, as in effect from time to time, or (ii) if the Company delivers to the Trustee a Certificate of an Officer stating that such non-payment and non-discharge is in the interest of the Company and not prejudicial in any material respect to the Holders. Nothing contained herein or in the Securities shall be deemed to impose on the Trustee or on the Company any obligation to pay on behalf of the Holder of any Securities any tax, assessment or governmental charge required by any present or future law of the U.S. or of any state, county, municipality or other taxing authority thereof to be paid on behalf of, or withheld from the amount payable to, the Holder of any Securities; rather any tax, assessment or governmental charge shall, to the extent required by law, be withheld from the amounts provided for herein. Section 4.6 Notices. The Company shall notify the Trustee in writing of any of the following promptly (and in any event within five (5) Business Days after an Officer learns of the occurrence thereof) describing the same and, if applicable, the steps being taken by the Person(s) affected with respect thereto: (a) In the event that any Indebtedness of the Company or any Significant Subsidiary of the Company in a principal amount in excess of $15,000,000 (i) is declared due and payable before its stated maturity because of the occurrence of any default (or any event which, with notice or the lapse of time, or both, shall constitute such default) under such Indebtedness or (ii) is not paid at its stated maturity; or (b) Any litigation, arbitration proceeding or governmental proceeding involving damages or potential liability in excess of $15,000,000 is instituted against the Company or any of its Subsidiaries which, if adversely determined, would have a material adverse effect on the business, operations or financial condition of the Company and its Subsidiaries taken as a whole. Section 4.7 Maintenance of Properties and Insurance. Except as otherwise provided in this Indenture, the Company shall, and shall cause each of its Subsidiaries to, cause all Properties owned by or leased to it and used or useful in the conduct of the business of the Company or any such Subsidiary, as the case may be, to be maintained and kept in good repair, working order and condition, except for reasonable wear and use, and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary, so that the business carried on in connection therewith may be properly and advantageously conducted at all times, except, in every case, as and to the extent that the Company or any such Subsidiary may be prevented by fire, strikes, lockouts, acts of God, inability to obtain labor or materials, governmental restrictions, enemy action, civil commotion or unavoidable casualty or similar causes beyond the control of the Company or such Subsidiary; provided, however, that nothing in this Section 4.7 shall prevent the Company or any such Subsidiary from discontinuing the use, operation or maintenance of any such Properties, or disposing of any of them, if such Property or Properties are, in the good faith judgment of an Officer of the Company (or other agent employed by the Company) having managerial responsibility for any such Property (or, in the case of any materially important item, with respect to operations or value, in the good faith judgment of the Company as expressed in a resolution of the Board of Directors), no longer necessary or useful in the conduct of the Company's business or that of its Subsidiaries. For so long as any Property is deemed to be useful to the conduct of the business of the Company or its Subsidiaries, the Company shall, or shall cause such Subsidiaries to, maintain appropriate insurance, in accordance with industry practice, on such Properties. Section 4.8 Default Notices and Compliance Certificates. Contemporaneously with furnishing reports to the Trustee pursuant to Section 4.9, the Company shall furnish to the Trustee a Certifying Officer's Certificate to the effect that such officer has conducted or supervised a review of the activities of the Company and of performance under this Indenture and that, to the knowledge of such officer, based on such review, the Company has fulfilled all of its obligations under this Indenture or, if there has been a Default, specifying each Default known to him, its nature and status. The Company shall deliver to the Trustee within one hundred twenty (120) days after the end of each fiscal year in which any of the Securities remain Outstanding a certificate of the principal executive officer, principal financial officer or principal accounting officer of the Company (which need not comply with the provisions of Section 10.5) stating whether or not, to the knowledge of the signer, the Company is in compliance with all conditions and covenants under this Indenture (determined without regard to any period of grace or requirement of notice), and if the Company is not in compliance with all such conditions and covenants, describing each Default or Event of Default and its status. The first certificate to be delivered by the Company pursuant to this Section 4.8 shall be for the fiscal year ending December 31, 1998. Section 4.9 SEC Reports. (a) The Company shall file with the Trustee and provide, or cause the Trustee to provide, Holders of Securities, within 30 days after it files with, or furnishes to, the SEC, copies of its annual report and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act or is required to furnish to the SEC pursuant to Section 4.9(b). The Company shall also comply with the other provisions of TIA Section 314(a). (b) Notwithstanding that the Company may not be required to remain subject to the reporting requirements of Section 13 or l5(d) of the Exchange Act or otherwise report on an annual and quarterly basis on forms provided for such annual and quarterly reporting pursuant to rules and regulations promulgated by the SEC, the Company shall continue to file with, or furnish to, the SEC (i) within 90 days after the end of each fiscal year (or such shorter period as the SEC may in the future prescribe), annual reports on Form 10-K (or any successor form) containing the information required to be contained therein (or required in such successor form), including annual financial statements audited by an internationally recognized independent public accountant with respect to such year and prepared in accordance with GAAP and all applicable exhibits, (ii) within 45 days after the end of each of the first three fiscal quarters of each fiscal year (or such shorter period as the SEC may in the future prescribe), reports on Form 10-Q (or any successor form) containing substantially the same information required to be contained therein prepared in accordance with GAAP and (iii) promptly from time to time after the occurrence of an event required to be therein reported, such other reports on Form 8-K (or any successor form) containing substantially the same information required to be contained therein. Section 4.10 Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of, interest on, or Special Interest, if any, with respect to, the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (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, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 4.11 Amendment to Indenture. The Company shall not enter into or consent to any amendment, supplement or other modification of this Indenture except as permitted under Article 9 hereof. Section 4.12 Limitation on Liens. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, Incur or suffer to exist any Lien of any nature whatsoever upon or with respect to any of its Properties (including Capital Stock of a Restricted Subsidiary), whether owned at the Issue Date or thereafter acquired, other than Permitted Liens, without effectively providing that the Securities shall be secured equally and ratably with (or prior to) the obligations so secured for so long as such obligations are so secured. Section 4.13 Books, Records, Access; Confidentiality. (a) The Company shall, and shall cause each of its Subsidiaries to, (i) maintain complete and accurate books and records in which full and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its respective business and activities and (ii) permit authorized representatives of the Trustee to visit and inspect the Properties of the Company or its Subsidiaries, and any or all such books and records in the possession of the Company, and to make copies and take extracts therefrom all upon reasonable notice and at such reasonable times during normal business hours and as often as may be reasonably requested. (b) The Trustee and its 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 except as otherwise required for such purpose to keep confidential and not to disclose any such information to any person except that (i) the recipient of the information may disclose any information which becomes publicly available other than as a result of disclosure by such recipient, (ii) the recipient of the information may disclose any information which its counsel reasonably concludes is necessary to be disclosed by law, pursuant to any court or administrative order or ruling or in any pending legal or administrative proceeding or investigation after notice to the Company adequate, subject to applicable laws, to allow the Company to obtain a protective order or other appropriate remedy, provided that the recipient of the information will (if not otherwise required in order to discharge its duties as aforesaid) cooperate with the Company's efforts to obtain a protective order or other reliable assurance that confidential treatment will be accorded any such information required to be so disclosed, and (iii) the recipient of the information may disclose any information necessary to be disclosed pursuant to any provision of the TIA. Section 4.14 Repurchase of Securities Upon a Change in Control. (a) In the event that there shall occur a Change in Control, the Company shall make an Offer to Purchase all of the Outstanding Securities, at a purchase price equal to 101% of the aggregate principal amount of the Securities Outstanding, plus accrued and unpaid interest and Special Interest, if any, to and including the repurchase date. The right to require such repurchase of Securities shall not continue after a discharge of the Company from its obligations with respect to the Securities in accordance with Article 8. (b) The Company shall commence such Offer to Purchase within thirty (30) days after the occurrence of a Change in Control. Section 4.15 Restrictions on Becoming an Investment Company. The Company shall not become an investment company within the meaning of the Investment Company Act of 1940 as such statute and the regulations thereunder and any successor statute or regulations thereto may from time to time be in effect. Section 4.16 Limitation on Indebtedness. (a) Neither the Company nor the Restricted Subsidiaries shall Incur, directly or indirectly, any Indebtedness; provided, however, that the Company may Incur Indebtedness so long as, on the date of such Incurrence and after giving effect thereto, the Consolidated Coverage Ratio exceeds (i) 2.00 to 1 for Indebtedness Incurred on or prior to December 31, 1999, (ii) 2.25 to 1 for Indebtedness Incurred after December 31, 1999 and on or prior to December 31, 2001 and (iii) 2.50 to 1 for Indebtedness Incurred after December 31, 2001. (b) Notwithstanding the foregoing paragraph (a), the Company and the Restricted Subsidiaries may Incur any or all of the following Indebtedness: (1) Indebtedness of the Company Incurred subsequent to the Issue Date; provided, however, that (A) after giving effect to any such Incurrence, the aggregate principal amount of such Indebtedness then outstanding does not exceed $400,000,000, (B) the Stated Maturity of any such Indebtedness is at least one year after the Stated Maturity of the Securities, (C) the Average Life of any such Indebtedness at the time that it is Incurred is not less than the Average Life of the Securities at such time and (D) except for Liens permitted by clause (p) of the definition of Permitted Liens, such Indebtedness is not secured by a Lien on any asset of the Company or its Restricted Subsidiaries; (2) Aircraft Acquisition Debt; (3) Indebtedness of the Company owed to and held by a Restricted Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by the Company or a Restricted Subsidiary; provided, however, that any subsequent issuance or transfer of any Capital Stock which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or another Restricted Subsidiary) shall be deemed in each case, to constitute the Incurrence of such Indebtedness by the Company; (4) the Securities and the Exchange Securities; (5) Indebtedness Incurred to finance the cost (including the cost of design, development, acquisition, construction, installation, improvement, transportation or integration) of plant, property and equipment used or to be used in the airline business or any other business that is substantially related, ancillary or complementary thereto (including any Capital Lease Obligation and the cost of the Capital Stock of a Person that becomes a Restricted Subsidiary to the extent of the fair market value of the plant, property and equipment of such Person at the time it becomes a Restricted Subsidiary) to be acquired by the Company or a Restricted Subsidiary after the Issue Date; provided that such Indebtedness is incurred within 270 days after such plant, property and equipment has been placed into service; and provided further that (A) the principal amount of such Indebtedness does not exceed 80% of the cost of such plant, property or equipment financed thereby and (B) the aggregate principal amount of all Indebtedness Incurred pursuant to the provisions described under this clause (5) shall not exceed $70,000,000 at any time outstanding; and provided further that the limitations described in clauses (A) and (B) of the immediately preceding proviso shall not apply to Indebtedness Incurred to finance the cost of (i) airport facilities, reservations centers or maintenance facilities or (ii) information technology systems, including all related hardware and software; (6) Indebtedness outstanding on the Issue Date (other than Indebtedness described in clause (1), (2), (3), (4) or (5) of this Section 4.16); (7) Indebtedness of the Company not to exceed, at any time outstanding, 2.0 times the Net Cash Proceeds received by the Company after the Issue Date from the issuance and sale of its Capital Stock (other than Disqualified Stock) to a Person that is not a Subsidiary of the Company, to the extent such Net Cash Proceeds are not included in the calculation of amounts under clause (3)(B) of Section 4.3(a) or used to make a Restricted Payment pursuant to clause (i) of Section 4.3(b); provided that such Indebtedness (A) is Incurred within 180 days following receipt of such Net Cash Proceeds and (B) does not have a Stated Maturity that is prior to the first anniversary of the Stated Maturity of the Securities and has an Average Life longer than the Securities at the time of Incurrence of such Indebtedness; (8) Acquired Indebtedness; provided that prior to the Incurrence thereof the Company shall have (i) made an Offer to Purchase all of the Outstanding Securities at a purchase price equal to 100% of the principal amount thereof, plus the Applicable Premium as of, and accrued and unpaid interest and Special Interest, if any, to, the Payment Date, and (ii) such Payment Date shall have occurred and money sufficient to pay the purchase price of all Securities or portions thereof tendered for purchase pursuant to such Offer to Purchase shall have been deposited with the Trustee. Any such Offer to Purchase shall contain information concerning the business of the Company which the Company in good faith believes will enable the Holders of the Securities to make an informed decision with respect to such Offer to Purchase and will include (A) the most recent annual and quarterly financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the documents required to be filed with the Trustee pursuant to Section 4.9 (which requirements may be satisfied by delivery of such documents together with the Offer to Purchase), (B) a description of material developments, if any, in the Company's business subsequent to the date of the latest of such financial statements referred to in clause (A) (including a description of the events requiring the Company to make such Offer to Purchase), (C) if applicable, appropriate pro forma financial information concerning such Offer to Purchase and the events requiring the Company to make the Offer to Purchase and (D) any other information required by applicable law to be included therein. (9) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause (1), (2), (3), (4), (5), (6), (7), (8) above or this clause (9); (10) Indebtedness (A) in respect of performance, surety, appeal or similar bonds provided in the ordinary course of business, and (B) arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of the Restricted Subsidiaries pursuant to such agreements, in any case Incurred in connection with the disposition of any business, assets of the Company or any of the Restricted Subsidiaries, including all or any interest in any Restricted Subsidiary, and not exceeding the gross proceeds therefrom, other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary or any of the Restricted Subsidiaries for the purpose of financing such acquisition; (11) Hedging Obligations consisting of Interest Rate Agreements, Fuel Protection Agreements or Currency Agreements; (12) Indebtedness Incurred in satisfaction of payment obligations arising out of collective bargaining agreements with labor unions representing employees of the Company or its Restricted Subsidiaries; (13) Indebtedness arising from aircraft lessor financing of improvements to or maintenance of aircraft, engines or related parts and equipment leased by the Company or its Restricted Subsidiaries; (14) Indebtedness Incurred in satisfaction of "return condition" obligations of the Company or its Restricted Subsidiaries under aircraft leases in an aggregate principal amount not to exceed $25,000,000 at any time outstanding; (15) Indebtedness under working capital and/or Receivables financing facilities in an aggregate principal amount not to exceed $150,000,000 at any time outstanding and Guarantees thereof by Restricted Subsidiaries not prohibited under Section 4.21; provided that such Indebtedness is not secured by a Lien on any assets of the Company or its Restricted Subsidiaries other than Receivables and Capital Stock of special purpose Subsidiaries of the Company formed to effect a Receivables- based financing; (16) Indebtedness issued in satisfaction of trade payables arising in the ordinary course of business; provided that (A) the principal amount of such Indebtedness does not exceed the amount of such trade payables (including accrued interest or finance charges), (B) the Stated Maturity of such Indebtedness is no more than 180 days after the date of Incurrence thereof and (C) the aggregate principal amount of such Indebtedness does not exceed $50,000,000 at any time outstanding; and (17) Indebtedness of the Company or any Restricted Subsidiary in an aggregate principal amount which, together with all other Indebtedness of the Company and the Restricted Subsidiaries outstanding on the date of such Incurrence (other than Indebtedness permitted by clauses (1) through (16) above or paragraph (a) of this Section 4.16) does not exceed $100,000,000. (c) Notwithstanding the foregoing, neither the Company nor any Restricted Subsidiary shall Incur any Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are used, directly or indirectly, to Refinance any Subordinated Obligations unless such Indebtedness shall be subordinated to the Securities, to at least the same extent as such Subordinated Obligations. (d) For purposes of determining compliance with this Section 4.16, (i) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above, the Company, in its sole discretion, will classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of the above clauses and (ii) an item of Indebtedness may be divided and classified in more than one of the types of Indebtedness described above. Section 4.17 Limitation on Restrictions on Distributions from Restricted Subsidiaries. The Company shall not, and shall not permit any Restricted Subsidiary to create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (a) pay dividends or make any other distributions on its Capital Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company, (b) make any loans or advances to the Company or (c) transfer any of its property or assets to the Company except: (i) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Issue Date; (ii) any encumbrance or restriction with respect to a Restricted Subsidiary or its property or assets pursuant to an agreement relating to any Indebtedness or Preferred Stock Incurred by such Restricted Subsidiary on or prior to the date on which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company (other than Indebtedness or Preferred Stock Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company) and outstanding on such date; (iii) any encumbrance or restriction pursuant to an agreement effecting a Refinancing of Indebtedness or Preferred Stock Incurred pursuant to an agreement referred to in clause (i) or (ii) of this Section 4.17 or this clause (iii) or contained in any amendment to an agreement referred to in clause (i) or (ii) of this Section 4.17 or this clause (iii); provided, however, that the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any such refinancing agreement or amendment are in the aggregate no less favorable to the Securityholders than encumbrances and restrictions with respect to such Restricted Subsidiary contained in such predecessor agreements; (iv) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition; (v) any encumbrances and restrictions existing under or by reason of applicable law or regulation; (vi) any encumbrances and restrictions (A) that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract or similar property or asset, (B) existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by this Indenture or (C) arising or agreed to in the ordinary course of business not relating to any Indebtedness, and that do not (as determined by the Company and certified in a resolution of the Board of Directors or a certificate of the chief financial or chief accounting officer of the Company delivered to the Trustee prior to or promptly following such encumbrance or restriction becoming effective), individually or in the aggregate, (1) detract from the value of property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or any Restricted Subsidiary or (2) materially adversely affect the Company's ability to make principal or interest (including Special Interest, if any) payments on the Securities; (vii) any encumbrance or restriction contained in the terms of any Indebtedness or any agreement pursuant to which such Indebtedness was issued if (A) the encumbrance or restriction applies only in the event of a payment default or default with respect to a financial covenant contained in such Indebtedness or agreement, (B) the encumbrance or restriction is not materially more disadvantageous to the Holders of the Securities than is customary in comparable financings (as determined by the Company and certified in a resolution of the Board of Directors or a certificate of the chief financial or chief accounting officer of the Company delivered to the Trustee prior to or promptly following such encumbrance or restriction becoming effective), and (C) such encumbrance or restriction will not materially adversely affect the Company's ability to make principal or interest (including Special Interest, if any) payments on the Securities (as determined by the Company and certified in a resolution of the Board of Directors or a certificate of the chief financial or chief accounting officer of the Company delivered to the Trustee prior to or promptly following such encumbrance or restriction becoming effective); and (viii) any encumbrance or restriction resulting from any financing transaction involving the sale of Receivables or aircraft and/or related engines, spare parts and equipment to a special purpose Subsidiary of the Company formed to effect such financing and which applies only to such special purpose Subsidiary and its assets. Nothing contained in this Section 4.17 shall prevent the Company or any Restricted Subsidiary from (1) creating, incurring, assuming or suffering to exist any Liens otherwise permitted in Section 4.12 or (2) restricting the sale or other disposition of property or assets of the Company or any of its Restricted Subsidiaries that secure Indebtedness of the Company or any of its Restricted Subsidiaries. Section 4.18 Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Disposition unless the Company or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value (including as to the value of all non-cash consideration), as determined in good faith by the Board of Directors or by the chief financial or accounting officer of the Company, of the shares and assets subject to such Asset Disposition and at least 80% of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or cash equivalents. If the Company or any Restricted Subsidiary engages in an Asset Disposition, the Company may use the Net Available Cash from such Asset Disposition, within one year after the later of such Asset Disposition and the receipt of such Net Available Cash (such later date, the "Trigger Date"), to (i) permanently repay or prepay any then outstanding Senior Indebtedness of the Company or any Restricted Subsidiary or (ii) invest in or acquire (or enter into a legally binding commitment to invest in or acquire) Additional Assets; provided that the transaction subject to any such commitment be consummated within 180 days after the date of such commitment. If any such legally binding commitment to invest in or acquire such Additional Assets is terminated, then the Company may, within 90 days of such termination or the Trigger Date, whichever is later, use such Net Available Cash as provided in clause (i) or (ii) (without giving effect to the parenthetical contained in such clause (ii)) above. The amount of such Net Cash Proceeds not so used as set forth above in this paragraph constitutes "Excess Proceeds." (b) When the aggregate amount of Excess Proceeds exceeds $10,000,000, the Company shall, within 30 days thereof, apply such aggregate Excess Proceeds (1) first, to make an Offer to Purchase Outstanding Securities at 100% of their principal amount plus accrued and unpaid interest and Special Interest, if any, to the Purchase Date and, to the extent required by the terms thereof, any other Indebtedness of the Company that is pari passu with the Securities at a price no greater than 100% of the principal amount thereof plus accrued interest to the date of purchase and (2) second, to the extent of any remaining Excess Proceeds following the completion of the Offer to Purchase, to any other use as determined by the Company which is not otherwise prohibited by this Indenture. Upon the completion of an Offer to Purchase pursuant to this paragraph (b), the amount of Excess Proceeds shall be reset to zero. (c) For purposes of this Section 4.18, the following are deemed to be cash or cash equivalents: (x) the assumption of Indebtedness of the Company or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition and (y) securities received by the Company or any Restricted Subsidiary from the transferee that are promptly converted by the Company or such Restricted Subsidiary into cash. Section 4.19 Limitation on Affiliate Transactions. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or employee compensation arrangements) with any Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof (1) are no less favorable to the Company or such Restricted Subsidiary than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not such an Affiliate and (2) if such Affiliate Transaction involves an amount in excess of $2,000,000 (i) are set forth in writing and (ii) have been approved by a majority of the members of the Board of Directors having no personal stake in such Affiliate Transaction. If such Affiliate Transaction involves an amount in excess of $10,000,000, a fairness opinion must be obtained from an internationally recognized investment banking firm, appraisal firm or auditing firm with respect to the financial terms of such Affiliate Transaction. (b) The provisions of the foregoing paragraph (a) shall not prohibit or apply to (i) any Restricted Payment permitted to be paid pursuant to Section 4.3, (ii) loans or advances to employees in the ordinary course of business and in an amount that does not exceed $1,000,000 in the aggregate outstanding at any one time, (iii) the payment of reasonable fees to directors of the Company and its Restricted Subsidiaries who are not employees of the Company or its Restricted Subsidiaries, (iv) any Affiliate Transaction between the Company and a Restricted Subsidiary or between Restricted Subsidiaries, (v) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors, (vi) the grant of stock options or similar rights to employees and directors of the Company pursuant to plans approved by the Board of Directors and (vii) any Affiliate Transaction entered into pursuant to agreements with labor unions. Section 4.20 Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries. The Company shall not sell or otherwise dispose of any Capital Stock of a Restricted Subsidiary, and shall not permit any such Restricted Subsidiary, direct or indirectly, to issue or sell or otherwise dispose of any of its Capital Stock except (i) to the Company or a Wholly Owned Subsidiary, (ii) the issuance and sale of directors' qualifying shares, (iii) if, immediately after giving effect to any such issuance, sale or other disposition, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any Investment in such Person remaining after giving effect thereto would have been permitted to be made under Section 4.3 if made on the date of such issuance, sale or other disposition, (iv) if such sale or other disposition is of all or any portion of the Capital Stock of a Restricted Subsidiary and the Net Available Cash received from such sale or other disposition are applied in accordance with Section 4.18, or (v) to the extent the ownership by a Person other than the Company or a Wholly Owned Subsidiary is required by applicable law and except that any Restricted Subsidiary may issue or permit to exist (x) Preferred Stock issued to and held by the Company or a Wholly Owned Subsidiary; provided, however, that upon either (A) the transfer or other disposition by the Company or such Wholly Owned Subsidiary of any Preferred Stock so permitted to a Person other than the Company or another Wholly Owned Subsidiary or (B) such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary, the provisions of this clause (x) will no longer be applicable to such Preferred Stock and such Preferred Stock will be deemed to have been issued at the time of such transfer or other disposition or such cessation; and (y) Preferred Stock issued by a Person prior to the time such Person becomes a Restricted Subsidiary (including by way of a merger or consolidation with another Restricted Subsidiary), which Preferred Stock was not issued in anticipation of and was outstanding prior to such transaction; provided, however, that on the date of such acquisition and after giving effect thereto, the Company would have been able to Incur at least $1.00 of additional Indebtedness pursuant to Section 4.16(a). Section 4.21 Limitation on Guarantees by Restricted Subsidiaries. The Company shall not permit any Restricted Subsidiary, directly or indirectly, to Guarantee any Indebtedness of the Company which is pari passu with or subordinate in right of payment to the Securities ("Guaranteed Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes and delivers a Subsidiary Guaranty of payment of the Securities by such Restricted Subsidiary and (ii) such Restricted Subsidiary waives and will not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against the Company or any other Restricted Subsidiary as a result of any payment by such Restricted Subsidiary under its Subsidiary Guaranty; provided that this paragraph shall not be applicable to (1) any Guarantee by any Restricted Subsidiary that existed at the time such Person became a Restricted Subsidiary and was not Incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary or (2) Guarantees of Indebtedness under working capital facilities of the Company in an aggregate principal amount not exceeding $50,000,000 at any time outstanding or, if less, the amount by which $150,000,000 exceeds the aggregate outstanding principal amount of Indebtedness of the Company under clause (15) of paragraph (b) of Section 4.16 which is secured by a Lien. If the Guaranteed Indebtedness is (A) pari passu with the Securities, then the Guarantee of such Guaranteed Indebtedness shall be pari passu with, or subordinated to, the Subsidiary Guaranty or (B) subordinated to the Securities, then the Guarantee of such Guaranteed Indebtedness shall be subordinated to the Subsidiary Guaranty at least to the extent that the Guaranteed Indebtedness is subordinated to the Securities. Notwithstanding the foregoing, any Subsidiary Guaranty by a Restricted Subsidiary may provide by its terms that it shall be automatically and unconditionally released and discharged upon (i) any sale, exchange or transfer, to any Person not an Affiliate of the Company, of all of the Company's and each Restricted Subsidiary's Capital Stock in, or all or substantially all the assets of, such Restricted Subsidiary (which sale, exchange or transfer is not prohibited by this Indenture) or (ii) the release or discharge of the Guarantee which resulted in the creation of such Subsidiary Guaranty, except a release or discharge by, or as a result of, payment under such Guarantee. Section 4.22 Limitation on Sale/Leaseback Transactions. The Company shall not, and shall not permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction with respect to any Property unless (i) the Company or such Restricted Subsidiary would be entitled to (A) Incur Indebtedness in an amount equal to the Attributable Debt with respect to such Sale/Leaseback Transaction pursuant to Section 4.16 and (B) create a Lien on such Property securing such Attributable Debt without equally and ratably securing the Securities pursuant to Section 4.12, or (ii) the Sale/Leaseback Transaction is treated as an Asset Disposition and the Company applies the proceeds of such transaction in compliance with Section 4.18. Section 4.23 Application for Rating. The Company shall, within 180 days after the Issue Date, apply to Moody's Investors Service, Inc. and Standard & Poor's Ratings Group, to obtain a rating for the Securities. Section 4.24 Listing. No later than the earliest to occur of (i) the effectiveness of the initial Exchange Offer Registration Statement and (ii) the effectiveness of the initial Shelf Registration Statement, in either case, filed under (and as defined in) the Registration Rights Agreement, the Company shall cause the Exchange Securities to be listed on the American Stock Exchange, or such other stock exchange or market as the Common Stock of the Company is then principally traded provided, that such Securities meet the minimum requirements for listing on any such exchange or market, and, if applicable, to maintain such listing for so long as any of the Exchange Securities is Outstanding. ARTICLE 5. SUCCESSOR CORPORATION Section 5.1 Covenant Not to Consolidate, Merge, Convey or Transfer Except Under Certain Conditions. The Company shall not consolidate with, or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all of its assets to, any Person unless: (i) The resulting, surviving or transferee Person (the "Successor Company") shall be a Person organized and existing under the laws of the U.S., any state thereof or the District of Columbia and the Successor Company (if not the Company) shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture; (ii) Immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Subsidiary of the Company as a result of such transaction as having been Incurred by such Successor Company or such Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; (iii) Immediately after giving effect to such transaction, the Successor Company would be able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of Section 4.16; (iv) Immediately after giving effect to such transaction, the Successor Company shall have Consolidated Net Worth in an amount that is not less than the Consolidated Net Worth of the Company immediately prior to such transaction; and (v) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that (i) such consolidation, merger or transfer and such supplemental indenture (if any) comply with the terms of this Indenture, (ii) this Indenture and the Securities constitute the valid and legally binding obligations of the Successor Company, and (iii) this Indenture is enforceable against the Successor Company in accordance with its terms. Section 5.2 Successor Person Substituted. The Successor Company shall be the successor to the Company and shall succeed to, and be substituted for, and be bound by and obligated to pay the obligations of, and may exercise every right and power of, the Company under this Indenture, but the predecessor Company in the case of a conveyance, transfer or lease shall not be released from the obligation to pay the principal of, interest on, and Special Interest, if any, with respect to, the Securities. The Successor Company may cause to be signed, and may issue either in its own name or in the name of the Company prior to such succession any or all of the Securities issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and upon the order of the Successor Company, instead of the Company, and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Securities which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication, and any Securities which such Successor Company thereafter shall cause to be signed and delivered to the Trustee for that purpose. All of the Securities so issued shall in all respects have the same legal rank and benefit under this Indenture as though all of such Securities had been issued at the date of the execution hereof. In case of any such consolidation, merger, sale, transfer or conveyance such changes in phraseology and form (but not in substance) may be made in the Securities thereafter to be issued as may be appropriate. Section 5.3 Optional Right of Redemption. The Company shall have the right, without the consent of the Holders, to redeem the Securities in whole, but not in part, at a redemption price equal to 100% of the unpaid principal amount of the Outstanding Securities plus the Applicable Premium as of, and accrued and unpaid interest and Special Interest if any, to, the date of redemption in the event that the Company enters into a binding agreement to consummate any transaction which would be prohibited by Section 5.1. Such redemption date must occur prior to or simultaneously with the consummation of such prohibited transaction. Any such redemption shall be subject to the provisions of Sections 3.2 through 3.7, inclusive. ARTICLE 6. DEFAULT AND REMEDIES Section 6.1 Events of Default. An "Event of Default" occurs if: (a) the Company defaults in the payment of interest on, or Special Interest, if any, with respect to, any Security when the same becomes due and payable and the default continues for thirty (30) days; (b) the Company defaults in the payment of the principal of, or purchase price, if any, with respect to, any Security when the same becomes due and payable at maturity, upon acceleration, redemption, tender for repurchase or otherwise; (c) the Company takes any action prohibited by Section 5.1; (d) the Company fails to comply with any of the covenants contained in Sections 4.3, 4.7, 4.9, 4.12, 4.17, 4.19 through 4.24, inclusive, or (except, in each case, for a failure to Pay the purchase price of Securities in connection with an Offer to Purchase) 4.14, 4.16 or 4.18, and in any such case such default continues for the period and after the notice specified below; (e) any representation or warranty of the Company in this Indenture, or in any certificate of the Company delivered hereunder or under any such document shall prove to have been untrue in any material respect when made, or the Company fails in any material respect to comply with any covenant or agreement (other than as specified in clauses (a) through (d), inclusive, above) contained in the Securities or this Indenture, and in any such case such default continues for the period and after the notice specified below; (f) an event of default shall have occurred and be continuing under any other evidence of Indebtedness of the Company or any Significant Subsidiary of the Company, whether such Indebtedness now exists or is created hereafter, which event of default results in the acceleration of such Indebtedness which, together with any such other Indebtedness so accelerated, aggregates more than $15,000,000; (g) the Company or any Restricted Subsidiary pursuant to or within the meaning of any Bankruptcy Law (as hereinafter defined): (i) commences a voluntary case or proceeding, (ii) consents to the entry of an order for relief against it in an involuntary case or proceeding, (iii) consents to the appointment of a Custodian (as hereinafter defined) of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) generally is unable to pay its debts as the same become due; (h) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company or any Restricted Subsidiary in an involuntary case or proceeding, (ii) appoints a Custodian of the Company or any Restricted Subsidiary for all or substantially all of its properties, or (iii) orders the liquidation of the Company or any Restricted Subsidiary, and in each case the order and decree remains unstayed and in effect for sixty (60) consecutive days; or (i) final, non-appealable judgments for the payment of money which judgments in the aggregate exceed $15,000,000 shall be rendered against the Company or any Restricted Subsidiary by a court of competent jurisdiction and remain undischarged, unstayed and unsatisfied for the period and after the notice specified below. 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), (i) or, with respect to a Restricted Subsidiary that is not a Significant Subsidiary, (g) 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 (e) and (i), or within thirty (30) days with respect to clauses (d) and, with respect to a Restricted Subsidiary that is not a Significant Subsidiary, (g) and (h), 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." 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(g) or (h) with respect to the Company or a Restricted Subsidiary that is a Significant Subsidiary) occurs, and is continuing, the Trustee may, by notice to the Company, or the Holders of at least twenty-five percent (25%) in aggregate principal amount of the Securities Outstanding may, by notice to the Company and the Trustee, and the Trustee shall, upon the request of such Holders, declare all unpaid principal of, premium, if any, accrued interest and Special Interest, if any, to the date of acceleration on the Securities Outstanding (if not then due and payable) to be due and payable and upon any such declaration, the same shall become and be immediately due and payable. If an Event of Default specified in Section 6.1(g) or (h) occurs with respect to the Company or a Restricted Subsidiary that is a Significant Subsidiary, all unpaid principal of, premium, if any, accrued interest on and Special Interest, if any, with respect to, the Securities Outstanding shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholder. Upon payment of such principal amount, interest, and Special Interest, if any, all of the Company's obligations under the Securities and this Indenture, other than obligations under Sections 7.7, 8.5 and 8.6, shall terminate. The Holders of a majority in principal amount of the Securities then Outstanding by notice to the Trustee may rescind an acceleration and its consequences if (a) all existing Events of Default, other than the non-payment as to the Securities of the principal, interest or Special Interest, if any, which has become due solely by such declaration of acceleration, have been cured or waived, (b) to the extent the payment of such interest is permitted by law, interest on overdue installments of interest and on overdue principal which has become due otherwise than by such declaration of acceleration, has been paid, (c) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction, and (d) all payments due to the Trustee and any predecessor Trustee under Section 7.7 have been made. Section 6.3 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of, interest on or Special Interest, if any, with respect to the Securities or to enforce the performance of any provision of the Securities or this Indenture including, without limitation, instituting proceedings and exercising and enforcing, or directing exercise and enforcement of, all rights and remedies of the Trustee under this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. Section 6.4 Waiver of Past Defaults. Subject to Sections 6.7, 9.2 and 9.6, the Holders of a majority in aggregate principal amount of the Securities Outstanding by notice to the Trustee may authorize the Trustee to waive an existing Default or Event of Default and its consequences, except a Default (a) in the payment of principal of, or interest on, or Special Interest with respect to, any Security as specified in clauses (a) and (b) of Section 6.1 or (b) in respect of a covenant or provision hereof which cannot be modified or amended without the consent of the Holder of each Security affected. When a Default or Event of Default is waived, it is cured and ceases, and the Company, the Holders and the Trustee shall be restored to their former positions and rights hereunder respectively; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. Section 6.5 Control by Majority. The Holders of a majority in aggregate principal amount of the Securities Outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee 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. Section 6.6 Limitation on Suits. A Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless: (a) the Holder gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least twenty-five percent (25%) in principal amount of the Securities Outstanding make a written request to the Trustee to pursue the remedy; (c) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within sixty (60) days after receipt of the request and the offer of indemnity; and (e) during such 60-day period the Holders of a majority in aggregate principal amount of the Securities Outstanding do not give the Trustee a direction which, in the opinion of the Trustee, is inconsistent with such request. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over such other Securityholder. Section 6.7 Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Security to receive payment of principal of, interest on, and Special Interest, if any, with respect to, the Security in cash, on or after the respective due dates expressed in the Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. It is hereby expressly understood, intended and agreed that any and all actions which a Holder of the Securities may take to enforce the provisions of this Indenture and/or collect Payments due hereunder or under the Securities, except to the extent that such action is determined to be on behalf of all Holders of the Securities, shall be in addition to and shall not in any way change, adversely affect or impair the rights and remedies of the Trustee or any other Holder of the Securities thereunder or under this Indenture. Section 6.8 Collection Suit by Trustee. If an Event of Default in payment of interest or principal specified in clause (a) or (b) of Section 6.1 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor on the Securities for the whole amount of principal, accrued interest and Special Interest, if any, remaining unpaid, together with interest on overdue principal and on overdue installments of interest to the extent that payment of such interest is permitted by law, in each case at the rate per annum provided for by the Securities, and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.9 Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Securityholders allowed in any judicial proceedings relative to the Company (or any other obligor upon the Securities), its creditors or its Property and shall be entitled and empowered to collect and receive any moneys or other Property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceedings is hereby authorized by each Securityholder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee under Section 7.7, and unless prohibited by law or applicable regulations to vote on behalf of the Holders of Securities for the election of a trustee in bankruptcy or other person performing similar functions. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding except, as aforesaid, for the election of a trustee in bankruptcy or person performing similar functions. Section 6.10 Application of Proceeds. Any moneys collected by the Trustee pursuant to this Article shall be applied in the following order at the date or dates fixed by the Trustee and, in case of the distribution of such moneys on account of principal, interest, or Special Interest, if any, upon presentation of the several Securities and stamping (or otherwise noting) thereon the 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, its predecessors, if any, and their respective agents and attorneys (including amounts due and unpaid under Section 7.7), and of all costs, fees, expenses and liabilities incurred, and all advances made, by any and all of the foregoing (including amounts due and unpaid under Section 7.7), except as a result of negligence or bad faith; SECOND: In case the entire principal of the Securities shall not have become and be then due and payable, as to any Securities (a) first to the payment of interest and Special Interest, if any, in default in the order of the maturity of the installments of such interest and Special Interest, if any, with interest (to the extent that such interest has been collected by the Trustee) upon the overdue installments of interest or Special Interest, if any, at the rate of interest specified in the Securities and (b) second to the payment of principal of the Securities as the same shall become due and payable, such payments to be made ratably to the Persons entitled thereto, without discrimination or preference; THIRD: In case the entire principal of the Securities shall have become and shall be then due and payable, as to any Securities, to the payment of the whole amount then owing and unpaid upon all the Securities for principal, interest and Special Interest, with interest upon the overdue principal, and (to the extent that such interest has been collected by the Trustee) upon overdue installments of interest or Special Interest, if any, at the same rate as the rate of interest specified in the Securities; and in case such moneys shall be insufficient to pay in full the whole amount so due and unpaid upon the Securities, then to the payment of such principal, interest and Special Interest, if any, without preference or priority of any of principal, interest or Special Interest, if any, over the other, or any installment of interest or Special Interest, if any, over any other installment of interest or Special Interest, if any, or of any Security over any other Security, ratably to the aggregate of such principal, and accrued and unpaid interest and Special Interest; and FOURTH: To the payment of the remainder, if any, after payment in full of the entire principal balance, if any, of the Securities and all interest, Special Interest and other amounts due upon or in respect of such Securities, to the Company or any other Person lawfully entitled thereto. The Trustee, upon prior written notice to the Company, may fix a record date and payment date for any payment to Securityholders pursuant to this Section 6.10. Section 6.11 Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court in its discretion may require in any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7, or a suit by Holders of more than ten percent (10%) in principal amount of the Securities Outstanding. Section 6.12 Restoration of Rights on Abandonment of Proceedings. In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee, then and in every such case the Company, the Trustee and the Securityholders shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Company, the Trustee and the Securityholders shall continue as though no such proceedings had been taken. Section 6.13 Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default. No right or remedy herein conferred upon or reserved to the Trustee or to the Securityholders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. No delay or omission of the Trustee or of any Holder of any of the Securities to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein; and, subject to the other applicable provisions of this Indenture, every power and remedy given by this Indenture or by law to the Trustee or to the Securityholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Securityholders. Any right or remedy herein conferred upon or reserved to the Trustee may be exercised by it in its capacity as Trustee, as 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. (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 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 shall be under no obligation to exercise any of the rights, trusts or powers vested in it by this Indenture at the request, order or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred by it in compliance with such request, order or direction. (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, 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. (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 10.5. 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 Special Interest, if any, with respect to, any Security, the Trustee may withhold the notice if and so long as it, in good faith, determines that withholding the notice is in the interests of the Securityholders. Section 7.6 Reports by Trustee to Holders. If circumstances require any report to Holders under TIA Section 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 Section 313. The Company shall notify the Trustee if the Securities become listed on or delisted from any stock exchange or other recognized trading market. The Trustee shall, upon the written request of any Holder of Securities but subject to applicable laws and contractual limitations, provide to such Holder copies of any reports, certificates, opinions or other materials of any kind or nature required to be delivered to the Trustee under this Indenture or otherwise delivered by or on behalf of the Company to the 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 hereunder. 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 capacity hereunder. 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 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 Indenture 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(g) or (h) 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 may resign by so notifying the Company in writing. The Holders of a majority in aggregate principal amount of the Securities Outstanding may remove the Trustee 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 if: (a) the Trustee fails to comply with Section 7.10; (b) the Trustee is adjudged a bankrupt or an insolvent; (c) a receiver or other public officer takes charge of the Trustee or its Property; (d) the Trustee becomes incapable of acting; or (e) no Default or Event of Default has occurred and is continuing and the Company determines in good faith to remove the Trustee. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in aggregate principal amount of the Securities Outstanding may appoint a successor Trustee to replace the successor Trustee appointed by the Company. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all Property held by it as Trustee to the successor Trustee, subject to the Lien provided in Section 7.7, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Securityholder. No resignation or removal of the Trustee and no appointment of a successor Trustee, pursuant to this Article, shall become effective until the acceptance of appointment by the successor Trustee under this Section 7.8. If a successor Trustee does not take office within sixty (60) days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least ten percent (10%) in principal amount of the Securities Outstanding may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Holder of Securities may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 shall continue for the benefit of the retiring Trustee which shall retain its claim pursuant to Section 7.7. Section 7.9 Successor Trustee by Merger, etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. Section 7.10 Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 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 Section 310(b); provided, however, that there shall be excluded from the operation of TIA Section 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 Section 310(b)(1) are met. Section 7.11 Preferential Collection of Claims Against Company. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA 311(a) to the extent indicated. ARTICLE 8. DISCHARGE OF INDENTURE; DEFEASANCE Section 8.1 Discharge of Liability on Securities; Defeasance. (a) When (i) the Company delivers to the Trustee all outstanding Securities (other than Securities replaced pursuant to Section 2.7) for cancellation or (ii) all outstanding Securities have become due and payable, whether at maturity or as a result of the mailing of a notice of redemption pursuant to Article 3 hereof and the Company irrevocably deposits with the Trustee funds sufficient to pay at maturity or upon redemption all outstanding Securities, including interest thereon to maturity or such redemption date (other than Securities replaced pursuant to Section 2.7), and if in either case the Company pays all other sums payable hereunder by the Company, then this Indenture shall, subject to Section 8.1(c), cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture by executing and delivering to the Company on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel, a written instrument to such effect prepared by the Company at its sole cost and expense. (b) Subject to Sections 8.1(c) and 8.2, the Company at any time may terminate (i) all its obligations under the Securities and this Indenture ("legal defeasance option") or (ii) its obligations under Article 3, Sections 4.3, 4.7, 4.9, 4.12, 4.14 and 4.16 through 4.24, inclusive, and the operation of Sections 6.1(d), 6.1(e), 6.1(f), 6.1(g), 6.1(h), 6.1(i) (but, in the case of Sections 6.1(g) and (h), with respect only to Restricted Subsidiaries) and the limitations contained in Sections 5.1(iii) and (iv) ("covenant defeasance option"). The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Securities may not be accelerated because of an Event of Default with respect thereto. If the Company exercises its covenant defeasance option, payment of the Securities may not be accelerated because of an Event of Default specified in Sections 6.1(d), 6.1(e), 6.1(f), 6.1(g), 6.1(h) and 6.1(i) (but, in the case of Sections 6.1(g) and (h), with respect only to Restricted Subsidiaries) or because of the failure of the Company to comply with Section 5.1(iii) or (iv). Upon satisfaction of the conditions set forth herein and upon request of the Company, the Trustee shall acknowledge in a writing prepared by the Company at its sole cost and expense the discharge of those obligations that the Company terminates. (c) Notwithstanding clauses (a) and (b) above, the Company's obligations in Sections 2.3 through 2.8, inclusive, 7.7 and 7.8 and in this Article 8 shall survive until the Securities have been paid in full. Thereafter, the Company's obligations in Sections 7.7, 8.4 and 8.5 shall survive. Section 8.2 Conditions to Defeasance. The Company may exercise its legal defeasance option or its covenant defeasance option only if: (a) the Company irrevocably deposits in trust with the Trustee money or U.S. Government Obligations for the payment of principal and interest and Special Interest, if any, on the Securities to redemption or maturity, as the case may be; (b) the Company delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay when due all of the principal of, interest on and Special Interest, if any, on all the Securities to redemption or maturity, as the case may be; (c) 123 days pass after the deposit is made and during the 123-day period no Default specified in Sections 6.1(g) or (h) with respect to the Company or any Restricted Subsidiary that is a Significant Subsidiary occurs which is continuing at the end of the period; (d) the deposit does not constitute a default under any other agreement binding on the Company; (e) the Company delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940; (f) in the case of the legal defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Securityholders will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred; (g) in the case of the covenant defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Securityholders will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; (h) the Company shall have delivered an Opinion of Counsel to the effect that the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar law affecting creditors rights generally under any United States federal or state law and that the Trustee has a perfected security interest in such trust funds for the ratable benefit of the Holders; (i) the Company shall have delivered an Opinion of Counsel in the Company's jurisdiction of incorporation to the effect that the Securityholders will not recognize income, gain or loss for such jurisdiction's tax purposes as a result of such defeasance and will be subject to taxes in such jurisdiction on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred; and (j) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Securities as contemplated by this Article 8 have been complied with. Before or after a deposit, the Company may make arrangements satisfactory to the Trustee for the redemption of Securities at a future date in accordance with Article 3. Section 8.3 Application of Trust Money. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to this Article 8. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of, interest on, and Special Interest, if any, on the Securities. Section 8.4 Repayment to Company. The Trustee and the Paying Agent shall promptly turn over to the Company, upon request accompanied by a certificate from a nationally recognized firm of independent accountants expressing their opinion that any money or U.S. Government Obligations are in excess of the amounts sufficient to pay when due all of the principal of, interest on, and Special Interest, if any, on the Securities to redemption or maturity, as the case may be, any such excess money or securities held by them. Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal, interest or Special Interest that remains unclaimed for two years, and, thereafter, Securityholders entitled to the money must look to the Company for payment as general creditors. Section 8.5 Indemnity for Government Obligations. The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations. Section 8.6 Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Article 8 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article 8 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this Article 8; provided, however, that, if the Company has made any payment of principal of, premium, if any, interest or Special Interest, if any, on, any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment form the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE 9. AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 9.1 Without Consent of Holders. The Company and the Trustee may amend or supplement this Indenture or the Securities without notice to or consent of any Securityholder: (a) to provide for uncertificated 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 may amend or supplement this Indenture or the Securities 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 or the Securities. 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; (b) reduce the rate or extend the time for payment of interest on, or Special Interest, if any, with respect to, any Security; (c) reduce the principal of, or the amount of Special Interest, if any, with respect to (in each case, whether on redemption, repurchase or otherwise), or change the fixed maturity of any Security; (d) change the place of payment where, or the coin or currency in which, any Security (or the repurchase or redemption price thereof), interest thereon, or Special Interest, if any, with respect thereto is payable; (e) waive a default in the payment of the principal of, or interest on, or Special Interest with respect to any Security; (f) make any changes in Sections 2.8, 6.4, 6.7 or 6.10 or the third sentence of this Section 9.2 or change the time at which any Security may be redeemed hereunder; (g) reduce any amount payable upon exercise of any repurchase rights thereof or otherwise change any repurchase right provision or impair the right of any Holder to institute suit for the enforcement of any such payment on any Security when due or adversely effect any repurchase rights hereunder; or (h) make any change in any Subsidiary Guaranty that would adversely affect any Holder. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.2 becomes effective, the Company shall mail to the Holders affected thereby a brief notice describing such amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however in any way impair or affect the validity of any such amendment, supplement or waiver. Section 9.3 Compliance with Trust Indenture Act. Every amendment to or supplement of this Indenture or the Securities shall comply with the TIA as then in effect. Section 9.4 Revocation and Effect of Consents. Until an amendment or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of a Security. Such revocation shall be effective only if the Trustee receives the notice of revocation before the date the amendment, supplement or waiver becomes effective. After an amendment, supplement or waiver becomes effective, it shall bind every Securityholder, unless it makes a change described in any of clauses (a) through (h) of Section 9.2. In that case the amendment, supplement or waiver shall bind each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security; provided, however, that no amendment, supplement or waiver relating to any impairment of the right to receive principal, interest and Special Interest, if any, 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. 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 pursuant to the provisions of this Article 9, this Indenture 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 of the Trustee, the Company and the Holders of Securities shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. ARTICLE 10. MISCELLANEOUS Section 10.1 Conflict with Trust Indenture Act of 1939. If and to the extent that any provision of this Indenture limits, qualifies, or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the TIA, such imposed duties shall control. Section 10.2 Notices; Waivers. Any request, demand, authorization, direction, notice, consent, waiver or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with (a) the Company shall be sufficient for every purpose hereunder if in writing (including telecopied communications) and made, given, furnished or filed by personal delivery or mailed by registered or certified mail or by nationally recognized overnight courier, postage or courier charges, as the case may be, prepaid, to or with the Company at: Trans World Airlines, Inc. One City Centre 515 N. 6th Street St. Louis, Missouri 63101 Attention: Senior Vice President & General Counsel Telecopier No.: (314) 589-3267 (b) the Trustee shall be sufficient for every purpose hereunder if in writing (including telecopied communications) and made, given, furnished or filed by personal delivery or mailed by registered or certified mail or by nationally recognized overnight courier, postage or courier charges, as the case may be, prepaid, to or with the Trustee at: First Security Bank, National Association 79 South Main Street Salt Lake City, UT 84111 Attention: Corporate Trust Services Telecopier No.: (801) 246-5053 or to any of the above parties at any other address or telecopier number subsequently furnished in writing by it to each of the other parties listed above. An affidavit by any person representing or acting on behalf of the Company or the Trustee as to such mailing, having any registry receipt required by this Section attached, shall be conclusive evidence of the giving of such demand, notice or communication. Any notice or communication mailed to a Holder shall be mailed to such holder by first-class mail or by nationally recognized overnight courier, postage or courier charges, as the case may be, prepaid, at such holder's address as it appears on the Register and shall be sufficiently given to such holder if so mailed within the time prescribed. Failure to mail a notice or send a communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. Notices to the Trustee or to the Company are deemed given only when received. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by the Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Section 10.3 Communications by Holders with Other Holders. Securityholders may communicate pursuant to TIA Section 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 Section 312(c). Section 10.4 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, the Company shall furnish to the Trustee: (a) an Officers' Certificate, and (b) an Opinion of Counsel, each stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, provided, that in the case of any such application or Request as to which the furnishing of an Officers' Certificate or Opinion of Counsel is specifically required by any provision of this Indenture relating to such particular application or Request, no additional certificate or opinion, as the case may be, need be furnished. Section 10.5 Statements Required in Certificate or Opinion. Each certificate or opinion provided for and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture 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 in connection with any application, certificate or report to the 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 to be delivered to the Trustee as a condition of the granting of such application or as evidence of such compliance may be received by the Trustee as conclusive evidence of any statement therein contained and shall be full warrant, authority and protection to the 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 such Person may, but need not, consolidate such instruments into one. Section 10.6 Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules for action by or at a meeting of Securityholders. The Registrar, Paying Agent or Tender Agent may make reasonable rules for their respective functions. Section 10.7 Holidays. In the event that any date for the payment of any amount due hereunder shall not be a Business Day, then (notwithstanding any other provision of this Indenture) such payment need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the due date, and no interest or Special Interest, if any, shall accrue from such due date to and including the next succeeding Business Day. Section 10.8 Governing Law; Waiver of Jury Trial. (a) The laws of the State of New York shall govern this Indenture and the Securities without regard to principles of conflict of laws. (b) The Company and the Trustee each waive any right to have a jury participate in resolving any dispute, whether sounding in contract, tort, or otherwise arising out of, connected with, related to or incidental to the relationship established between them in connection with this Indenture. Instead, any disputes resolved in court will be resolved in a bench trial without a jury. Section 10.9 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret any agreement of the Company or any of its Subsidiaries which is unrelated to this Indenture or the Securities. Any such agreement may not be used to interpret this Indenture. Section 10.10 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 this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Securityholder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. Section 10.11 Benefits of Indenture and the Securities Restricted. Subject to the provisions of Section 10.12 hereof, nothing in this Indenture or the Securities, express or implied, shall give or be construed to give to any Person, firm or corporation, other than the parties hereto and the Holders, any legal or equitable right, remedy or claim under or in respect of this Indenture or under any covenant, condition, or provision herein contained, all such covenants, conditions and provisions, subject to Section 10.12 hereof, being for the sole benefit of the parties hereto and of the Holders. Section 10.12 Successors and Assigns. This Indenture and all obligations of the Company hereunder shall be binding upon the successors and permitted assigns of the Company, and shall, together with the rights and remedies of the Trustee hereunder, inure to the benefit of the Trustee, the Holders, and their respective successors and assigns. Any assignment in violation hereof shall be null and void ab initio. Section 10.13 Counterpart Originals. This Indenture may be signed in two or more counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same agreement. Section 10.14 Severability. The provisions of this Indenture are severable, and if any clause or provision shall be held invalid, illegal or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect in that jurisdiction only such clause or provision, or part thereof, and shall not in any manner affect such clause or provision in any other jurisdiction or any other clause or provision of this Indenture in any jurisdiction, and a Holder shall have no claim therefor against any party hereto. Section 10.15 Rating Agencies. Any reference in this Indenture to Moody's Investors Service, Inc. or Standard & Poor's Ratings Group (each a "rating agency" or an "agency") shall include its successors or successor publishers of its financial ratings, and references to the ratings of any such rating agency shall include comparable ratings in the event of one or more reclassifications of such ratings by such rating agency after the date hereof. In the event that any of such rating agencies shall cease to publish applicable ratings, any provision herein requiring ratings of all of such agencies shall be deemed to require ratings of only the agency or agencies continuing to publish applicable ratings. If all of such agencies cease to publish applicable ratings, any provision herein requiring ratings of any of such agencies shall be deemed to require ratings that are both (a) certified by the Company in an Officers' Certificate to be equivalent to the ratings of such agency or agencies and (b) reasonably satisfactory to the Trustee. Section 10.16 Effect of Headings. The Article and Section headings and the Table of Contents contained in this Indenture have been inserted for convenience of reference only, and are and shall be without substantive meaning or content of any kind whatsoever and are not a part of this Indenture. 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: EX-4.27 4 Exhibit 4.27 [EXECUTED COPY] - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- AIRCRAFT SALE AND NOTE PURCHASE AGREEMENT Dated as of April 9, 1998 AMONG TRANS WORLD AIRLINES, INC., and FIRST SECURITY BANK, NATIONAL ASSOCIATION, as Owner Trustee and SEVEN SIXTY SEVEN LEASING, INC. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Airframe Make and Model: Used Boeing 767-231 ETOPS Airframe Manufacturer's Serial Numbers: 22571, 22572 and 22573 Airframe Registration Marks: N608TW, N609TW and N610TW Make and Model of Engines: Pratt & Whitney JT9D-7R4D Serial Numbers of Engines: P709654 and P709655, P709643 and P709644, and P709656 and P709659 TABLE OF CONTENTS ----------------- Page ---- ARTICLE 1 Summary of Transaction Section 1.01. Description of Aircraft..................................... 2 Section 1.02. Country of Registration..................................... 2 Section 1.03. Closing Date and Location................................... 2 Section 1.04. Sale Price.................................................. 2 ARTICLE 2 Definitions Section 2.01. General Definitions......................................... 3 ARTICLE 3 Place and Date of Sale Section 3.01. Place of Delivery of Aircraft............................... 6 Section 3.02 Scheduled Closing Date...................................... 6 Section 3.03. Total Loss of Aircraft Prior to Sale........................ 6 ARTICLE 4 Sale Price Section 4.01. Sale Price.................................................. 6 Section 4.02. Payment of Sale Price....................................... 7 Section 4.03. Description of the Notes and the Equity Notes............... 7 Section 4.04. Delivery and Payment........................................ 9 ARTICLE 5 Representations and Warranties of TWA Section 5.01. Representations and Warranties of TWA....................... 13 ARTICLE 6 Condition of Aircraft at Sale Section 6.01. Condition at Sale........................................... 23 Section 6.02. Ground Inspection........................................... 24 Section 6.03. Disclaimer.................................................. 24 Section 6.04. Deficiencies and Delays..................................... 25 Section 6.05. No Waiver................................................... 25 ARTICLE 7 Bill of Sale and Other Documentary Requirements Section 7.01. Conditions to TWA's Obligations to Purchase the Aircraft................................................ 25 Section 7.02. Conditions to the Owner Trustee's Obligations to Sell the Aircraft........................................... 27 Section 7.03. After Closing............................................... 28 Section 7.04. Conditions with Regard to the Issuance of the Securities.................................................. 29 Section 7.05. Conditions to Closing....................................... 34 ARTICLE 8 Termination Section 8.01. Termination by the Owner Trustee............................ 34 Section 8.02. Effect of Termination....................................... 35 ARTICLE 9 Owner Trustee Assignment of Rights and Warranties Section 9.01. Assignable Warranties....................................... 35 Section 9.02. Non-Assignable Warranties................................... 36 ARTICLE 10 Expenses and Taxes Section 10.01. Costs and Expenses of Sales................................ 36 Section 10.02. Taxes...................................................... 36 Section 10.03. After-tax Basis............................................ 36 Section 10.04. Timing of Payment.......................................... 37 Section 10.05. Contests................................................... 37 Section 10.06. Refunds.................................................... 37 Section 10.07. Cooperation in Filing Tax Returns.......................... 37 ARTICLE 11 Indemnities and Insurance Section 11.01. Indemnification with Regard to the Aircraft............................................ 38 Section 11.02. Indemnification of TWA by Owner Trustee.................................................... 39 Section 11.03. Insurance.................................................. 41 ARTICLE 12 Representations, Warranties and Covenants of Owner Trustee Section 12.01. Owner Trustee's Representations, Warranties and Covenants In Its Individual Capacity........................................ 42 Section 12.02. Owner Trustee's Representations, Warranties and Covenants................................... 43 Section 12.03. Representations, Warranties and Covenants of the Owner Trustee Regarding the Securities................................................. 44 Section 12.04. TBT Leases Excluded........................................ 46 ARTICLE 13 Agreements of TWA Section 13.01. Agreements of TWA.......................................... 46 ARTICLE 14 Notices Section 14.01. Manner of Sending Notices.................................. 48 Section 14.02. Notice Information......................................... 49 ARTICLE 15 Miscellaneous Section 15.01. GOVERNING LAW.............................................. 50 Section 15.02. No Brokers................................................. 50 Section 15.03. Confidentiality............................................ 50 Section 15.04. Successors and Assigns..................................... 51 Section 15.05. Rights of Parties.......................................... 51 Section 15.06. Further Assurances......................................... 51 Section 15.07. Use of Word "Including".................................... 51 Section 15.08. Headings................................................... 51 Section 15.09. Invalidity of Any Provision................................ 51 Section 15.10. Waiver of Trial by Jury.................................... 52 Section 15.11. Amendments in Writing...................................... 52 Section 15.12. Entire Agreement........................................... 52 Section 15.13. Counterparts............................................... 52 Section 15.14. Third Party Beneficiary.................................... 52 ARTICLE 16 Authorization of Beneficiary Section 16.01. Authorization of Beneficiary............................... 52 AIRCRAFT SALE AND NOTE PURCHASE AGREEMENT THIS AIRCRAFT SALE AND NOTE PURCHASE AGREEMENT is made and entered into as of this 9th day of April 1998. AMONG: TRANS WORLD AIRLINES, INC., a Delaware corporation whose address and principal place of business is at One City Centre, 515 N. Sixth Street, St. Louis, Missouri 63101, United States of America ("TWA"), and FIRST SECURITY BANK, NATIONAL ASSOCIATION, whose address and principal place of business is at 79 South Main Street, Salt Lake City, Utah 84111, United States of America, not in its individual capacity, except as expressly stated herein, but solely as Owner Trustee (the "Owner Trustee") under the Trust Agreement (the "Trust Agreement") dated January 24, 1995 between Owner Trustee and Seven Sixty Seven Leasing, Inc., the beneficiary named therein, and SEVEN SIXTY SEVEN LEASING, INC., a Delaware corporation and the sole beneficiary under the Trust Agreement with an address at 1013 Centre Road, Wilmington, Delaware 19805, United States of America (the "Beneficiary"), and who is only executing this Sale Agreement as evidence of its instruction to the Owner Trustee to enter into this Sale Agreement. The subject matter of this Sale Agreement is three (3) used Boeing 767-231 ETOPS airframes and six (6) Pratt & Whitney JT9D-7R4D engines, which the Owner Trustee and Beneficiary desire that the Owner Trustee sell to TWA and TWA is willing to purchase from the Owner Trustee. All property covered by this Sale Agreement is currently leased by Owner Trustee to TWA under the Leases (as hereinafter defined). In consideration of and subject to the mutual covenants, terms and conditions contained in this Sale Agreement, TWA and the Owner Trustee agree as follows: ARTICLE 1 Summary of Transaction The following is a summary of the sale transaction between TWA and the Owner Trustee. It is set forth for the convenience of the parties only and will not be deemed in any way to amend, detract from or simplify the other provisions of this Sale Agreement. Section 1.01. Description of Aircraft. Three (3) used Boeing 767-231 ETOPS airframes bearing manufacturer's serial numbers 22571, 22572 and 22573 and six (6) Pratt & Whitney JT9D-7R4D engines bearing manufacturer's serial numbers P709654 and P709655, P709643 and P709644, and P709656 and P709659. Section 1.02. Country of Registration. United States of America Section 1.03. Closing Date and Location. On the Closing Date at New York, New York, with the Aircraft located in such locations as are mutually agreeable to the parties. Section 1.04. Sale Price. US$ 75,000,000.00 (US$ 25,000,000.00 per Aircraft), payable by delivery at the Closing of Securities as set forth in Article 4 hereof. ARTICLE 2 Definitions Except where the context otherwise requires, the following words have the following meanings for all purposes of this Sale Agreement. The definitions are equally applicable to the singular and plural forms of the words. Any agreement defined below includes each amendment, modification, supplement and waiver thereto in effect from time to time. Section 2.01. General Definitions. "Aircraft" means the three (3) Airframes, the six (6) Engines, the Parts, the Ancillary Equipment and the Aircraft Documentation collectively. "Aircraft Documentation" means all log books, Aircraft records, manuals and other documents provided by the Owner Trustee at Sale of the Aircraft and the documents listed in Exhibit B. "Airframes" means each of the airframes described in Exhibit A together with all Parts relating thereto (except Engines or engines). "Ancillary Equipment" means all accessories, appurtenances and other equipment owned by Owner Trustee and appertaining to an Airframe or an Engine, whether or not attached or affixed thereto. "Aviation Authority" means the FAA or any Government Entities which under the Laws of the United States of America from time to time have control over civil aviation or the registration, airworthiness or operation of aircraft by TWA in the United States of America. "Beneficiary" has the meaning set forth in the introductory paragraphs hereof. "Business Day" means each day that is not a Saturday, Sunday or any other day on which banks located in New York, NY, St. Louis, MO or Salt Lake City, UT are authorized or obligated by law to remain closed. "CL/PK Airfinance" means CL/PK Airfinance, a financial sector corporation organized under the laws of the Grand Duchy of Luxembourg, and its successors. "Dollars" and "$" means the lawful currency of the United States of America. "Engine" means (i) each of the engines listed on Exhibit A hereto or any other engines which the parties hereto agree in writing will be substituted therefor and (ii) all Parts installed in or on any of such engines at Sale. "Engine Manufacturer" means United Technologies Corporation, Pratt & Whitney Division. "FAA" means the Federal Aviation Administration of the Department of Transportation or any successor thereto under the Laws of the United States of America. "FARs" means the U.S. Federal Aviation Regulations embodied in Title 14 of the U.S. Code of Federal Regulations, as amended from time to time, or any successor regulations thereto. "Government Entity" means any (i) national, state or local government, (ii) board, commission, department, division, instrumentality, court, agency or political subdivision thereof and (iii) association, organization or institution of which any thereof is a member or to whose jurisdiction any thereof is subject or in whose activities any thereof is a participant. "Law" means any (i) statute, decree, constitution, regulation, order or any directive of any Government Entity, (ii) treaty, pact, compact or other agreement to which any Government Entity is a signatory or party and (iii) judicial or administrative interpretation or application of any of the foregoing. "Lease" means each of Lease Agreement N608TW, dated January 27, 1995, between Owner Trustee and TWA, as amended, Lease Agreement N609TW, dated January 27, 1995, between Owner Trustee and TWA, as amended and Lease Agreement N610TW, dated January 27, 1995, between Owner Trustee and TWA, as amended, covering the Aircraft. "Lessor Liens" means liens arising as a result of (i) claims or judgments against Owner Trustee in its individual capacity not related to the transactions contemplated by the Trust Agreements or by any Lease; or (ii) acts or omissions of Owner Trustee not related to the transactions contemplated by the Trust Agreement or by any Lease or not permitted under the Trust Agreement or under any Lease; or (iii) taxes imposed against Owner Trustee in its individual capacity (x) based on or measured by compensation paid to the Owner Trustee for serving as Owner Trustee under the Trust Agreement or (y) not related to the transactions contemplated by the Trust Agreement or by any Lease. "Manufacturer" means The Boeing Company. "Part" means any part, component, appliance, accessory, instrument, communications equipment, furnishing, module, equipment furnished by the Owner Trustee or other item of equipment (other than complete Engines or engines) installed in or attached to the Airframe or any Engine. "Participants" means Norddeutsche Landesbank GZ, Credit Foncier de France, A/S Bergens Skillingbank, Fernwood Associates, L.P., Fernwood Restructurings Ltd., Fernwood Foundation Fund, L.P., Fernwood Total Return Holdings Ltd., Hour, LLC, Lazard Freres & Co. LLC, and Mackay-Shields Financial Corporation, as investment advisor to Vulcan Materials Company Master Trust High Yield Account, The Brown & Williamson Master Retirement Trust, Highbridge Capital Corporation, Mainstay VP Series Fund, Inc., On Behalf of its High Yield Corporate Bond Fund Portfolio, The Mainstay Funds, On Behalf of its High Yield Corporate Bond Fund Series and Police Officers Pension System of the City of Houston, and any of their respective successors or assigns under the Participation Agreement. "Participation Agreement" means the Agreement Among Participants dated as of January 24, 1995 among CL/PK Airfinance and certain of the Participants. "Person" means any individual, firm, partnership, joint venture, trust, corporation, Government Entity, committee, department, authority or any body, incorporated or unincorporated, whether having distinct legal personality or not. "Sale" means the tender for sale of the Aircraft by the Owner Trustee to TWA and TWA's purchase of the Aircraft from the Owner Trustee in accordance with this Sale Agreement. "Sale Agreement" means this Aircraft Sale and Note Purchase Agreement, together with all Exhibits and Annexes hereto. "Securities" has the meaning set forth in Section 4.03. "Security Interest" means any encumbrance or security interest whatsoever, however and wherever created or arising including (without prejudice to the generality of the foregoing) any right of ownership, security, mortgage, pledge, charge, encumbrance, lease, lien, statutory or other right in rem, hypothecation, title retention, attachment, levy, claim or right of possession or detention. "State of Registration" means the United States of America. "TBT Lease" means each of (1) the Qualified Leased Property Lease dated December 22, 1983 between USAir Group, Inc. and Trans World Airlines, Inc. with respect to aircraft model 767-231 bearing manufacturer's number 22571 and the other equipment described therein, (2) the Qualified Leased Property Lease dated December 22, 1983 between USAir Group, Inc. and Trans World Airlines, Inc. with respect to aircraft model 767-231 bearing manufacturer's number 22573 and the other equipment described therein, and (3) the Qualified Leased Property Lease dated October 28, 1983 between Gordon Food Service, Inc. and Trans World Airlines, Inc. with respect to aircraft model 767-231 bearing manufacturer's number 22572 and the other equipment described therein, as such leases may have been amended through any relevant date. "TBT Lessor" means the Person designated as Lessor in each TBT Lease. "Total Loss of an Aircraft" means the destruction, damage beyond repair, or permanent rendering unfit for normal use for any reason whatsoever of any of the Aircraft, or the constructive total loss of any of the Aircraft. ARTICLE 3 Place and Date of Sale Section 3.01. Place of Delivery of Aircraft. Subject to the terms and conditions hereof, the Owner Trustee will deliver the Aircraft for sale to TWA on the Closing Date at such locations as are mutually agreeable to the parties. Notwithstanding the foregoing, any required ferrying of the Aircraft to the place of delivery shall be the obligation of and at the expense of TWA, as provided in the Leases. Section 3.02 Scheduled Closing Date. TWA shall give the Owner Trustee two Business Days' notice by telephone (confirmed in writing) or by facsimile of the date on which the Sale is scheduled to occur (the date such Sale actually occurs being the "Closing Date"). In no event shall the Closing Date be later than April 20, 1998 without the consent in writing of the Owner Trustee. Section 3.03. Total Loss of Aircraft Prior to Sale. If a Total Loss of an Aircraft occurs prior to the Sale, then neither party will have any further liability to the other arising from this Sale Agreement with respect to such Aircraft. ARTICLE 4 Sale Price Section 4.01. Sale Price. On the Closing Date, provided TWA has met all of its obligations under this Sale Agreement, the Beneficiary will instruct the Owner Trustee to, and the Owner Trustee will, sell the Aircraft to TWA, and TWA will purchase the Aircraft from the Owner Trustee for the sum of Seventy-Five Million U.S. Dollars (US$75,000,000 ) (Twenty-Five Million U.S. Dollars (US$25,000,000) per Aircraft) (the "Sale Price"), payable by delivery of Securities, as hereinafter provided; provided that the Sale Price shall be reduced by U.S. $25,000,000 for each Aircraft as to which there occurs a Total Loss between the date hereof and the Closing Date. Section 4.02. Payment of Sale Price. Subject to the adjustments described in Section 4.01, at the time of TWA's purchase of the Aircraft from Owner Trustee on the Closing Date, TWA will issue to Owner Trustee the following securities as payment of the Sale Price: Initial Aggregate Securities Principal Amount 11 3/8% Senior Secured Notes due 2003 US$ 43,200,000 Mandatory Conversion Equity Notes due US$ 31,800,000 1999
Section 4.03. Description of the Notes and the Equity Notes. The Securities which TWA shall issue in payment of the Sale Price shall consist of $43,200,000 aggregate principal amount of its 11 3/8% Senior Secured Notes due 2003 (the "Notes") and $31,800,000 aggregate principal amount of its Mandatory Conversion Equity Notes due 1999 (the "Equity Notes" and, together with the Notes, the "Securities"). In the event of a Total Loss of an Aircraft between the date hereof and the Closing Date, the aggregate principal amount of Notes and Equity Notes to be issued on the Closing Date shall be reduced by $14,400,000 and $10,600,000, respectively, for each Aircraft subject to such Total Loss, in accordance with Sections 3.03 and 4.01. (a) The Notes will be issued pursuant to an indenture in form and substance satisfactory to TWA and the Owner Trustee (the "Notes Indenture"), dated as of the Closing Date between TWA and First Security Bank, National Association (in such capacity, the "Notes Trustee"). The Notes will be secured by a first priority security interest in (among other things) all of TWA's right, title and interest in (i) the Airframes and (ii) the Engines, each pursuant to the Aircraft Mortgage and Security Agreement dated as of the Closing Date between TWA and the Notes Trustee (the "Notes Security Agreement") and the Mortgage Supplements referred to therein (the "Notes Mortgage Supplements"), each in form and substance satisfactory to TWA and the Owner Trustee. The Aircraft, the Engines and the other Collateral covered by (and as defined in) the Notes Security Agreement are referred to herein as the "Collateral." (b) The Equity Notes will be issued pursuant to an indenture in form and substance satisfactory to TWA and the Owner Trustee (the "Equity Notes Indenture" and, together with the Notes Indenture, the "Indentures"), dated as of the Closing Date between TWA and First Security Bank, National Association (in such capacity, the "Equity Notes Trustee" and, together with the Notes Trustee, the "Trustee"). The Equity Notes will be secured by a second priority security interest in all of TWA's right, title and interest in the Collateral, up to an aggregate principal amount of US$24,300,000, pursuant to the Aircraft Second Mortgage and Security Agreement dated as of the Closing Date between TWA and the Equity Notes Trustee (the "Equity Notes Security Agreement" and, together with the Notes Security Agreement, the "Security Agreements") and the Mortgage Supplements referred to therein (the "Equity Notes Mortgage Supplements" and, together with the Notes Mortgage Supplements, the "Mortgage Supplements"), each in form and substance satisfactory to TWA and the Owner Trustee, provided, however, that if, on the Business Day immediately succeeding the Closing Date the holders of the Equity Notes (other than the Placement Agent (as defined below)) do not include at least one of the Owner Trustee, the Beneficiary, a Participant or an affiliate of any Participant, then the Equity Notes shall automatically, without any further act or deed, become unsecured obligations of TWA and shall rank junior in priority to all secured indebtedness of TWA and pari passu with all unsecured indebtedness of TWA, in each case whether such indebtedness is existing on the Closing Date or thereafter incurred, and the Equity Notes Trustee shall be authorized to enter into or execute and deliver such agreements, instruments or other documents as may be reasonably requested by (and at the cost and expense of) TWA to evidence or confirm the release of liens on the Collateral or such subordination of the Equity Notes. The Securities have not been registered under the Securities Act of 1933, as amended (the "Securities Act") and, prior to the date which is two years after the later of the Closing Date and the last date on which TWA or any affiliate of TWA was the owner of the Securities, may be resold only if registered pursuant to the provisions of the Securities Act or (i) to TWA, (ii) in the case of the Notes only, to qualified institutional buyers (within the meaning of Rule 144A, ("Rule 144A") under the Securities Act) ("Qualified Institutional Buyers") in reliance upon Rule 144A, (iii) to institutional "accredited investors" (within the meaning of Rule 501 under the Securities Act) ("Institutional Accredited Investors"), (iv) to certain persons outside the United States in reliance on Regulation S under the Securities Act ("Regulation S") or (v) pursuant to any other available exemption from the registration requirements of the Securities Act. Upon issuance of the Securities on the Closing Date and until such time as the Company deems that it is no longer required under the Securities Act, the certificates representing the Securities shall bear the legend set forth in Annex A. Holders (including subsequent transferees) of the Notes and the Equity Notes will have the registration rights set forth in the respective Registration Rights Agreements (defined below) to be dated as of the Closing Date, among TWA, the Owner Trustee and the Placement Agent, each in form and substance satisfactory to TWA and the Owner Trustee. Pursuant to the Registration Rights Agreement relating to the Notes (the "Notes Registration Rights Agreement"), TWA will agree to file with the Securities and 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 "Notes Shelf Registration Statement") with respect to resales of certain of the Notes, including the Private Exchange Notes (as defined). Following the consummation of the Exchange Offer, in the event the Placement Agent continues to hold Notes acquired in payment of the Placement Fee (as defined), and upon receipt of written request from the Placement Agent, the Company shall issue and deliver to the Placement Agent (the "Private Exchange Offer") senior secured notes identical in all material respects to the Notes (the "Private Exchange Notes"). Pursuant to the Registration Rights Agreement relating to the Equity Notes (the "Equity Notes Registration Rights Agreement" and, together with the Notes Registration Rights Agreement, the "Registration Rights Agreements") TWA will agree to file with the Commission a shelf registration statement pursuant to Rule 415 under the Securities Act (the "Equity Shelf Registration Statement") registering resales of the shares of TWA's common stock, par value $.01 per share (the "Common Stock"), issuable upon conversion of the Equity Notes. This Sale Agreement, the Indentures, the Security Agreements, the Mortgage Supplements and the Registration Rights Agreements, are referred to herein collectively as the "Operative Documents". Section 4.04. Delivery and Payment. Subject to the terms and conditions hereof, delivery of the Securities shall be made to the Owner Trustee, against transfer of title to the Aircraft in a manner satisfactory to the parties (the "Closing"), at the office of Hughes Hubbard & Reed LLP, One Battery Park Plaza, New York, New York 10004 (the "Closing Location"), at 10:00 a.m., New York City time, on the Closing Date. The Owner Trustee authorizes and directs that US$1,728,000 aggregate principal amount of Notes and US$1,272,000 aggregate principal amount of Equity Notes (collectively, the "Placement Fee Securities") be deducted from the principal amount of Notes and Equity Notes issued to the Owner Trustee on the Closing Date in payment of the Sale Price and that such Placement Fee Securities be reissued and delivered in the name of Lazard Freres & Co. LLC (the "Placement Agent") in payment of the placement agency fee (the "Placement Fee") payable to the Placement Agent pursuant to a Placement Agreement dated as of the date hereof between the Placement Agent and TWA. In this regard, the Owner Trustee acknowledges that the Placement Agent, in addition to acting as placement agent for TWA, has acted in the following capacities and/or engaged in the following activities: (i) acted as financial advisor to TWA, (ii) acted as the initial purchaser in connection with several offerings under Rule 144A and/or Regulation S of the Securities Act of debt securities and convertible exchangeable preferred stock of TWA, (iii) acted as a market maker in TWA securities, (iv) purchased as a principal approximately 68% of the debt and equity participation interests from certain original participants under the Participation Agreement, sold a portion of such interests outright and/or through participations to certain of the Participants and entered into agreements with three other original participants to purchase the remaining debt and equity participation interests under the Participation Agreement and any distributions related thereto, the closing of which is expected to occur in May, 1998, (v) engaged in trading activities for certain of the Participants, (vi) participated in discussions with CL/PK Airfinance and certain other Participants in connection with the attempted but since suspended negotiation of the amount of the advisory fee due to CL/PK Airfinance under the Participation Agreement and (vii) agreed to reimburse Credit Lyonnais for certain liabilities related to drawings, if any, under letters of credit issued or confirmed by Credit Lyonnais in connection with the TBT Leases. As a result of acting in such capacities and engaging in such activities, the Placement Agent may have interests adverse to, or that conflict with, the interests of the Owner Trustee, in the Sale in exchange for Securities. The Owner Trustee hereby waives any claim of conflict or adverse interest against the Placement Agent arising as a result of the roles and activities of the Placement Agent described in the second preceding sentence; provided that the Owner Trustee does not waive any claims arising as a result of (i) the sale by the Placement Agent to any of the Participants of a participation or other interest in the Beneficiary, (ii) the joint and several liability of the Participants to indemnify or reimburse CL/PK Airfinance under the Participation Agreement or (iii) actions occurring prior to the earliest date upon which one of the Participants first purchased from the Placement Agent a participation or other interest in the Beneficiary. The Owner Trustee further authorizes and directs that the advisory fee payable to CL/PK Airfinance pursuant to the Participation Agreement (the "Advisory Fee") be paid in Securities with an aggregate principal amount equal to the Advisory Fee (such Securities to be comprised of 57.6% Notes and 42.4% Equity Notes and hereinafter referred to collectively as the "Advisory Fee Securities") and that such Advisory Fee Securities be deducted from the principal amount of the Notes and Equity Notes issued to the Owner Trustee on the Closing Date in payment of the Sale Price and that such Advisory Fee Securities be reissued and delivered in the name of CL/PK Airfinance in payment of the Advisory Fee. On the Closing Date, after giving effect to payment of the Placement Fee to the Placement Agent and the Advisory Fee to CL/PK Airfinance as provided in the first and second immediately preceding paragraphs, and subject to the other provisions of this Section 4.04 set forth below, the Beneficiary shall (a) cause the Owner Trustee to transfer Securities to the Beneficiary in a principal amount equal to the proportional interest in the aggregate principal amount of Securities outstanding of the Participants from whom the Owner Trustee has received an Investor Letter (as defined), in the form of Annex B or Annex C, on or prior to the Closing Date, (b) the Beneficiary shall transfer such Securities to CL/PK Airfinance and (c) CL/PK Airfinance shall distribute such Securities to the relevant Participants as required by Section 4(b) of the Participation Agreement; provided that the transfers of the Securities by the Owner Trustee to the Beneficiary, by the Beneficiary to CL/PK Airfinance and by CL/PK Airfinance to each Participant shall, in each case, be made in compliance with the applicable provisions of Section 12.03 hereof, including the due execution and delivery of the appropriate Investor Letter as provided below. At the Closing, TWA shall deliver one security evidencing the Notes in definitive fully registered form in the principal amount of $43,200,000 registered in the name of the Owner Trustee (the "Initial Definitive Note") and one Global Note (as defined) in the principal amount of $0. The Initial Definitive Note and the Global Note together shall comprise the aggregate principal amount of Notes outstanding. Notes subsequently transferred to the Placement Agent, the Beneficiary, CL/PK Airfinance and the Participants shall also be in definitive fully registered form and in such denominations and registered in such names as the Owner Trustee, the Placement Agent, the Beneficiary, CL/PK Airfinance and the Participants may request in a written notice delivered to TWA on or prior to the day immediately preceding the Closing Date. Notes shall be delivered on the Closing Date pursuant to the instructions of each of the Persons listed in the preceding sentence following receipt by the Owner Trustee on or prior to the Closing Date of an Investor Letter executed by each such Person (except for the Owner Trustee), substantially in the form of Annex B hereto. Any Notes subsequently transferred to Institutional Accredited Investors that are not Qualified Institutional Buyers or sold pursuant to Regulation S under the Securities Act shall be issued in definitive fully registered form (the "Definitive Notes"), and in such denominations and registered in such names as such transferee may request in accordance with the provisions of the Indenture. On or prior to the Closing Date, TWA shall have delivered to The Depository Trust Company ("DTC") a global certificate (the "Global Note") registered in the name of Cede & Co., the nominee of DTC, in an aggregate principal amount of $0. Upon transfer of Definitive Notes from the Participants or any subsequent holder in accordance with Rule 144A to a Qualified Institutional Buyer, such Definitive Notes may be exchanged for a beneficial interest in the Global Note. The interest of such beneficial owners will be represented by book entries on the records of DTC and participating members thereof. At the Closing, TWA shall deliver a single security representing the $31,800,000 aggregate principal amount of Equity Notes. All Equity Notes shall be issued in definitive fully registered form ("Definitive Equity Notes") and in such denominations and registered in such names as the Owner Trustee, the Placement Agent, the Beneficiary, CL/PK Airfinance and the Participants and any subsequent holders thereof may request in a written notice delivered to TWA on or prior to the day immediately preceding the Closing Date. Equity Notes shall be delivered on the Closing Date pursuant to the instructions of each of the Persons listed in the preceding sentence following receipt by the Owner Trustee on or prior to the Closing Date of an Investor Letter executed by each such person (except for the Owner Trustee), substantially in the form of Annex C hereto. The Initial Definitive Note, Definitive Notes, the Global Note and any Definitive Equity Notes shall bear the legend relating thereto set forth in Annex A. For the purpose of expediting the checking and packaging of certificates for the Notes and Equity Notes, TWA agrees to make such certificates available for inspection on the day prior to the Closing Date at the offices of Lazard Freres & Co. LLC, 120 Broadway, Room 851, New York, New York 10271. The documents to be delivered at the Closing by or on behalf of the parties hereto pursuant to Article 7 hereof, including the cross-receipt for the Notes and the Equity Notes, will be delivered 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. The cost of original issue tax stamps, if any, in connection with the issuance and delivery of the Securities by TWA to the Owner Trustee shall be borne by TWA. TWA will pay and save the Owner Trustee and any subsequent holder of Notes or Equity Notes 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 determined to be payable in connection with the original issuance or sale to the Owner Trustee of the Securities or transfers of the Securities to other Persons contemplated hereby on the Closing Date. ARTICLE 5 Representations and Warranties of TWA Section 5.01. Representations and Warranties of TWA. TWA represents and warrants to the Owner Trustee, the Beneficiary, the Placement Agent, CL/PK Airfinance and each Participant that acquires Securities on the Closing Date the following: (a) A private placement memorandum dated April 9, 1998 has been prepared by TWA in connection with the offering of the Notes (together with all information incorporated by reference therein, the "Notes Private Placement Memorandum"). TWA has also prepared a private placement memorandum dated April 9, 1998 in connection with the offering of the Equity Notes (together with all information incorporated by reference therein, the "Equity Notes Private Placement Memorandum" and, together with the Notes Private Placement Memorandum, the "Private Placement Memoranda"). The Private Placement Memoranda and any amendments or supplements thereto did not, as of their respective dates, and the Private Placement Memoranda and any amendments or supplements thereto, including the financial statements included or incorporated by reference 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 necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. TWA has not distributed or caused the distribution of any offering material in connection with the offering or sale of the Securities other than the Notes Private Placement Memorandum and the Equity Notes Private Placement Memorandum. (b) When the Notes are issued and delivered pursuant to this Sale Agreement, they will not be of the same class (within the meaning of Rule 144A) as any securities of TWA which are listed on a national securities exchange registered under Section 6 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or quoted in a United States automated inter-dealer quotation system. (c) None of TWA 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 TWA 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 the United States. (d) Neither TWA 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 TWA nor any affiliate (as defined in Rule 501(b) under the Securities Act) of TWA 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 Notes or the Equity Notes in a manner that would require the registration of the Notes or the Equity Notes under the Securities Act. (e) Assuming that the representations and warranties of the Owner Trustee in Article 12, and of the Beneficiary, CL/PK Airfinance, the Placement Agent and each Participant that acquires Securities on the Closing Date in the Investment Letters delivered in satisfaction of the condition specified in Section 7.01(g) hereof are true, and assuming compliance with the covenants and agreements set forth in Section 12.03 and in such Investment Letters, it is not necessary in connection with the offer, issuance and delivery of the Securities to the Owner Trustee, or the transfer on the Closing Date of the Securities to the Placement Agent, the Beneficiary, CL/PK Airfinance or the Participants, in each case in the manner contemplated by, and in accordance with the terms and provisions of, this Sale Agreement and in such Investment Letters, to register such offer, sale or transfer of the Notes or the Equity Notes under the Securities Act or to qualify either of the Indentures under the Trust Indenture Act of 1939, as amended (the "Indenture Act"). (f) TWA is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. TWA has 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, the Collateral) and to conduct its business as described in the Private Placement Memoranda. TWA is 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, the Collateral) makes such licensing or qualification necessary, except where the failure to be so licensed or qualified or in good standing would not individually or in the aggregate have a material adverse effect on the business, properties or financial condition of TWA and its subsidiaries taken as a whole or on the enforceability by the holders of the Notes or the Equity Notes of the aforesaid security interest in the Collateral (a "Material Adverse Effect"); and to the best knowledge of TWA, 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. TWA has no subsidiaries which are "significant subsidiaries" within the meaning of Regulation S-X under the Securities Act. (g) TWA has an authorized capitalization as set forth in the Private Placement Memoranda and the authorized capital stock of TWA conforms to the statements relating thereto contained in the Private Placement Memoranda. All of the issued shares of capital stock of TWA 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 as disclosed in the Private Placement Memoranda, TWA does 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 Notes or the Equity Notes by the Owner Trustee. Complete and correct copies of the certificate of incorporation and of the by-laws of TWA and all amendments thereto have been delivered to the Owner Trustee, and no changes therein will be made subsequent to the date hereof and prior to the Closing Date. (h) TWA and its subsidiaries have filed all necessary federal, state and foreign income and franchise tax returns that are required to be filed, except where the failure to so file such returns would not, individually or in the aggregate, have a Material Adverse Effect. Except as set forth in the Private Placement Memoranda, TWA and its subsidiaries have paid all taxes, assessments, fees and other charges (including, without limitation, withholding taxes, penalties and interest) due or claimed to be due thereon that are due and payable, other than tax deficiencies which (i) TWA is contesting in good faith and for which TWA has provided adequate reserves in accordance with U.S. generally accepted accounting principles applied on a consistent basis or (ii) the failure to duly and timely pay would not have a Material Adverse Effect. There is no tax deficiency or actual or proposed tax assessment that has been asserted against TWA that would have, individually or in the aggregate, a Material Adverse Effect. TWA is not aware of any reasonable basis for the imposition of any material additional tax assessment against TWA for any taxable period ending on or before the date hereof. (i) Except as disclosed in the Private Placement Memoranda, TWA does not have 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 Sale Agreement nor the issuance of the Securities on the Closing Date pursuant hereto to the Owner Trustee, the Beneficiary, the Placement Agent, CL/PK Airfinance or the Participants will render Owner Trustee, the Beneficiary, the Placement Agent, CL/PK Airfinance or any of the Participants an "Acquiring Person" or otherwise entitle the holders of rights (the "Rights") of TWA entitling the holder to purchase one one-hundredth of a share of TWA's Series A Participating Preferred Stock, par value $.01 per share (the "Series A Preferred Stock") to exercise such Rights. The description of TWA's stock option and other stock plans or arrangements, including TWA'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 Private Placement Memoranda accurately and fairly describe in all material respects the terms of 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 all outstanding convertible securities, and upon exercise of outstanding warrants or options to purchase Common Stock are sufficient in number to meet all issuance, conversion and exercise requirements and have been duly and validly authorized and reserved for issuance pursuant to stock plans or 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. (j) The financial statements and schedules included in or incorporated by reference into the Private Placement Memoranda present fairly the consolidated financial condition of TWA as of the respective dates thereof and the consolidated results of operations and cash flows of TWA 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 or incorporated by reference into the Private Placement Memoranda. The selected and summary financial and statistical and operating data included in the Private Placement Memoranda present fairly the information shown therein and, to the extent applicable, have been compiled on a basis consistent with the audited financial statements presented, or incorporated by reference, therein. KPMG Peat Marwick LLP (the "Accountants"), who have reported on the financial statements and schedules included in or incorporated by reference into the Private Placement Memoranda, are independent accountants with respect to TWA 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 Private Placement Memoranda and prior to the Closing Date, except as set forth in or contemplated by the Private Placement Memoranda, there has not been (i) 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") or the 9 1/4% Cumulative Convertible Exchangeable Preferred Stock (the "9 1/4% 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 Ownership and Stock Option 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 (the "IAM Preferred Stock", and, together with the IFFA Preferred Stock and the ALPA Preferred Stock, the "Employee Preferred Stock"), and (z) securities issuable pursuant to registrations by TWA on Form S-8 or any successor thereto), or long term debt of TWA, or any change or development in the business, properties, business prospects, condition (financial or otherwise) or results of operations of TWA and its subsidiaries which has caused, or is reasonably expected to cause, a Material Adverse Effect (it being agreed that the execution and delivery of agreements for TWA's purchase or lease of 24 MD-83 aircraft, which are the subject of letters of intent referred to in the Private Placement Memoranda, and for the financing of such purchases and leases shall not be considered to have a Material Adverse Effect), arising for any reason whatsoever, (ii) neither TWA nor any of its subsidiaries has incurred any material liabilities or obligations, direct or contingent, nor has it entered into any material transactions other than pursuant to this Sale Agreement and the transactions referred to herein, and (iii) TWA has not 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 or the 9 1/4% Preferred Stock. (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 FAA, is required in connection with (i) the Sale, (ii) the valid authorization, issuance, transfer, sale or delivery of the Notes and the Equity Notes by TWA to the Owner Trustee and the transfers on the Closing Date of the Notes and the Equity Notes by the Owner Trustee to the Beneficiary and the Placement Agent, by the Beneficiary to CL/PK Airfinance and by CL/PK Airfinance to the Participants in the manner contemplated by, and in accordance with the terms of, this Sale Agreement, (iii) the execution, delivery and performance by TWA of the Operative Documents, (iv) the taking by TWA of any action contemplated by the Operative Documents or under the Notes or the Equity Notes (including without limitation the Exchange Offer and the filing of the Equity Shelf Registration Statement, respectively) or (v) the creation of the aforesaid security interest in the Collateral, except (w) for any filing or recording that may be required under the FARs and except for filing the Bill of Sale (as defined below) with the FAA in connection with the Sale, (x) as may be required with respect to the Registration Rights Agreements 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 subsection (s) of this Section 5.1 with respect to the Collateral. (m) Except as disclosed in the Private Placement Memoranda, each of TWA and its subsidiaries (i) has complied with all laws, regulations and orders, federal, state or foreign, applicable to it or its business and performed all of its obligations required to be performed by it, and (ii) is not 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 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 Private Placement Memoranda which is not described therein. All material contracts or other agreements to which TWA or any of its subsidiaries is a party have been duly authorized, executed and delivered by TWA or such subsidiary, constitute valid and binding agreements of TWA or such subsidiary and are enforceable against TWA 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 Private Placement Memoranda, to the best knowledge of TWA and each of its subsidiaries, no other party under any contract or other agreement to which TWA or any such subsidiary 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. TWA is not 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 TWA and its subsidiaries now holds 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 Private Placement Memoranda to be conducted and to operate its properties (including without limitation the Collateral) and (except as are described in Section 5.1(l) are necessary to the execution, delivery and performance of this Sale 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 TWA, 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 Collateral conform in all material respects to the description thereof in the respective Private Placement Memoranda. (p) The Operative Documents have been duly authorized by TWA; this Sale Agreement has been, and on the Closing Date each of the other Operative Documents will have been, duly executed and delivered by TWA. This Sale Agreement constitutes, and each of the other Operative Documents will, on the Closing Date, constitute, a valid and binding obligation of TWA, enforceable against TWA in accordance with its terms, 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 conforms to the description thereof contained in the respective Private Placement Memoranda. (q) The Notes, the Exchange Notes, the Private Exchange Notes and the Equity Notes have been duly and validly authorized by TWA and, when authenticated by the Notes Trustee or the Equity Notes Trustee, as applicable, and issued and delivered in accordance with this Sale Agreement or the Notes Registration Rights Agreement, as applicable, and the applicable Indenture, will have been duly and validly executed, authenticated, issued and delivered, will constitute valid and binding obligations of TWA enforceable against TWA 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 at law), and will be entitled to the benefits provided by the applicable Indenture and the Security Agreements. Upon consummation of the Exchange Offer, the Notes Indenture will comply with all applicable provisions of the Indenture Act, and the Indenture Act Rules and Regulations. (r) The shares of Common Stock into which the Equity Notes are convertible have been duly and validly authorized by TWA and, when issued and delivered upon conversion of the Equity Notes will be duly and validly issued, fully paid and non-assessable and will conform to the description thereof included under "Description of Capital Stock" in the Private Placement Memoranda. (s) On the Closing Date, the Notes Security Agreement will create a valid lien on and first priority perfected security interest in all of TWA's right, title and interest in the Collateral securing the payment of the Notes in accordance with the terms thereof and the Company's other Obligations under, and as defined in, the Notes Security Agreement, and the Equity Notes Security Agreement will create a valid lien on and a second priority perfected security interest in all of TWA's right, title and interest in the Collateral securing the payment of the Equity Notes in accordance with the terms thereof and the Company's other Obligations under, and as defined in, the Equity Notes Security Agreement, and, except as permitted by the Security Agreements, the Collateral will be free and clear of all liens, encumbrances, charges, claims and security interests. No filings, recordings or other actions are required in order to perfect the liens created by the Security Agreements except for the filings or recordings which on or before the Closing Date have been duly made (or, to the extent acceptable to the Owner Trustee, in its sole discretion, which will be made promptly after the Closing Date) with respect to the Collateral with appropriate state and local Uniform Commercial Code filing offices and except for the filing of the Security Agreements and the Mortgage Supplements with the FAA pursuant to Title 49 of the United States Code, as amended, and the regulations promulgated pursuant thereto (the "Transportation Code"), which filing will be made concurrently with the Closing. (t) TWA has full right, power and authority to enter into each of the Operative Documents and to consummate the transactions contemplated thereby, including, without limitation, the Sale and the creation of the respective valid, perfected security interests in the Collateral. The execution and delivery by TWA of the Operative Documents, the Notes and the Equity Notes, the consummation of the transactions contemplated thereby and the compliance by TWA with the terms, conditions or provisions thereof 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 TWA or any of its subsidiaries (except pursuant to the Operative Documents as disclosed in the Private Placement Memoranda) pursuant to the terms or provisions of, or result (with the giving of notice, the passage of time, or both) 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 TWA or any of its subsidiaries, any contract or other agreement to which TWA or any of its subsidiaries is a party or by which TWA or any of its 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 TWA or any of its subsidiaries. No holder of securities of TWA, other than holders of the Notes and the Equity Notes, has rights to the registration of any securities of TWA because of the execution, delivery or performance by TWA of this Sale Agreement or the Registration Rights Agreements. (u) TWA 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 TWA 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. (v) Except as set forth in the Private Placement Memoranda or as disclosed by the Participants, there are no actions, suits or proceedings pending or, to the best knowledge of TWA, threatened or contemplated against or affecting TWA 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, or (ii) which, if adversely determined, would prevent consummation of the transactions contemplated hereby or by the other Operative Documents or which is required to be disclosed in the Private Placement Memoranda. All pending legal or governmental proceedings in the aggregate to which TWA or any of its subsidiaries is a party or of which any of their respective property or assets is the subject which are not described in the Private Placement Memoranda, including ordinary routine litigation incidental to the business, are (considered in the aggregate) not material to TWA and its subsidiaries taken as a whole. (w) TWA has good and marketable title to the properties and assets described in the Private Placement Memoranda as owned by it (including without limitation the Collateral). TWA and its subsidiaries each has valid, subsisting and enforceable leases for the properties described in the Private Placement Memoranda as leased or subleased by it, 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 TWA and its subsidiaries, and neither TWA nor any of its subsidiaries has received any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of TWA or any of its subsidiaries 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 Private Placement Memoranda, TWA owns or leases all such properties as are necessary to its business as currently conducted or as proposed to be conducted. (x) No statement, representation, warranty or covenant made by TWA in this Sale Agreement or any Operative Document or made in any certificate or document required by this Sale Agreement or any Operative Document to be delivered by TWA or any officer thereof is inaccurate, untrue or incorrect in any material respect. (y) Neither TWA nor any of its directors, officers or controlling persons has taken, or will take, directly or indirectly, any action prohibited by Regulation M under the Exchange Act in connection with the offering of the Notes or the Equity Notes. (z) TWA has, to the extent applicable, complied, and until the completion of the distribution of the Securities will, to the extent applicable, 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. (aa) Except as set forth in the Private Placement Memoranda, (i) TWA and each of its subsidiaries are in compliance in all material respects with all Environmental Laws (as defined below) which are applicable to their business and have received no notice from any governmental authority or third party of an asserted claim under Environmental Laws, and (ii) to the best knowledge of TWA 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 TWA 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. (ab) TWA and all corporations, trades or businesses within the same controlled group of corporations as, or under common control with, TWA (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 TWA 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 TWA, the Icahn Entities (as defined in the Private Placement Memoranda), the Pension Benefit Guaranty Corporation and others. As used herein, "Plan" means any qualified plan maintained by TWA or by a member of TWA's "controlled group" as defined in Section 414(b), (c), (m) or (o) of the Code. (ac) TWA is a "reporting issuer" as defined in Rule 902(l) of Regulation S promulgated under the Securities Act. (ad) TWA and its subsidiaries maintain insurance with respect to their properties and businesses of the types and in amounts generally deemed adequate by TWA 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. (ae) None of the execution, delivery and performance of any Operative Document, the issuance and delivery of the Notes and the Equity Notes and the consummation of the transactions contemplated by the Operative Documents, will violate Section 7 of the 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. (af) Except as set forth in the Private Placement Memoranda, no labor dispute with the employees of TWA or any subsidiary exists or, to the knowledge of TWA, is imminent or threatened other than disputes that, singly and in the aggregate, would not have a Material Adverse Effect. ARTICLE 6 Condition of Aircraft at Sale Section 6.01. Condition at Sale. On the Closing Date each of the Aircraft will be in its then "AS IS, WHERE IS" condition. Section 6.02. Ground Inspection. Prior to actual tender of each of the Aircraft from the Owner Trustee to TWA for sale, TWA will have an opportunity to reinspect each of the Aircraft and Aircraft Documentation. Section 6.03. Disclaimer. EACH OF THE AIRCRAFT AND EACH PART THEREOF WILL BE SOLD IN ITS "AS IS, WHERE IS" CONDITION ON THE CLOSING DATE, WITHOUT ANY REPRESENTATION, WARRANTY OR GUARANTEE OF ANY KIND BEING MADE OR GIVEN BY ANY OF THE OWNER TRUSTEE, THE BENEFICIARY, CL/PK AIRFINANCE, THE PLACEMENT AGENT OR ANY PARTICIPANTS, THEIR SERVANTS OR AGENTS, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES GIVEN BY THE OWNER TRUSTEE CONTAINED IN ARTICLE 12 HEREOF. (a) FROM AND AFTER THE RECEIPT BY OWNER TRUSTEE OF THE ACCEPTANCE CERTIFICATE, THE FOLLOWING SHALL APPLY: WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, OWNER TRUSTEE SPECIFICALLY DISCLAIMS, AND EXCLUDES HEREFROM (A) ANY WARRANTY AS TO THE AIRWORTHINESS, VALUE, DESIGN, QUALITY, MANUFACTURE, OPERATION, OR CONDITION OF THE AIRCRAFT; (B) ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY OF MERCHANTABILITY OR FITNESS FOR USE OR FOR A PARTICULAR PURPOSE; (C) ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY OF FREEDOM FROM ANY RIGHTFUL CLAIM BY WAY OF INFRINGEMENT OR THE LIKE; (D) ANY IMPLIED REPRESENTATION OR WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE; (E) ANY EXPRESS OR IMPLIED WARRANTY REGARDING THE CONDITION OF THE AIRCRAFT; AND (F) ANY OBLIGATION OR LIABILITY OF OWNER TRUSTEE ARISING IN CONTRACT OR IN TORT (INCLUDING STRICT LIABILITY OR SUCH AS MAY ARISE BY REASON OF OWNER TRUSTEE'S NEGLIGENCE) ACTUAL OR IMPUTED, OR IN STRICT LIABILITY, INCLUDING ANY OBLIGATION OR LIABILITY FOR LOSS OF USE, REVENUE OR PROFIT WITH RESPECT TO THE AIRCRAFT OR FOR ANY LIABILITY OF TWA TO ANY THIRD PARTY OR ANY OTHER DIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGE WHATSOEVER. NO AGREEMENT ALTERING OR EXTENDING OWNER TRUSTEE'S LIABILITY FOR WARRANTIES SHALL BE BINDING UPON OWNER TRUSTEE UNLESS IN WRITING AND EXECUTED BY A DULY AUTHORIZED OFFICER OF OWNER TRUSTEE. (b) DELIVERY BY TWA TO OWNER TRUSTEE OF THE ACCEPTANCE CERTIFICATE SHALL BE CONCLUSIVE PROOF AS BETWEEN OWNER TRUSTEE AND TWA THAT TWA'S TECHNICAL EXPERTS HAVE EXAMINED AND INVESTIGATED EACH OF THE AIRCRAFT AND EACH PART THEREOF AND THAT EACH OF THE AIRCRAFT AND EACH PART THEREOF IS AIRWORTHY AND IN GOOD WORKING ORDER AND REPAIR, WITHOUT DEFECT (WHETHER OR NOT DISCOVERABLE ON THE CLOSING DATE) AND IN EVERY WAY SATISFACTORY TO TWA. Section 6.04. Deficiencies and Delays. The Owner Trustee shall not be liable for any liability, claim, loss, damage or expense of any kind or nature caused directly or indirectly by the Aircraft or any part thereof, by any inadequacy of the Aircraft for any purpose or any deficiency or defect therein, by the use or performance of the Aircraft, by any maintenance or repairs to the Aircraft, by the failure of the Aircraft to conform to any description thereof set forth in the Operative Documents, by any interruption or loss of service or use of the Aircraft or by any loss of business or other consequential damage or any damage whatsoever, howsoever caused including the negligence of the Owner Trustee. The Owner Trustee shall bear no liability whatsoever for the cost of modifications of the Aircraft whether in the event of grounding or suspensions of certification, or for any other cause. Section 6.05. No Waiver. Nothing in this Article 6 or elsewhere in this Sale Agreement shall be deemed a waiver by TWA of any rights it may have against the Manufacturer, the Engine Manufacturer, or any other Person other than the Owner Trustee, the Beneficiary, CL/PK Airfinance, the Placement Agent and the Participants. ARTICLE 7 Bill of Sale and Other Documentary Requirements Section 7.01. Conditions to TWA's Obligations to Purchase the Aircraft. The following will be conditions precedent to TWA's obligation to purchase the Aircraft from the Owner Trustee on the Closing Date (it being understood that delivery of such documents and the Aircraft by the Owner Trustee is subject to satisfaction of or waiver of the conditions set forth in Section 7.2): (a) The Owner Trustee will have transferred to TWA title to the Aircraft by delivery to TWA of, and will have warranted that such title is free and clear of such Security Interests described in, a full warranty bill of sale dated the Closing Date in the form of Exhibit D evidencing this transfer of title. The Owner Trustee will also have delivered to TWA (by delivery to Crowe & Dunlevy, special FAA counsel to TWA, in advance of Closing, to be released and filed on Closing) a bill of sale dated the Closing Date on the form provided by the FAA (the "Bill of Sale"). (b) The Owner Trustee will have delivered to TWA an assignment of Manufacturer and Engine Manufacturer rights in the form and substance of Exhibit E. (c) The Owner Trustee will have delivered to TWA evidence satisfactory to it that the Owner Trustee has all necessary power and authority to enter into and perform this Sale Agreement. (d) TWA and the Owner Trustee will have executed and delivered a Lease Termination Agreement satisfactory to TWA and the Owner Trustee and such Lease Termination Agreement shall have been delivered in escrow to Crowe & Dunlevy and shall have become effective in accordance with its terms thereby terminating the existing Leases. (e) The Aircraft shall have been registered in the name of TWA with the FAA. (f) The Aircraft shall have been released from the lien of any existing security agreement as evidenced by a lien release, in form and substance reasonably acceptable to TWA and the Owner Trustee, executed and delivered by the appropriate parties in escrow to Crowe & Dunlevy. (g) The Placement Agent, the Beneficiary, CL/PK Airfinance and each Participant that acquires Securities on the Closing Date shall have delivered to TWA and the Placement Agent an Investment Letter in the form of Annexes B and/or C hereto. (h) TWA shall have received an opinion and the Placement Agent a reliance letter, dated the Closing Date, of Coudert Brothers in form and substance satisfactory to TWA, to the effect that (x) this Sale Agreement has been duly authorized, executed and delivered by, and constitutes a valid and binding agreement of, each of the Owner Trustee and the Beneficiary, (y) the execution, performance and delivery of this Sale Agreement by the Owner Trustee and the Beneficiary, including the transfer of the Securities by the Owner Trustee to the Placement Agent and the Beneficiary, by the Beneficiary to CL/PK Airfinance and by CL/PK Airfinance to the Participants on the Closing Date as contemplated by this Sale Agreement, does not (with the giving of notice or the passage of time or both) conflict or violate or result in a default under any term of the Trust Agreement or Participation Agreement, and (z) other matters as TWA may reasonably request relating to the existence of the Owner Trustee and its power and authority to enter into the transactions contemplated hereby. (i) TWA shall have received an opinion and the Placement Agent a reliance letter, dated the Closing Date, of Ray Quinney & Nebeker in form and substance satisfactory to TWA, to the effect that (x) this Sale Agreement has been duly authorized, executed and delivered by, and constitutes a valid and binding agreement of the Owner Trustee, (y) the execution, performance and delivery of this Sale Agreement by the Owner Trustee, including the transfer of the Securities by the Owner Trustee to the Placement Agent and the Beneficiary on the Closing Date as contemplated by this Sale Agreement, does not conflict (with the giving of notice or the passage of time or both) or violate or result in a default under any term of the Trust Agreement, and (z) other matters as TWA may reasonably request relating to the existence of the Owner Trustee and its power and authority to enter into the transactions contemplated hereby. (j) The lessors under the TBT Leases for the Aircraft shall have waived any required notice period for the Sale or such period shall have been satisfied and shall have confirmed that the Mortgages are permitted under such TBT Leases, such waivers and confirmations to be satisfactory to TWA. (k) The Operative Documents shall have been duly executed and delivered by the other parties thereto, shall be in full force and effect and each shall be in form and substance satisfactory to TWA. (l) No Government Entity shall have issued an order, decree or ruling or taken any other action to restrain, enjoin, prohibit or otherwise invalidate any transaction contemplated by this Sale Agreement, and no third party shall have commenced any proceeding requesting such relief. Section 7.02. Conditions to the Owner Trustee's Obligations to Sell the Aircraft. The following will be conditions precedent to the Owner Trustee's obligation to sell the Aircraft to TWA (it being understood that delivery of such documents and the Securities by TWA are subject to satisfaction of or waiver of the conditions set forth in Section 7.1): (a) TWA will have executed and delivered to the Owner Trustee Acceptance Certificates in the form of Exhibit C covering the Aircraft and effective as of the Closing Date. (b) TWA will have delivered to the Owner Trustee a certified copy of the board resolutions approving the Sale, the issuance of the Securities and the other actions contemplated by the Operative Documents. (c) TWA and the Owner Trustee will have executed and delivered a Lease Termination Agreement satisfactory to TWA and the Owner Trustee with respect to each Lease and each such Agreement shall have been filed with the FAA and shall have become effective in accordance with its terms thereby terminating the existing Leases. (d) The Aircraft shall have been registered in the name of TWA with the FAA. (e) The Aircraft shall have been released from the lien of any existing security agreement as evidenced by a lien release, in form and substance acceptable to TWA and the Owner Trustee, with respect to each Aircraft executed and delivered by the appropriate parties and filed with the FAA. (f) TWA shall have agreed in writing, in form and substance satisfactory to the Owner Trustee and the Placement Agent, to indemnify the Owner Trustee, the Beneficiary, each Participant and the Placement Agent against any liability arising under the TBT Leases or any related letters of credit to the TBT Lessors or other Persons, arising directly or indirectly from TWA's acquisition of the Aircraft and the Owner Trustee's sale of the Aircraft or arising subsequent to such acquisition and sale pursuant to this Sale Agreement. (g) The Operative Documents shall have been duly executed and delivered by the other parties thereto, shall be in full force and effect and each shall be in form and substance satisfactory to the Owner Trustee. (h) TWA shall have (i) complied with all preconditions to the Sale imposed upon it by the TBT Leases, including confirming that the Security Agreements and the Mortgage Supplements are permitted under such TBT Leases, and assumed the obligations of the Owner Trustee arising under each TBT Lease on and after the Closing Date, in each case in a manner satisfactory to the Owner Trustee or (ii) terminated the TBT Leases or, in a manner satisfactory to the Owner Trustee, assumed, as between TWA and the Owner Trustee, all obligations of the Owner Trustee under the TBT Leases and in each case deposited an amount of cash in an escrow account pursuant to an escrow agreement in form and substance satisfactory to Lazard Freres & Co. LLC sufficient in the judgment of Lazard Freres & Co. LLC to reimburse Lazard Freres & Co. LLC and CL/PK Airfinance for payments by them to reimburse the account party or Credit Lyonnais as issuer of certain letters of credit issued for the benefit of the TBT Lessors in the event that any TBT Lessor shall draw on any such letter of credit in connection with the relevant TBT Lease. (i) Satisfaction of the conditions precedent set forth in Section 7.04. Section 7.03. After Closing. Immediately upon TWA's purchase of the Aircraft, all risk of loss or damage to the Aircraft will pass from the Owner Trustee to TWA. Section 7.04. Conditions with Regard to the Issuance of the Securities. The obligations of the Owner Trustee hereunder to sell the Aircraft to TWA on the Closing Date are subject to the following additional conditions precedent: (a) (i) No order suspending the offer and sale of the Notes or the Equity Notes 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 Private Placement Memoranda shall have been distributed unless a copy thereof was first delivered to the Placement Agent, the Owner Trustee, the Beneficiary, CL/PK Airfinance and each Participant. (b) Since the date as of which information is given in the Private Placement Memoranda (i) there shall not have been any change in the capital stock (other than changes attributable to (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, or the conversion of shares of Employee Preferred Stock and (z) shares of Common Stock issuable upon conversion of the 8% Preferred Stock or the 9 1/4% Preferred Stock) or any increase in the long-term debt of TWA or any of its subsidiaries or any change in the business or financial condition of TWA and its 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 Private Placement Memoranda and (ii) neither TWA nor any of its subsidiaries 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 Private Placement Memoranda, which with respect to clauses (i) or (ii) of this Section 7.04(b), reasonably would be expected to result in a Material Adverse Effect. (c) Since the date as of which information is given in the Private Placement Memoranda, there shall have been no litigation or other proceeding instituted against TWA or any of its 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) As confirmed in an officers' certificate to be delivered by TWA to the Owner Trustee pursuant to paragraph (g) of this Section 7.04, each of the representations and warranties of TWA contained herein or in any Operative Document shall be true and correct in all material respects at the Closing Date, as if made on 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 TWA and all conditions herein or therein contained to be fulfilled or complied with by TWA at or prior to the Closing Date shall have been duly performed, fulfilled or complied with in all material respects. (e) The Owner Trustee shall have received an opinion, dated the Closing Date, from each of (i) Davis Polk & Wardwell, counsel to TWA, (ii) local Missouri counsel to TWA, which counsel shall be reasonably acceptable to the Owner Trustee, (iii) Crowe & Dunlevy, special FAA counsel to TWA, and (iv) Kathleen A. Soled, Esq., Senior Vice President and General Counsel to TWA, in each case in form and substance satisfactory to the Owner Trustee. (f) On the date hereof the Accountants shall have furnished to the Placement Agent a letter, dated the date of its delivery, addressed to the Placement Agent and in form and substance satisfactory to the Placement Agent, confirming that they are independent accountants with respect to TWA as required by the Securities Act and the Exchange Act and the rules and regulations promulgated thereunder and, with respect to the financial and other statistical and numerical information contained in or incorporated by reference into the Private Placement Memoranda, indicating the results of their limited procedures relative to such information. At the Closing Date, the Accountants shall have furnished to the Placement Agent 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. (g) There shall be furnished to the Owner Trustee a certificate in form and substance satisfactory to the Owner Trustee, dated the Closing Date, signed by each of the Chief Executive Officer and the Chief Financial Officer of TWA, addressed to the Owner Trustee, to the effect that: (i) Each signer of such certificate has carefully examined the Private Placement Memoranda and (A) as of the date of such certificate, such document is true and correct in all material respects and does not omit to state a material fact necessary in order to make the statement therein not untrue or misleading, (B) no event has occurred as a result of which it is necessary to amend or to supplement the Private Placement Memoranda as in effect on the Closing Date 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 7.4(b) has occurred or exists. (ii) Each of the representations and warranties of TWA contained in this Sale Agreement or in any Operative Document were, when originally made, and are as of the Closing Date, 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 TWA 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 TWA on or prior to the Closing Date has been duly, timely and fully complied with. (h) Prior to the Closing Date, the Notes shall be eligible for trading through the National Association of Securities Dealers, Inc. Private Offerings, Resales and Trading through Automated Linkages market ("PORTAL"). (i) TWA shall have furnished to the Owner Trustee such certificates, in addition to those specifically mentioned herein, as the Owner Trustee may have reasonably requested as to the accuracy and completeness as of the Closing Date of any statement in the Private Placement Memoranda, as to the accuracy as of the Closing Date of the representations and warranties of TWA in the Operative Documents, as to the performance by TWA of its obligations under the Operative Documents, or as to the fulfillment of the conditions concurrent and precedent to the obligations of the Owner Trustee under the Operative Documents; and all proceedings taken by TWA at or prior to the Closing in connection with the authorization, issuance and sale of the Securities and the creation and perfection of the liens in the Collateral contemplated by the Security Agreements shall be in form and substance satisfactory to the Owner Trustee and to their counsel. (j) Between the date of the Private Placement Memoranda and the Closing Date (i) no downgrading shall have occurred in the rating accorded the debt securities of TWA 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 Securities 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 TWA or any of its subsidiaries. (k) 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 Owner Trustee. (l) The Securities shall have been duly authorized, executed and delivered by TWA and duly authenticated by the Trustee in the manner provided for in the Indentures and shall be in form and substance satisfactory to the Owner Trustee and the Placement Agent. (m) At or before the Closing Date (i) evidence (including without limitation, the results of lien searches and security interest termination documents) satisfactory to the Owner Trustee of the absence of any liens other than Permitted Liens (as defined in the Definitions Appendices to the Indentures) on any of the Collateral shall have been furnished to the Owner Trustee, and (ii) such evidence of the completion of all recordings and filings of the Security Agreements and the Mortgage Supplements, and of the execution, delivery, recording and/or filing of such other documents, as may be necessary or, in the reasonable opinion of the Owner Trustee, desirable to create or perfect the liens created, or purported or intended to be created, by the Security Agreements shall have been furnished to the Owner Trustee. (n) On the Closing Date, TWA shall have delivered or cause to have been delivered to the Owner Trustee 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. (o) The Owner Trustee shall have received the following in each case in form and substance satisfactory to it: (i) a certificate dated the Closing Date of the Secretary or an Assistant Secretary of TWA, certifying (A) a copy of the resolutions of the board of directors of TWA, duly authorizing the transactions contemplated hereby and the execution, delivery and performance by TWA of the Securities and the Operative Documents and each other document required to be executed and delivered on the Closing Date by TWA in accordance with the provisions hereof and (B) on the Closing Date, a copy of the certificate of incorporation and by-laws of TWA; and (ii) in the case of each Aircraft, an insurance report of TWA's independent broker as to TWA's due compliance with terms of Section 6.3 of the Security Agreements and certificates of insurance issued by or on behalf of the insurers evidencing the insurance coverage required by such Section, which certificates shall specify, among other things, the amount of public liability insurance carried by TWA pursuant to such Section. (p) The following statements shall be true and correct and the Owner Trustee shall have received evidence in form and substance satisfactory to the Owner Trustee to the effect that: (i) each Aircraft shall have been duly certified by the FAA as to type and airworthiness and shall have a currently valid United States Standard Certificate of Airworthiness issued by the FAA; (ii) the FAA Bill of Sale for each Aircraft shall have been duly filed for recordation with the FAA pursuant to the Transportation Code with respect to such Aircraft; (iii) application for registration of each Aircraft in the name of TWA and a Declaration of International Operations with respect to each Aircraft shall have been duly made with the FAA and TWA shall have temporary or permanent authority to operate such Aircraft; (iv) TWA has such title to each Aircraft, free and clear of such Liens, in each case as described in a warranty bill of sale dated the Closing Date in the form of Exhibit D hereto, other than Permitted Liens (as defined in the Indentures); (v) the appropriate consent forms have been executed by TWA to be furnished by TWA to each TBT Lessor pursuant to Temporary Treasury Regulation Section 5c.168(f)(8)-2(a)(5), pursuant to which TWA agrees to take each of the Aircraft subject to its respective TBT Lease; and (vi) the Trustee and any holders of the Securities, are entitled to the protection of Section 1110 of the United States Bankruptcy Code in connection with its right to take possession of the Aircraft and Engines constituting part of such Aircraft in the event of a case under Chapter 11 of the United States Bankruptcy code in which TWA is a debtor. All of the certificates, opinions and documents delivered or caused to be delivered by TWA to the Owner Trustee pursuant to Section 7.02 and this Section 7.04 shall be addressed to and may be relied upon by the Owner Trustee, the Beneficiary, CL/PK Airfinance, the Placement Agent and each Participant to which a Security is transferred on the Closing Date. The Trustee shall receive on the Closing Date a letter from each person delivering an opinion pursuant to Article 7, authorizing the Trustee to rely on such opinion as if it had been addressed to the Trustee. Section 7.05. Conditions to Closing. If any of the conditions specified in this Article 7 shall not have been fulfilled or waived on or before April 20, 1998, this Sale Agreement and all of the Owner Trustee's and TWA's obligations hereunder may be canceled as of such date by either the Owner Trustee or TWA, each at its sole discretion; provided that neither the Owner Trustee nor TWA will waive as a condition to Closing receipt by the Placement Agent, in form and substance satisfactory to it, of any reliance letter, the letters from the Accountants described in Section 7.04(f), the Securities it is entitled to receive and any opinions required by this Article 7. Any cancellation pursuant to this Section 7.05 shall be without any liability on the part of any party hereto or its affiliates, directors, officers or shareholders, other than the Owner Trustee's obligations and the obligations of TWA pursuant to Article 11 and Section 13.01(e) hereof shall nevertheless survive and continue thereafter. Notice of such cancellation shall be given to TWA or the Owner Trustee, as the case may be, in writing or by telephone or facsimile transmission confirmed in writing. Nothing contained in this Section 7.05 shall relieve any party from liability for any breach of this Sale Agreement. ARTICLE 8 Termination Section 8.01. Termination by the Owner Trustee. The obligations of the Owner Trustee under this Sale Agreement may be terminated at any time on or prior to the Closing Date by notice to TWA from the Owner Trustee without liability on the part of the Owner Trustee to TWA, if, prior to the exchange of the Securities for the Aircraft, in the judgment of the Participants holding at least 66 2/3% of the participation interests under the Participation Agreement, (i) there has been, since the respective dates as of which information is given in the Private Placement Memoranda, any change or development in TWA's business, properties, business prospects, condition (financial or otherwise) or results of operations which has caused, or is reasonably expected to cause, a Material Adverse Effect (it being agreed that the execution and delivery of agreements for TWA's purchase or lease of 24 MD-83 aircraft, which are the subject of letters of intent referred to in the Private Placement Memoranda, and for the financing of such purchases and leases shall not be considered to have a Material Adverse Effect), (ii) trading in any of the equity securities of TWA 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 Sale 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, (v) the Closing Price (as defined in the Equity Note Indenture) of the Common Stock on the day preceding the Closing Date shall be 25% or more less than the Closing Price of the Common Stock on the day immediately preceding the date hereof, (vi) any Government Entity shall have issued an order, decree or ruling or taken any other action to restrain, enjoin, prohibit or otherwise invalidate any transaction contemplated by this Sale Agreement, or any third party shall have commenced any proceeding requesting such relief, (vii) at any time prior to the Closing Date, TWA shall announce any material consolidation, merger, acquisition (other than of aircraft) or similar transaction or (viii) 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 judgment of the Participants holding at least 66 2/3% of the participation interests under the Participation Agreement, impracticable or inadvisable to proceed with the completion of the Sale on the terms and in the manner contemplated by this Sale Agreement. Section 8.02. Effect of Termination. In the event of the termination and abandonment of this Sale Agreement pursuant to this Article 8, this Sale Agreement shall forthwith become void and have no effect, without any liability on the part of any party hereto or its affiliates, directors, officers or shareholders, other than Owner Trustee's obligations and the obligations of TWA pursuant to this Section 8.2 and Article 11 and Section 13.1(e) hereof. Nothing contained in this Section 8.2 shall relieve any party from liability for any breach of this Sale Agreement. ARTICLE 9 Owner Trustee Assignment of Rights and Warranties Section 9.01. Assignable Warranties. As set forth in Section 7.01(c), at the time of Sale, the Owner Trustee will assign to TWA any assignable warranties and indemnities given the Owner Trustee by the Manufacturer and the Engine Manufacturer and other vendors with respect to the Aircraft, including any rights which may have accrued prior to Sale but which have not been fully exercised by the Owner Trustee. Section 9.02. Non-Assignable Warranties. To the extent that any warranty or indemnity given to the Owner Trustee by Manufacturer and others with respect to the Aircraft cannot be assigned, TWA will be entitled to take such action to enforce such warranty or indemnity in the name of the Owner Trustee against Manufacturer and such other parties as TWA sees fit, but subject to the Owner Trustee's first ensuring that the Owner Trustee is indemnified and secured to the Owner Trustee's satisfaction against all losses, damages, costs, expenses and liabilities thereby incurred or to be incurred. ARTICLE 10 Expenses and Taxes Section 10.01. Costs and Expenses of Sales. TWA agrees to pay all costs and expenses with respect to the purchase and sale of the Aircraft, including but not limited to the costs and expenses to register the Aircraft in the name of TWA (but excluding the fees and expenses of the Owner Trustee's counsel other than FAA counsel). Section 10.02. Taxes. TWA will pay promptly when due, and will indemnify and hold harmless the Owner Trustee and the Beneficiary and any officers, directors, employees, agents and shareholders of the foregoing (each, a "Tax Indemnitee") on a full indemnity basis from, all taxes, duties and fees (including without limitation any value added, franchise, transfer, sales, gross receipts, use, business, occupation, excise, personal property, real property, stamp or other tax), and any assessments, penalties, fines, additions to tax or interest thereon, which may be levied in the United States of America or by any other Government Entity or taxing authority regardless of where located in connection with the sale, purchase, delivery, taking of possession, registration and deregistration of the Aircraft (excluding any income tax or U.S. federal withholding tax imposed upon the gross or net income of a Tax Indemnitee, and, with respect to a Tax Indemnitee, any taxes attributable to such Tax Indemnitee's gross negligence, willful misconduct or Owner Trustee's breach of this Sale Agreement) (collectively, "Taxes"). TWA's indemnity obligations will exist regardless of the manner in which such charges are imposed (whether imposed upon a Tax Indemnitee, TWA, all or part of the Aircraft or otherwise). Section 10.03. After-tax Basis. The amount which TWA is required to pay with respect to any Taxes indemnified against under this Article 10 is an amount sufficient to restore such Tax Indemnitee on an after-tax basis to the same position such Tax Indemnitee would have been in had such Taxes not been incurred. Section 10.04. Timing of Payment. Any amount payable to a Tax Indemnitee pursuant to this Article 10 will be paid within ten (10) days after receipt of a written demand therefor from such Tax Indemnitee accompanied by a written statement describing in reasonable detail the basis for such indemnity and the computation of the amount so payable; provided, however, that such amount need not be paid by TWA prior to the earlier of (i) the date any Tax is payable to the appropriate Government Entity or taxing authority or (ii) in the case of amounts which are being contested by TWA in good faith or by a Tax Indemnitee pursuant to Section 10.5, the date such contest is finally resolved. Section 10.05. Contests. If a claim is made against a Tax Indemnitee for Taxes with respect to which TWA is liable for a payment or indemnity hereunder, such Tax Indemnitee will promptly give TWA notice in writing of such claim; provided, however, that a Tax Indemnitee's failure to give notice will not relieve TWA of its obligations hereunder. So long as (i) TWA has provided such Tax Indemnitee, at such Tax Indemnitee's request, with an opinion of independent tax counsel satisfactory to such Tax Indemnitee that a reasonable basis exists for contesting such claim and (ii) adequate reserves have been made for such Taxes or, if required, an adequate bond has been posted, then such Tax Indemnitee, at TWA's written request, will in good faith, with due diligence and at TWA's sole expense, contest (or permit TWA to contest in the name of such Tax Indemnitee or TWA) the validity, applicability or amount of such Taxes. Section 10.06. Refunds. Upon receipt by a Tax Indemnitee of a refund of all or any part of any Taxes which TWA has paid, such Tax Indemnitee will pay to TWA the portion of any such refund attributable to Taxes which TWA has paid. Section 10.07. Cooperation in Filing Tax Returns. The Owner Trustee, the Beneficiary and TWA will cooperate with one another in providing information which may be reasonably required to fulfill each party's tax filing requirements and any audit information request arising from such filing. ARTICLE 11 Indemnities and Insurance Section 11.01. Indemnification with Regard to the Aircraft. (a) General Indemnity. Subject to Article 11.01(b), TWA agrees to defend, indemnify and hold harmless the Owner Trustee, the Beneficiary and their respective affiliates, and each of their respective officers, directors, employees, agents and shareholders (individually an "Aircraft Indemnitee" and collectively "Aircraft Indemnitees") from any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, disbursements and expenses (including legal fees, costs and related expenses) of every kind and nature ("Expenses") which may be incurred by an Aircraft Indemnitee after the Closing Date arising directly or indirectly out of or in any way connected with: (i) The ownership, possession, control, use or operation of any of the Aircraft (either in the air or on the ground) by TWA or any Person after the Sale of the Aircraft to TWA; provided the same shall not include any warranties of title running from the Owner Trustee or any taxes or other sums due or claimed to be due from the Owner Trustee for periods of time prior to the Closing Date. (ii) Any claim arising after the Sale that any design, article or material in any of the Aircraft or in the operation or use of any of the Aircraft constitutes an infringement of a patent, trademark, copyright, design or other proprietary right (but only to the extent not covered by the patent, trademark or copyright infringements provided to the Owner Trustee from the Manufacturer and the Engine Manufacturer). (b) Exceptions to General Indemnities. TWA will be released from the indemnity provided for in Section 11.01(a) only if and to the extent that it has been judicially determined that none of the acts or omissions which gave rise to or were related to the claim or Expense were attributable to the ownership, possession, control, use or operation of any of the Aircraft (either in the air or on the ground) by TWA or any Person following the Sale or to the extent resulting from the gross negligence, willful misconduct or bad faith of any Aircraft Indemnitee. (c) After-Tax Basis. The amount which TWA will be required to pay with respect to any Expense indemnified against under Section 11.01(a) will be an amount sufficient to restore each Aircraft Indemnitee, on an after-tax basis, to the same position such Aircraft Indemnitee would have been in had such Expense not been incurred. (d) Timing of Payment. It is the intent of the parties that each Aircraft Indemnitee will have the right to indemnification for Expenses hereunder as soon as a claim is made. TWA will pay an Aircraft Indemnitee for Expenses pursuant to this Section 11.01 within ten (10) days after receipt of a written demand therefor from such Aircraft Indemnitee accompanied by a written statement describing in reasonable detail the basis for such indemnity; subject to TWA's rights under Section 11.01(h). (e) Subrogation. Upon the payment in full of any indemnity pursuant to this Section 11.01 by TWA, TWA will be subrogated to any right of the Aircraft Indemnitee in respect of the matter against which such indemnity has been made. (f) Notice. Each Aircraft Indemnitee and TWA will give prompt written notice one to the other of any liability of which such party has knowledge for which TWA is, or may be, liable under Section 11.01(a); provided, however, that failure to give such notice will not terminate any of the rights of Aircraft Indemnitees under this Section 11.01 except to the extent that TWA has been materially prejudiced by the failure to provide such notice. (g) Refunds. If any Aircraft Indemnitee obtains a recovery of all or any part of any amount which TWA has paid to such Aircraft Indemnitee, such Aircraft Indemnitee will pay to TWA the net amount recovered by such Aircraft Indemnitee. (h) Defense of Claims. Unless a default hereunder has occurred and is continuing, TWA and its insurers will have the right (in each such case at TWA's sole expense) to investigate and, provided that TWA or its insurers has not reserved the right to dispute liability with respect to any insurance policies pursuant to which coverage is sought, defend or compromise any claim covered by insurance for which indemnification is sought pursuant to Section 11.01(a) and each Aircraft Indemnitee will cooperate with TWA or its insurers with respect thereto. If TWA or its insurers are retaining attorneys to handle such claim, such counsel must be reasonably satisfactory to the Aircraft Indemnitees. If not, the Aircraft Indemnitees will have the right to retain counsel of their choice at TWA's expense; provided that prior to entering into any settlement agreement relating to any such claim, such Aircraft Indemnitees shall either (i) obtain a written consent from TWA or its insurers or (ii) grant TWA and its insurers a release from and waiver of all further obligation to such Aircraft Indemnitees under this Section 11.01 with respect to such claim. (i) Other Indemnification. TWA will be obligated to indemnify and hold harmless the Aircraft Indemnitees in accordance with the terms of this Section 11.01 and the Aircraft Indemnitees may invoke TWA's obligations hereunder even though Owner Trustee or Beneficiary may also have received an agreement to indemnify and hold them harmless with respect to the same matters by any other Person. Section 11.02. Indemnification of TWA by Owner Trustee. (a) The Owner Trustee hereby agrees to indemnify and hold harmless TWA and its Affiliates and each of its officers, directors, employees, agents, advisors and representatives (but explicitly excluding Lazard Freres & Co. LLC in any of its capacities) (each an "Indemnified Party") from and against any and all damages, losses, liabilities, reasonable expenses and claims (including without limitation, reasonable fees and disbursements of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case to the extent arising out of or in connection with or relating to any investigation, litigation or proceeding or the preparation of any defense with respect thereto, arising out of any conflict, dispute or disagreement (x) between or among any of the Owner Trustee, the Beneficiary, CL/PK Airfinance or any Participant in connection with the Sale or (y) arising from the failure of TWA to have acquired the title to the Aircraft warranted in Article 12 because of the invalidity or ineffectiveness of the authorization of the Owner Trustee to enter into and conclude the Sale as provided herein, except to the extent such claim, damage, loss, liability or expense resulted from such Indemnified Party's gross negligence, willful misconduct or bad faith. Each Participant signing and delivering a transferee letter of representation substantially in the form of Annex B or Annex C hereto (an "Investor Letter"), as applicable, with a comparable indemnity shall be severally and not jointly liable to an Indemnified Party under this subsection (a) for such Participant's pro rata share of such liability (such share to bear the same relation to such liability as such Participant's interest in the Securities on the Closing Date bears to the aggregate principal amount of Securities of all Participants (disregarding for all purposes of this sentence all Securities owned from time to time by Lazard Freres & Co. LLC as a Participant except $394, 368.58 in aggregate principal amount) who have signed and delivered such Investor Letters from time to time). To the extent any Participant that signs and delivers an Investor Letter is found liable for any claim, damage, loss liability or expense, the Owner Trustee's liability for any such claim will be reduced by such amount. For the avoidance of doubt, the indemnity to be provided to TWA pursuant to this Section 11.02(a) and any Investor Letters is not intended to protect it against any liability arising in connection with the TBT Leases. (b) Each Indemnified Party and the Owner Trustee will give prompt written notice to each other of any liability of which any such party has knowledge for which the Owner Trustee is, or may be, liable under Section 11.02(a); provided, however, that failure to give such notice will not terminate any of the rights of any Indemnified Party under this Section 11.02, except to the extent that the Owner Trustee has been materially prejudiced by the failure to provide such notice. Upon the payment in full of any indemnity pursuant to this Section 11.02 by the Owner Trustee, the Owner Trustee will be subrogated, to any right of any Indemnified Party in respect of the matter against which such indemnity has been made. If any Indemnified Party obtains a recovery of all or any part of any amount which the Owner Trustee has paid to such Indemnified Party, such Indemnified Party will pay to the Owner Trustee the net amount recovered by such Indemnified Party. The Owner Trustee and its insurers will have the right (in each such case at the Owner Trustee's expense) to investigate and, provided that the Owner Trustee or its insurers have not reserved the right to dispute liability with respect to any insurance policies pursuant to which coverage is sought, defend or compromise any claim covered by insurance for which indemnification is sought pursuant to Section 11.02 and each Indemnified Party will cooperate with the Owner Trustee or its insurers with respect thereto. If the Owner Trustee or its insurers are retaining attorneys to handle such claim, such counsel must be reasonably satisfactory to the relevant Indemnified Party. If not, any such Indemnified Party will have the right to retain counsel of its choice at the Owner Trustee's expense; provided that prior to entering into any settlement agreement relating to any such claim, such Indemnified Party shall either (i) obtain a written consent from the Owner Trustee or its insurers or (ii) grant Owner Trustee and its insurers a release from and waiver of all further obligation to such Indemnified Party under this Section 11.02 with respect to such claim. Section 11.03. Insurance. (a) TWA shall maintain or cause to be maintained, at all times for a period of three (3) years after the Closing Date, at no expense to and for the benefit of the Owner Trustee or any other Aircraft Indemnitee, comprehensive public liability insurance (including, without limitation, contractual liability, passenger liability, premises hangar keepers liability and products liability) and property damage insurance with respect to the Aircraft of the type usual and customary by commercial scheduled airline standards for airline carriers of a similar size to TWA operating similar aircraft and providing for no less coverage than is carried by TWA on similar aircraft in its fleet. Such policy shall include war and allied risks in accordance with standard market practice. Such insurance shall be in an amount not less than the amount applicable to similar passenger aircraft and engines which comprise TWA's fleet, and in any event not less than Seven Hundred Fifty Million Dollars ($750,000,000). In addition the insurance shall provide that the insurer waive any right it may have to be subrogated to any right of any insured against an Aircraft Indemnitee with respect to the Aircraft. (b) On the Closing Date, and on each renewal of the insurance required hereby, but not less often than annually, TWA shall furnish the Owner Trustee and the Trustee with a certificate of insurance executed by an independent insurance broker appointed by TWA certifying that the insurance then maintained on the Aircraft complies with the terms of this Section 11.03. Such certificate will certify that the insurance policy or policies: (i) contains a standard clause which provides for a thirty (30) days' advance notice of cancellation (seven (7) days' notice or as available in the case of war risk), non-renewal or material change and (ii) sets forth the corresponding waiver of subrogation and other endorsements required by Section 11.03 hereof. ARTICLE 12 Representations, Warranties and Covenants of Owner Trustee Section 12.01. Owner Trustee's Representations, Warranties and Covenants In Its Individual Capacity. Owner Trustee, in its individual capacity, represents, warrants and covenants that: (a) Organization, etc. Owner Trustee is a national banking association duly organized, validly existing and in good standing under the laws of the United States and has all requisite power, authority and legal right to enter into and perform its obligations under this Sale Agreement and any other Operative Document to which Owner Trustee is a party. (b) Authorization, etc. Owner Trustee, in its trust capacity and, to the extent expressly provided therein, in its individual capacity, has duly authorized, executed and delivered this Sale Agreement and, as of the Closing Date will have duly authorized, executed and delivered, any other Operative Document to which Owner Trustee is a party in its individual capacity or as Owner Trustee, as the case may be. This Sale Agreement constitutes, and any other Operative Document to which the Owner Trustee is a party will as of the Closing Date constitute, a legal, valid and binding obligation of Owner Trustee in its individual capacity enforceable against Owner Trustee in its individual capacity or as Owner Trustee, as the case may be, in accordance with the respective terms hereof and 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). (c) No Violation. Neither the execution and delivery or performance by Owner Trustee, in its individual capacity or as Owner Trustee, as the case may be, of this Sale Agreement and any other Operative Document to which Owner Trustee is a party, nor consummation of any of the transactions as contemplated thereby, will result in any violation of, or be in conflict with, or constitute a default under, or result in the creation of any Lien upon any property of Owner Trustee under, any of the provisions of Owner Trustee's charter or by-laws, or of any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, lease, note or bond purchase agreement, license, bank loan, credit agreement or other agreement to which Owner Trustee is a party or by which Owner Trustee is bound, or any law, judgment, governmental rule, regulation or order of any State of Utah or United States of America government or governmental authority or agency governing the banking or trust powers of Owner Trustee. (d) No Consents or Approvals. Neither the execution and delivery by Owner Trustee, in its individual capacity or as Owner Trustee, as the case may be, of this Sale Agreement or any other Operative Document to which Owner Trustee is a party nor the consummation of any of the transactions contemplated hereby or thereby requires the consent or approval of, the giving of notice to, or the registration with, any Utah state governmental authority or agency or any United States federal governmental authority or agency governing the banking or trust powers of Owner Trustee. (e) Discharge of Liens. There are no Lessor Liens on the Trust Estate (as defined in the Trust Agreement) and Owner Trustee agrees that it will, in its individual capacity and at its own cost and expense (but without any right of indemnity in respect of any such cost or expense under Section 11.01 hereof), promptly take such action as may be necessary to duly discharge and satisfy in full all Lessor Liens. (f) Litigation. There are no pending or, to the actual knowledge of an official in Owner Trustee's Corporate Trust Services division, threatened actions or proceedings before any court or administrative agency to which Owner Trustee is a party, or any other actions or proceedings before any court or administrative agency which relate to Owner Trustee's banking or trust powers which, if determined adversely to Owner Trustee, would materially and adversely affect its right, power and authority to perform its obligations under the Trust Agreement, this Sale Agreement or any other Operative Document to which it is or will be a party. Section 12.02. Owner Trustee's Representations, Warranties and Covenants. Owner Trustee represents, warrants and covenants that: (a) Discharge of Liens. There are no liens on the Aircraft or the Engines attributable to Owner Trustee or to any Person claiming by or through Owner Trustee except as contemplated by the Operative Documents. (b) Title to the Aircraft. On the Closing Date, Owner Trustee will have such title to the Aircraft, free and clear of such Security Interests, in each case, as described in a warranty bill of sale dated the Closing Date in the form of Exhibit D hereto, and Owner Trustee will indemnify and defend TWA in respect of any claims, losses, costs, expenses, charges or liabilities arising out of any defect in Owner Trustee's title to the full extent provided in the said warranty bill of sale. (c) Performance of Lease. Owner Trustee shall be responsible for the payment, performance and discharge of, and shall fully and completely pay, perform and discharge, all of its obligations under each Lease in accordance with the terms thereof. (d) Valid and Binding Agreements. Assuming the due authorization, execution and delivery of the other Operative Documents by the other parties thereto, this Sale Agreement is, and the other Operative Documents to which Owner Trustee is a party will be legal, valid and binding obligations of Owner Trustee, enforceable against Owner Trustee in accordance with the respective terms thereof. Section 12.03. Representations, Warranties and Covenants of the Owner Trustee Regarding the Securities. (a) The Owner Trustee represents, warrants and agrees that the Securities have not been, and the shares of the Company's Common Stock issuable upon conversion of the Equity Notes (the "Restricted Common Stock") at the time of issuance will not be, registered under the Securities Act, and, unless so registered, may not be sold except as permitted in the following sentence. The Owner Trustee agrees on its own behalf and on behalf of any investor account for which it is purchasing Securities or, following conversion of the Equity Notes, shares of Restricted Common Stock, to offer, sell or otherwise transfer such Securities or shares of Restricted Common Stock prior to the date which is two years after the later of the date of original issue and the last date on which TWA or any affiliate of TWA was the owner of such Securities (or any predecessor thereto) or, following conversion of the Equity Notes, such Restricted Common Stock (the "Resale Restriction Termination Date") only (a) to TWA, (b) pursuant to a registration statement which has been declared effective under the Securities Act, (c) with respect to the Notes, for so long as the Notes are eligible for resale pursuant to Rule 144A under the Securities Act ("Rule 144A") to a person it reasonably believes is a qualified institutional buyer under Rule 144A (a "QIB") that purchases for its own account or for the account of a QIB and to whom notice is given that the transfer is being made in reliance on Rule 144A, (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 ("Regulation S"), (e) to an institutional "accredited investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) (or, in the case of the Beneficiary only, (8)) of Rule 501 under the Securities Act that is purchasing for his 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 thereof in violation of the Securities Act, or (f) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of its property or the property of such investor account or accounts be at all times within its control and in compliance with any applicable state securities laws. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Securities or Restricted Common Stock is proposed to be made pursuant to clause (d), (e) or (f) above prior to the Resale Restriction Termination Date, Owner Trustee shall deliver a letter from the transferee substantially in the form attached as Annex B or Annex C hereto (except that any letter executed and delivered by any transferee that is not a Participant need not contain paragraph 7 and 8 thereof), as applicable, to the Trustee, which shall provide, among other things, that, as applicable, the transferee is (x) an institution that, at the time the buy order was originated, was outside the United States and was not a U.S. person (and was not purchasing for the account or benefit of a U.S. person) within the meaning of Regulation S under the Securities Act or (y) an institutional "accredited investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) (or, in the case of the Beneficiary only, (8)) of Rule 501 under the Securities Act and that it is acquiring such Securities or Restricted Common Stock for investment purposes (other than in the case where the Beneficiary or CL/PK Airfinance is the transferee and such Securities are to be further distributed to the Participants) and not for distribution in violation of the Securities Act. The Owner Trustee acknowledges that TWA and the Trustee reserve the right prior to any offer, sale or other transfer by Owner Trustee pursuant to clause (d), (e) or (f) prior to the Resale Restriction Termination Date with respect to the Securities or Restricted Common Stock to require the delivery of an opinion of counsel, certifications and/or other information satisfactory to TWA and the Trustee. (b) The Owner Trustee represents and warrants that it is either (i) an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) purchasing for its own account or for the account of such an institutional "accredited investor" and it is not acquiring the Securities with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act and it has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment in the Securities, and it is able to bear the economic risk of its investment or (ii) an institution that, at the time the buy order for the Securities was originated, was outside the United States and was not a U.S. person (and was not purchasing for the account or benefit of a U.S. person) within the meaning of Regulation S under the Securities Act. (c) The Owner Trustee represents, warrants and agrees that it has received copies of the Private Placement Memoranda and acknowledges that it has had access to such financial and other information, and have been afforded the opportunity to ask such questions of representatives of TWA and receive answers thereto, as it deems necessary in connection with its decision to purchase the Securities. (d) The Owner Trustee represents and warrants that the purchase of the Securities hereunder does not constitute a "prohibited transaction" under Section 406 of ERISA or Section 4975 of the Code. The Owner Trustee agrees on its own behalf and on behalf of any investor account for which it is purchasing Securities to offer, sell or otherwise transfer such Securities in transactions which will not constitute prohibited transactions under Section 406 of ERISA or Section 4975 of the Code. (e) The Owner Trustee will not take, and will not cause anyone to take, any manipulative action with respect to the price of the Common Stock in violation of applicable law. Section 12.04. TBT Leases Excluded. The TBT Leases are excluded from the foregoing representations and warranties in this Article 12. ARTICLE 13 Agreements of TWA Section 13.01. Agreements of TWA. TWA agrees with the Owner Trustee as follows: (a) TWA 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 Notes or the Equity Notes to sell Transfer Restricted Securities (as defined below) without registration under the Securities Act within the limitation of the exemptions provided by (i) in the case of the Securities, Rule 144, as such rule may be amended from time to time, (ii) in the case of the Notes, 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 Note and Equity Note, until the date on which such Note has been effectively registered under the Securities Act and disposed of in accordance with the registration statement or such Equity Note has been converted into Common Stock and the resale of such Common Stock has been registered under the Securities Act pursuant to the Shelf Registration Statement, the date on which such Note or Equity Note is distributed to the public pursuant to Rule 144 or the date on which such Note or Equity Note may be sold or transferred without any restrictions pursuant to Rule 144(k) (or any similar provisions then in force). (b) Neither TWA 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 in a manner that would require the registration under the Securities Act of the sale of the Notes or Equity Notes to the Owner Trustee. (c) Neither TWA nor any affiliate (as defined in Rule 501 (b) of the Securities Act) of TWA 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 Notes or Equity Notes in a manner that would require the registration under the Securities Act of the sale of the Notes or Equity Notes to the Owner Trustee. (d) TWA 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. (e) Whether or not the transactions contemplated by this Sale Agreement are consummated or this Sale Agreement is terminated, TWA will pay all costs and expenses incident to the performance of the obligations of TWA under this Sale 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 Private Placement Memoranda, the Operative Documents, the Exchange Offer Registration Statement and any amendments, exhibits and supplements thereto, (2) the preparation and delivery of certificates representing the Securities, (3) making the Notes eligible for trading through PORTAL, (4) any registration or qualification of the Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions designated pursuant hereto, including the reasonable fees, disbursements and other charges of counsel to the Owner Trustee and the Placement Agent in connection therewith, and the preparation and printing of preliminary, supplemental and final Blue Sky memoranda, (5) counsel for TWA, (6) the transfer agent and registrar for the Securities, (7) the listing of the Notes and the Common Stock issuable upon conversion of the Equity Notes on the American Stock Exchange, (8) approval of the Notes by DTC for "book entry" transfer, (9) all the costs and expenses of creating and perfecting security interests in the Collateral in favor of the Trustee pursuant to the Security Agreements including, without limitation, filing and recording fees and expenses, fees and expenses of counsel for TWA for providing such opinions as the Owner Trustee may reasonably request, (10) the fees and expenses of the Trustee, including the fees and disbursements of counsel for the Trustee, in connection with the Operative Documents and the Securities, and (11) all other costs and expenses incident to the performance of TWA's obligations hereunder and under the Operative Documents which are not otherwise specifically provided for in this Article 13. (f) TWA will use its reasonable best efforts to cause the Notes to be designated as eligible for trading in the PORTAL market and/or for clearance and settlement through DTC. (g) During the period of two years after the Closing Date, TWA will not resell any of the Notes or the Equity Notes which constitute "restricted securities" under Rule 144 that have been acquired by it. (h) On or before the Closing Date, TWA and its subsidiaries, as applicable, shall enter into and comply with the Operative Documents other than this Sale Agreement. (i) TWA shall comply with all agreements set forth in the representation letter of TWA to DTC relating to the approval of the Notes by DTC for "book-entry" transfer. (j) TWA shall furnish the Trustee, promptly after the Closing Date, the results of UCC searches in each of the jurisdictions where a filing is required to be made pursuant to any Operative Document as contemplated by Section 7.04(m) hereof. Such UCC searches shall indicate that there exists no lien, charge or encumbrance on the Collateral other than Permitted Liens (as defined in the Security Agreements). (k) TWA agrees to use its reasonable best efforts to list the Notes on the American Stock Exchange, or on such other stock exchange or market as the Common Stock is then principally traded, no later than the earliest to occur of (i) the effectiveness of the initial Exchange Offer Registration Statement and (ii) the effectiveness of the initial Shelf Registration Statement provided that such Notes meet the minimum requirements for listing on any such exchange or market, and, if applicable, to use its reasonable best efforts to maintain such listing for so long as any of the Notes are outstanding. (l) Promptly upon completion by the FAA of the processing of the documents referred to in Sections 7.04(m)(ii), 7.04(p)(ii) and 7.04(p)(iii), TWA will instruct Crowe & Dunlevy, P.C., special FAA counsel, to deliver to the Trustee and TWA an opinion addressed to each of them as to the due recordation of the documents that were filed for recording, the absence of any intervening Liens filed with the FAA with respect to each Aircraft and the due perfection under the Transportation Code of the Trustee's security interest in such Aircraft pursuant to the Security Agreements. (m) TWA will not take, and will not cause anyone to take, any manipulative action with respect to the price of the Common Stock in violation of applicable law. ARTICLE 14 Notices Section 14.01. Manner of Sending Notices. Any notice required or permissible under this Sale Agreement will be in writing and in English. Notices will be delivered in person or sent by telex, fax, letter (mailed airmail, certified and return receipt requested), or by expedited delivery addressed to the parties as set forth in Section 14.02. In the case of a telex or fax, notice will be deemed received upon actual receipt (in the case of a fax notice, the date of actual receipt will be deemed to be the date set forth on the confirmation of receipt produced by the sender's fax machine immediately after the fax is sent). In the case of a mailed letter, notice will be deemed received on the tenth (10th) day after mailing. In the case of a notice sent by expedited delivery, notice will be deemed received on the date of delivery set forth in the records of the Person which accomplished the delivery. If any notice is sent by more than one of the above listed methods, notice will be deemed received on the earliest possible date in accordance with the above provisions. Section 14.02. Notice Information. Notices will be sent: If to TWA: TRANS WORLD AIRLINES, INC. One City Centre 515 N. Sixth Street St. Louis, Missouri 63101 United States of America Attention: Senior Vice President - Finance and Chief Financial Officer Fax: (314) 589-3125 Telephone: (314) 589-3112 with a copy to: TRANS WORLD AIRLINES, INC. One City Centre 515 N. Sixth Street St. Louis, Missouri 63101 Attention: Senior Vice President and General Counsel Telephone Number: (314) 589-3261 Telefax Number: (314) 589-3267 If to OWNER FIRST SECURITY BANK, NATIONAL TRUSTEE: ASSOCIATION 79 South Main Street Salt Lake City, UT 84111 Attention: Corporate Trust Services Fax: (801) 246-5053 Telephone: (801) 246-5630 with a copy to: SEVEN SIXTY SEVEN LEASING, INC. c/o CL/PK AIRFINANCE, New York Branch 152 West 57th Street New York, NY 10022 Attention: Anders Hebrand Fax: (212) 397-9393 Telephone: (212) 245-2575 or to such other places and numbers as either party directs in writing to the other party. ARTICLE 15 Miscellaneous Section 15.01. GOVERNING LAW. THIS SALE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Section 15.02. No Brokers. The Aircraft are being sold and purchased without a broker, except that the Placement Agent is acting as placement agent for TWA in connection with the Sale in accordance with the Placement Agreement. If any person other than the Placement Agent asserts any claim against the Owner Trustee or TWA for fees or commissions by reason of any alleged agreement to act as a broker for the Owner Trustee or TWA in this transaction, the party for which said person claims to have acted will on demand defend, indemnify and hold harmless the other parties from and against all claims, demands, liabilities, damages, losses, judgments and expenses of every kind (including reasonable legal fees, costs and related expenses) arising out of such claim. Section 15.03. Confidentiality. This Sale Agreement is a confidential document among TWA, the Owner Trustee and the Beneficiary and will not be disclosed by a party to third parties (other than to such party's auditors, legal and technical advisors, to the Placement Agent, to CL/PK Airfinance, to the Participants, to subsequent holders of Securities, and to the legal advisors of any such Persons or as required by applicable laws and regulations) without the prior written consent of the other parties; provided that copies of this Sale Agreement may be disclosed by any of the parties hereto following receipt from such prospective purchaser of a written acknowledgment that it will observe the confidentiality obligations set forth in this Section 15.03. If disclosure is required by applicable law or regulation, the parties hereto will cooperate to obtain confidential treatment as to the commercial terms and other material terms of this Sale Agreement. Section 15.04. Successors and Assigns. Except to the extent expressly provided in the Sale Agreement or in any other Operative Document, this Sale Agreement has been and is made solely for the benefit of the parties hereto and of the affiliates, controlling persons, Shareholders, directors, officers, employees and agents referred to in Article 11, and their respective successors and assigns (including, without limitation and without the need for an express assignment, subsequent holders of Securities), and no other person shall acquire or have any right under or by virtue of this Sale Agreement. Section 15.05. Rights of Parties. The rights of the parties hereunder are cumulative, not exclusive, may be exercised as often as each party considers appropriate and are in addition to its rights under general law. The rights of any one party against any other party are not capable of being waived or amended except by an express waiver or amendment in writing. Any failure to exercise or any delay in exercising any of such rights will not operate as a waiver or amendment of that or any other such right; any defective or partial exercise of any such rights will not preclude any other or further exercise of that or any other such right; and no act or course of conduct or negotiation on a party's part or on its behalf will in any way preclude such party from exercising any such right or constitute a suspension or any amendment of any such right. Section 15.06. Further Assurances. Each party agrees from time to time to do and perform such other and further acts and execute and deliver any and all such other instruments as may be required by law or reasonably requested by the other party to establish, maintain or protect the rights and remedies of the requesting party or to carry out and effect the intent and purpose of this Sale Agreement. Section 15.07. Use of Word "Including". The term "including" is used herein without limitation and by way of example only. Section 15.08. Headings. All article and paragraph headings and captions are purely for convenience and will not affect the interpretation of this Sale Agreement. Any reference to a specific article, paragraph or section will be interpreted as a reference to such article, paragraph or section of this Sale Agreement. Section 15.09. Invalidity of Any Provision. If any of the provisions of this Sale Agreement become invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired. Section 15.10. Waiver of Trial by Jury. THE PARTIES HERETO EACH HEREBY IRREVOCABLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED UPON OR ARISING OUT OF THIS SALE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Section 15.11. Amendments in Writing. The provisions of this Sale Agreement may only be amended, modified or waived by a writing executed by the parties hereto. Section 15.12. Entire Agreement. This Sale Agreement and each of the other Operative Documents constitutes the entire agreement among the parties in relation to the sale of the Aircraft by Owner Trustee to TWA the purchase by TWA of the Aircraft from Owner Trustee and the issuance by TWA of the Notes and the Equity Notes in payment of the purchase price of the Aircraft and supersedes all previous proposals, agreements and other written and oral communications in relation hereto. The parties acknowledge that as among themselves there have been no representations, warranties, promises, guarantees or agreements, express or implied, except as set forth herein or therein. Section 15.13. Counterparts. This Sale 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. Section 15.14. Third Party Beneficiary. Except to the extent expressly provided herein and below this Sale Agreement is for the sole benefit of the parties hereto, their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other person any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Sale Agreement. Notwithstanding the foregoing, the parties hereto expressly acknowledge and agree that Lazard Freres & Co. LLC be and hereby is irrevocably designated a third party beneficiary of this Sale Agreement. ARTICLE 16 Authorization of Beneficiary Section 16.01. Authorization of Beneficiary. Pursuant to Section 5(a) of the Agreement Among Participants, dated as of January 24, 1995, among CL/PK Airfinance, Credit Lyonnais, A/S Bergens Skillingsbank, Hamburgische Landesbank GZ, Nordeutsche Landesbank GZ, Credit Foncier de France, Credit Industriel et Commercial de Paris and Credit D'Equipement des PME, and Section 5.2 of the Trust Agreement, the Beneficiary hereby authorizes and directs the Owner Trustee to execute this Sale Agreement on the date hereof. IN WITNESS WHEREOF, the parties hereto have caused this Sale Agreement to be duly executed by their respective officers as of this ____ day of April 1998. TRANS WORLD AIRLINES, INC. By: ------------------------------------ Name: Title: FIRST SECURITY BANK, NATIONAL ASSOCIATION, not in its individual capacity, except as expressly stated herein, but solely as Owner Trustee By: ------------------------------------ Name: Title: SEVEN SIXTY SEVEN LEASING, INC. By: ------------------------------------ Name: Title: Annex 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 OF THESE SECURITIES AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THESE SECURITIES (OR ANY PREDECESSOR OF THESE SECURITIES) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, [(C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT,](*) (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'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 ATTACHED TO OR ON THE REVERSE SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. 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 TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS THE TRUSTEE MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS. - --------------- (*) Exclude in the case of Equity Notes. Annex B TRANSFEREE LETTER OF REPRESENTATION Trans World Airlines, Inc. c/o First Security Bank, National Association 79 South Main Street Salt Lake City, UT 84111 Dear Sirs: In connection with our proposed acquisition of $ of 11 3/8% Senior Secured Notes due 2003 (the "Notes") of Trans World Airlines, Inc., a Delaware corporation (the "Company"), we confirm that: 1. We understand that the Notes have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and, unless so registered, may not be sold except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing Notes to offer, sell or otherwise transfer such Notes prior to the date which is two years after the later of the date of original issue and the last date on which the Company or any affiliate of the Company was the owner of such Notes (or any predecessor thereto) (the "Resale Restriction Termination Date") only (a) to the Company, (b) pursuant to a registration statement which has been declared effective under the Securities Act, (c) for so long as the Notes are eligible for resale pursuant to Rule 144A under the Securities Act ("Rule 144A") to a person we reasonably believe is a qualified institutional buyer under Rule 144A (a "QIB") that purchases for its own account or for the account of a QIB and to whom notice is given that the transfer is being made in reliance on Rule 144A, (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 ("Regulation S"), (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 purchasing for his 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 thereof in violation of the Securities Act, or (f) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of our property or the property of such investor account or accounts be at all times within our or their control and in compliance with any applicable state securities laws. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Notes is proposed to be made pursuant to clause (d), (e) or (f) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in the form of this letter to First Security Bank, National Association, which shall provide, among other things, that, as applicable, the transferee is (x) an institution that, at the time the buy order was originated, was outside the United States, was not a U.S. person (and was not purchasing for the account or benefit of a U.S. person) within the meaning of Regulation S under the Securities Act or (y) an institutional "accredited investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act and that it is acquiring such Notes for investment purposes and not for distribution in violation of the Securities Act. We acknowledge on our own behalf and on behalf of any investor account for which we are purchasing Notes that the Company and First Security Bank, National Association reserve the right prior to any offer, sale or other transfer pursuant to clause (d), (e) or (f) prior to the Resale Restriction Termination Date of the Restricted Securities to require the delivery of an opinion of counsel, certifications and/or other information satisfactory to the Company and First Security Bank, National Association. 2. We are either (i) an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) (or in the case of the Beneficiary only, (8)) of Regulation D under the Securities Act) purchasing for our own account or for the account of such an institutional "accredited investor," and we are acquiring the Notes 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 and we have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment or (ii) an institution that, at the time the buy order for the Notes was originated, was outside the United States and was not a U.S. person (and was not purchasing for the account or benefit of a U.S. person) within the meaning of Regulation S under the Securities Act. [3. We are acquiring the Notes purchased by us for our own account or for one or more accounts as to each of which we exercise sole investment discretion.](*) 4. We [have received a copy of the Private Placement Memorandum relating to the Notes and](**) acknowledge that we have had access to such financial and other information, and have been afforded the opportunity to ask such questions of representatives of the Company and receive answers thereto, as we deem necessary in connection with our decision to purchase the Notes. 5. You are entitled to rely upon this letter and you are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or pursuant to any official inquiry with respect to the matters covered hereby. 6. We hereby represent and covenant that we are not acquiring the Notes for or on behalf of, and will not transfer the Notes to, any pension or welfare plan as defined in Section 3 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), except that such a purchase for or on behalf of a pension or welfare plan shall be permitted: (i) to the extent such purchase is made by or on behalf of a bank collective investment fund maintained by the purchaser in which no plan (together with any other plans maintained by the same employer or employee organization) has an interest in excess of 10% of the total assets in such collective investment fund, and the other applicable conditions of Prohibited Transaction Class Exemption 91-38 issued by the Department of Labor are satisfied; (ii) to the extent such purchase is made by or on behalf of an insurance company pooled separate account maintained by the purchaser in which, at any time while the Notes are outstanding, no plan (together with any other plans maintained by the same employer or employee organization) has an interest in excess of 10% of the total of all assets in such pooled separate account, and the other applicable conditions of Prohibited Transaction Class Exemption 90-1 issued by the Department of Labor are satisfied; (iii) to the extent such purchase is made on behalf of a plan by (A) an investment adviser registered under the Investment Advisers Act of 1940, as amended (the "1940 Act"), that had as of the last day of its most recent fiscal year total assets under its management and control in excess of $50.0 million and had stockholders' or partners' equity in excess of $750,000, as shown in its most recent balance sheet prepared in accordance with generally accepted accounting principles, or (B) a bank as defined in Section 202(a)(2) of the Investment Advisers Act of 1940, as amended, with equity capital in excess of $1.0 million as of the last day of its most recent fiscal year, or (C) an insurance company which is qualified under the laws of more than one state to manage, acquire or dispose of any assets of a pension or welfare plan, which insurance company has as of the last day of its most recent fiscal year, net worth in excess of $1.0 million and which is subject to supervision and examination by State authority having supervision over insurance companies and, in any case, such investment adviser, bank or insurance company is otherwise a qualified professional asset manager, as such term is used in - --------------- (*) Include in letters delivered by any transferee other than the Beneficiary and CL/PK Airfinance, except that paragraph 3 shall be included in any letter delivered by CL/PK Airfinance with respect to Securities it has received in payment of the Advisory Fee. Letters delivered by the Beneficiary and CL/PK Airfinance may include additional modifications to the extent consistent with Section 12.03 of the Aircraft Sale and Note Purchase Agreement dated as of April 9, 1998 among TWA, the Owner Trustee and the Beneficiary. (**) Include only in letters delivered by the Beneficiary, CL/PK Airfinance and any Participant. Prohibited Transaction Class Exemption 84-14 issued by the Department of Labor, and the assets of such plan when combined with the assets of other plans established or maintained by the same employer (or affiliate thereof) or employee organization and managed by such investment adviser, bank or insurance company, do not represent more than 20% of the total client assets managed by such investment adviser, bank or insurance company at the time of the transaction, and the other applicable conditions of such exemption are otherwise satisfied; (iv) to the extent such plan is a governmental plan (as defined in Section 3 of ERISA), which is not subject to the provisions of Title I of ERISA or Section 401 of the Code; (v) to the extent such purchase is made by or on behalf of an insurance company using the assets of its general account, the reserves and liabilities for the general account contracts held by or on behalf of any plan, together with any other plans maintained by the same employer (or its affiliates) or employee organization, do not exceed 10% of the total reserves and liabilities of the insurance company general account (exclusive of separate account liabilities), plus surplus as set forth in the National Association of Insurance Commissioners Annual Statement filed with the state of domicile of the insurer, in accordance with Prohibited Transaction Class Exemption 95-60, and the other applicable conditions of such exemption are otherwise satisfied; or (vi) to the extent such purchase is made by an in-house asset manager within the meaning of Part IV(a) of Prohibited Transaction Class Exemption 96-23, such manager has made or properly authorized the decision for such plan to purchase Notes, under circumstances such that Prohibited Transaction Class Exemption 96-23 is applicable to the purchase and holding of such Notes. [7. (a) We hereby agree, severally and not jointly, to indemnify and hold harmless the Company, and its affiliates and each of its officers, directors, employees, agents, advisors and representatives (but explicitly excluding Lazard Freres & Co. LLC) (each an "Indemnified Party") from and against any and all damages, losses, liabilities, expenses and claims (including without limitation, reasonable fees and disbursements of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case to the extent arising out of or in connection with or relating to any investigation, litigation or proceeding or the preparation of any defense with respect thereto, any conflict, dispute or disagreement (x) between or among any of the Owner Trustee, the Beneficiary, CL/PK Airfinance or any Participant in connection with the Sale or (y) arising from the failure of TWA to have acquired the title to the Aircraft warranted in Article 12 of the Aircraft Sale and Note Purchase Agreement dated as of April 9, 1998 among TWA, the Owner Trustee and the Beneficiary because of the invalidity or ineffectiveness of the authorization of the Owner Trustee to enter into and conclude the Sale as provided herein, except to the extent such claim, damage, loss, liability or expense resulted from such Indemnified Party's gross negligence, willful misconduct or bad faith. We hereby acknowledge that by executing this letter we shall be severally and not jointly liable to an Indemnified Party for our pro rata share of such liability (such share to bear the same relation to such liability as such Participant's interest in the Notes on the Closing Date bears to the aggregate principal amount of Notes of all Participants (disregarding for all purposes of this sentence all Notes owned from time to time by Lazard Freres & Co. LLC as a Participant except $227,156.30 in aggregate principal amount) who have signed and delivered such Investor Letters from time to time). (b) Each Indemnified Party will give prompt written notice to each other of any liability of which any such person has knowledge for which the undersigned is, or may be, liable under paragraph 7(a); provided, however, that failure to give such notice will not terminate any of the rights of any Indemnified Party under this paragraph 7, except to the extent that the undersigned has been materially prejudiced by the failure to provide such notice. Upon the payment in full of any indemnity pursuant to this paragraph 7 by the undersigned, the undersigned will be subrogated to any right of any Indemnified Party in respect of the matter against which such indemnity has been made. If any Indemnified Party obtains a recovery of all or any part of any amount which the undersigned has paid to such Indemnified Party, such Indemnified Party will pay to the undersigned the net amount recovered by such Indemnified Party. The undersigned and its insurers will have the right (in each such case at the undersigned's expense) to investigate and, provided that the undersigned or its insurers have not reserved the right to dispute liability with respect to any insurance policies pursuant to which coverage is sought, defend or compromise any claim covered by insurance for which indemnification is sought pursuant to paragraph 7 and each Indemnified Party will cooperate with the undersigned or its insurers with respect thereto. If the undersigned or its insurers are retaining attorneys to handle such claim, such counsel must be reasonably satisfactory to the relevant Indemnified Party. If not, any such Indemnified Party will have the right to retain counsel of its choice at the undersigned's expense; provided that prior to entering into any settlement agreement relating to any such claim, such Indemnified Party shall either (i) obtain a written consent from the undersigned or its insurers or (ii) grant the undersigned and its insurers a release from all further obligation to such Indemnified Party under this paragraph 7 with respect to such claim.](***) [8. We acknowledge that the Placement Agent, in addition to acting as placement agent for TWA, has acted in the following capacities and/or engaged in the following activities: (i) acted as financial advisor to TWA, (ii) acted as the initial purchaser in connection with several offerings under Rule 144A and/or Regulation S of the Securities Act of debt securities and convertible exchangeable preferred stock of TWA, (iii) acted as a market maker in TWA securities, (iv) purchased as a principal approximately 68% of the debt and equity participation interests from certain original participants under the Participation Agreement, sold a portion of such interests outright and/or through participations to certain of the Participants and entered into agreements with three other original participants to purchase the remaining debt and equity participation interests under the Participation Agreement and any distributions related thereto, the closing of which is expected to occur in May, 1998, (v) engaged in trading activities for certain of the Participants, (vi) participated in discussions with CL/PK Airfinance and certain other Participants in connection with the attempted but since suspended negotiation of the amount of the advisory fee due to CL/PK Airfinance under the Participation Agreement and (vii) agreed to reimburse Credit Lyonnais for certain liabilities related to drawings, if any, under letters of credit issued or confirmed by Credit Lyonnais in connection with the TBT Leases. We further acknowledge that, as a result of acting in such capacities and engaging in such activities, the Placement Agent may have interests adverse to, or that conflict with, our interests in the Sale in exchange for Securities. We hereby waive any claim of conflict or adverse interest against the Placement Agent arising as a result of the roles and activities of the Placement Agent described in the second preceding sentence; provided that we do not waive any claims arising as a result of (i) the sale by the Placement Agent to any of the Participants of a participation or other interest in the Beneficiary, (ii) the joint and several liability of the Participants to indemnify or reimburse CL/PK Airfinance under the Participation Agreement or (iii) actions occurring prior to the earliest date upon which one of the Participants first purchased from the Placement Agent a participation or other interest in the Beneficiary.](****) 9. We hereby agree that we will not take and will not cause anyone to take, any manipulative action with respect to the price of the Common Stock in violation of applicable law. - --------------- (*)Include in letters delivered by any Participant, except for any letters delivered by Lazard Freres & Co. LLC after the Closing Date. (**) Include in letters delivered by the Beneficiary, CL/PK or any Participant, except for Lazard Freres & Co. LLC. (***) Include in letters delivered by any Participant, except for any letters delivered by Lazard Freres & Co. LLC after the Closing Date. (****) Include in letters delivered by the Beneficiary, CL/PK or any Participant, except for Lazard Freres & Co. LLC. Capitalized terms used but not otherwise defined herein shall have the meanings specified in the Aircraft Sale and Note Purchase Agreement dated April 9, 1998 among First Security Bank, National Association, as Owner Trustee, Trans World Airlines, Inc. and Seven Sixty Seven Leasing, Inc. Very truly yours, -------------------------------------- (Name of Purchaser) By: ----------------------------------- Date: --------------------------------- Upon transfer the Notes would be registered in the name of the new beneficiary as follows: Name: ---------------------------------- Address: ------------------------------- Taxpayer ID Number: -------------------- Annex C TRANSFEREE LETTER OF REPRESENTATION Trans World Airlines, Inc. c/o First Security Bank, National Association 79 South Main Street Salt Lake City, UT 84111 Dear Sirs: In connection with our proposed acquisition of $ of Mandatory Conversion Equity Notes due 1999 (the "Equity Notes") of Trans World Airlines, Inc., a Delaware corporation (the "Company"), we confirm that: 1. We understand that the Equity Notes have not been, and the shares of the Company's Common Stock, $.01 par value per share issuable upon conversion of the Equity Notes (the "Restricted Common Stock") will not be, registered under the Securities Act of 1933, as amended (the "Securities Act"), and, unless so registered, may not be sold except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing Equity Notes or, following conversion of the Equity Notes, shares of Restricted Common Stock, to offer, sell or otherwise transfer such Equity Notes or shares of Restricted Common Stock prior to the date which is two years after the later of the date of original issue of the Equity Notes and the last date on which the Company or any affiliate of the Company was the owner of such Equity Notes (or any predecessor thereto) or, following conversion of the Equity Notes, such Restricted Common Stock (the "Resale Restriction Termination Date") only (a) to the Company, (b) pursuant to a registration statement which has been declared effective under the Securities Act, (c) 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 ("Regulation S"), (d) 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 purchasing for his 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 thereof in violation of the Securities Act, or (e) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of our property or the property of such investor account or accounts be at all times within our or their control and in compliance with any applicable state securities laws. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Equity Notes or Restricted Common Stock is proposed to be made pursuant to clause (c), (d) or (e) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in the form of this letter to First Security Bank, National Association, which shall provide, among other things, that, as applicable, the transferee is (x) an institution that, at the time the buy order was originated, was outside the United States, was not a U.S. person (and was not purchasing for the account or benefit of a U.S. person) within the meaning of Regulation S under the Securities Act or (y) an institutional "accredited investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act and that it is acquiring such Equity Notes or Restricted Common Stock for investment purposes and not for distribution in violation of the Securities Act. We acknowledge on our own behalf and on behalf of any investor account for which we are purchasing Equity Notes or Restricted Common Stock that the Company and First Security Bank, National Association reserve the right prior to any offer, sale or other transfer pursuant to clause (c), (d) or (e) prior to the Resale Restriction Termination Date of the Equity Notes or the Restricted Common Stock to require the delivery of an opinion of counsel, certifications and/or other information satisfactory to the Company and First Security Bank, National Association. 2. We are either (i) an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) (or in the case of the Beneficiary only, (8)) of Regulation D under the Securities Act) purchasing for our own account or for the account of such an institutional "accredited investor," and we are acquiring the Equity Notes or Restricted Common Stock 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 and we have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Equity Notes or Restricted Common Stock, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment or (ii) an institution that, at the time the buy order for the Equity Notes or Restricted Common Stock was originated, was outside the United States and was not a U.S. person (and was not purchasing for the account or benefit of a U.S. person) within the meaning of Regulation S under the Securities Act. [3. We are acquiring the Equity Notes or Restricted Common Stock purchased by us for our own account or for one or more accounts as to each of which we exercise sole investment discretion.](*) 4. We [have received a copy of the Private Placement Memorandum relating to the Equity Notes and](**) acknowledge that we have had access to such financial and other information, and have been afforded the opportunity to ask such questions of representatives of the Company and receive answers thereto, as we deem necessary in connection with our decision to purchase the Equity Notes or Restricted Common Stock. 5. You are entitled to rely upon this letter and you are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or pursuant to any official inquiry with respect to the matters covered hereby. 6. We hereby represent and covenant that we are not acquiring the Equity Notes or Restricted Common Stock for or on behalf of, and will not transfer the Equity Notes or Restricted Common Stock to, any pension or welfare plan as defined in Section 3 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), except that such a purchase for or on behalf of a pension or welfare plan shall be permitted: (i) to the extent such purchase is made by or on behalf of a bank collective investment fund maintained by the purchaser in which no plan (together with any other plans maintained by the same employer or employee organization) has an interest in excess of 10% of the total assets in such collective investment fund, and the other applicable conditions of Prohibited Transaction Class Exemption 91-38 issued by the Department of Labor are satisfied; (ii) to the extent such purchase is made by or on behalf of an insurance company pooled separate account maintained by the purchaser in which, at any time while the Equity Notes are outstanding or there remain shares of Restricted Common Stock, no plan (together with any other plans maintained by the same employer or employee organization) has an interest in excess of 10% of the total of all assets in such pooled separate account, and the other applicable conditions of Prohibited Transaction Class Exemption 90-1 issued by the Department of Labor are satisfied; - --------------- (*) Include in letters delivered by any transferee other than the Beneficiary and CL/PK Airfinance, except that paragraph 3 shall be included in any letter delivered by CL/PK Airfinance with respect to Securities it has received in payment of the Advisory Fee. Letters delivered by the Beneficiary and CL/PK Airfinance may include additional modifications to the extent consistent with Section 12.03 of the Aircraft Sale and Note Purchase Agreement dated as of April 9, 1998 among TWA, the Owner Trustee and the Beneficiary. (**) Include only in letters delivered by the Beneficiary, CL/PK Airfinance and any Participant. (iii) to the extent such purchase is made on behalf of a plan by (A) an investment adviser registered under the Investment Advisers Act of 1940, as amended (the "1940 Act"), that had as of the last day of its most recent fiscal year total assets under its management and control in excess of $50.0 million and had stockholders' or partners' equity in excess of $750,000, as shown in its most recent balance sheet prepared in accordance with generally accepted accounting principles, or (B) a bank as defined in Section 202(a)(2) of the 1940 Act with equity capital in excess of $1.0 million as of the last day of its most recent fiscal year, or (C) an insurance company which is qualified under the laws of more than one state to manage, acquire or dispose of any assets of a pension or welfare plan, which insurance company has as of the last day of its most recent fiscal year, net worth in excess of $1.0 million and which is subject to supervision and examination by State authority having supervision over insurance companies and, in any case, such investment adviser, bank or insurance company is otherwise a qualified professional asset manager, as such term is used in Prohibited Transaction Class Exemption 84-14 issued by the Department of Labor, and the assets of such plan when combined with the assets of other plans established or maintained by the same employer (or affiliate thereof) or employee organization and managed by such investment adviser, bank or insurance company, do not represent more than 20% of the total client assets managed by such investment adviser, bank or insurance company at the time of the transaction, and the other applicable conditions of such exemption are otherwise satisfied; (iv) to the extent such plan is a governmental plan (as defined in Section 3 of ERISA), which is not subject to the provisions of Title I of ERISA of Section 401 of the Code; (v) to the extent such purchase is made by or on behalf of an insurance company using the assets of its general account, the reserves and liabilities for the general account contracts held by or on behalf of any plan, together with any other plans maintained by the same employer (or its affiliates) or employee organization, do not exceed 10% of the total reserves and liabilities of the insurance company general account (exclusive of separate account liabilities), plus surplus as set forth in the National Association of Insurance Commissioners Annual Statement filed with the state of domicile of the insurer, in accordance with Prohibited Transaction Class Exemption 95-60, and the other applicable conditions of such exemption are otherwise satisfied; or (vi) to the extent such purchase is made by an in-house asset manager within the meaning of Part IV(a) of Prohibited Transaction Class Exemption 96-23, such manager has made or properly authorized the decision for such plan to purchase Equity Notes or Restricted Common Stock under circumstances such that Prohibited Transaction Class Exemption 96-23 is applicable to the purchase and holding of such Equity Notes or Restricted Common Stock. [7. (a) We hereby agree, severally and not jointly to indemnify and hold harmless the Company and its affiliates and each of its officers, directors, employees, agents, advisors and representatives (but explicitly excluding Lazard Freres & Co. LLC) (each an "Indemnified Party") from and against any and all damages, losses, liabilities, expenses and claims (including without limitation, reasonable fees and disbursements of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or relating to any investigation, litigation or proceeding or the preparation of any defense with respect thereto, arising out any conflict, dispute or disagreement (x) between or among any of the Owner Trustee, the Beneficiary, CL/PK Airfinance or any Participant in connection with the Sale or (y) arising from the failure of TWA to have acquired the title to the Aircraft warranted in Article 12 of the Aircraft Sale and Note Purchase Agreement dated as of April 9, 1998 among TWA, the Owner Trustee and the Beneficiary because of the invalidity or ineffectiveness of the authorization of the Owner Trustee to enter into and conclude the Sale as provided herein, except to the extent such claim, damage, loss, liability or expense resulted from such Indemnified Party's gross negligence, willful misconduct or bad faith. We hereby acknowledge that by executing this letter we shall be severally and not jointly liable to an Indemnified Party for our pro rata share of such liability (such share to bear the same relation to such liability as such Participant's interest in the Equity Notes bears to the aggregate principal amount of Equity Notes of all Participants (disregarding for all purposes of this sentence all Equity Notes owned from time to time by Lazard Freres & Co. LLC as a Participant except $167,212.28 in aggregate principal amount) who have signed and delivered such Investor Letters from time to time). (b) Each Indemnified Party will give prompt written notice to each other of any liability of which any such person has knowledge for which the undersigned is, or may be, liable under paragraph 7(a); provided, however, that failure to give such notice will not terminate any of the rights of any Indemnified Party under this paragraph 7, except to the extent that the undersigned has been materially prejudiced by the failure to provide such notice. Upon the payment in full of any indemnity pursuant to this paragraph 7 by the undersigned, the undersigned will be subrogated to any right of any Indemnified Party in respect of the matter against which such indemnity has been made. If any Indemnified Party obtains a recovery of all or any part of any amount which the undersigned has paid to such Indemnified Party, such Indemnified Party will pay to the undersigned the net amount recovered by such Indemnified Party. The undersigned and its insurers will have the right (in each such case at the undersigned's expense) to investigate and, provided that the undersigned or its insurers have not reserved the right to dispute liability with respect to any insurance policies pursuant to which coverage is sought, defend or compromise any claim covered by insurance for which indemnification is sought pursuant to paragraph 7 and each Indemnified Party will cooperate with the undersigned or its insurers with respect thereto. If the undersigned or its insurers are retaining attorneys to handle such claim, such counsel must be reasonably satisfactory to the relevant Indemnified Party. If not, any such Indemnified Party will have the right to retain counsel of its choice at the undersigned's expense; provided that prior to entering into any settlement agreement relating to any such claim, such Indemnified Party shall either (i) obtain a written consent from the undersigned or its insurers or (ii) grant the undersigned and its insurers a release from all further obligation to such Indemnified Party under this paragraph 7 with respect to such claim.](***) [8. We acknowledge that the Placement Agent, in addition to acting as placement agent for TWA, has acted in the following capacities and/or engaged in the following activities: (i) acted as financial advisor to TWA, (ii) acted as the initial purchaser in connection with several offerings under Rule 144A and/or Regulation S of the Securities Act of debt securities and convertible exchangeable preferred stock of TWA, (iii) acted as a market maker in TWA securities, (iv) purchased as a principal approximately 68% of the debt and equity participation interests from certain original participants under the Participation Agreement, sold a portion of such interests outright and/or through participations to certain of the Participants and entered into agreements with three other original participants to purchase the remaining debt and equity participation interests under the Participation Agreement and any distributions related thereto, the closing of which is expected to occur in May, 1998, (v) engaged in trading activities for certain of the Participants, (vi) participated in discussions with CL/PK Airfinance and certain other Participants in connection with the attempted but since suspended negotiation of the amount of the advisory fee due to CL/PK Airfinance under the Participation Agreement and (vii) agreed to reimburse Credit Lyonnais for certain liabilities related to drawings, if any, under letters of credit issued or confirmed by Credit Lyonnais in connection with the TBT Leases. As a result of acting in such capacities and engaging in such activities, the Placement Agent may have interests adverse to, or that conflict with, our interests in the Sale in exchange for Securities. We hereby waive any claim of conflict or adverse interest against the Placement Agent arising as a result of the roles and activities of the Placement Agent described in the second preceding sentence; provided that we do not waive any claims arising as a result of (i) the sale by the Placement Agent to any of the Participants of a participation or other interest in the Beneficiary, (ii) the joint and several liability of the Participants to indemnify or reimburse CL/PK Airfinance under the Participation Agreement or (iii) actions occurring prior to the earliest date upon which one of the Participants first purchased from the Placement Agent a participation or other interest in the Beneficiary.](****) 9. We hereby agree that we will not take and will not cause anyone to take, any manipulative action with respect to the price of the Common Stock in violation of applicable law. Capitalized terms used but not otherwise defined herein shall have the meanings specified in the Aircraft Sale and Note Purchase Agreement dated April 9, 1998 among First Security Bank, National Association, as Owner Trustee, Trans World Airlines, Inc. and Seven Sixty Seven Leasing, Inc. Very truly yours, -------------------------------------- (Name of Purchaser) By: ----------------------------------- Date: --------------------------------- TelephoneNumber: (*****) ---------------------- FacsimileNumber: (*****) ---------------------- Upon transfer the Equity Notes would be registered in the name of the new beneficiary as follows: Name: -------------------------------- Address: ----------------------------- Taxpayer ID Number: ------------------ - --------------- (***) Include in letters delivered by any Participant, except for letters delivered by Lazard Freres & Co. LLC after the Closing Date. (****) Include in letters delivered by the Beneficiary, CL/PK or any Participant, except for Lazard Freres & Co. LLC. (*****) Purchasers who if they are holding Equity Notes on the Shelf Effective Date wish to be notified by the Company of effectiveness under the Securities Act of the Equity Shelf Registration Statement should provide their telephone and facsimile numbers in the appropriate spaces provided. EXHIBIT A AIRCRAFT DESCRIPTION -------------------- Aircraft No. 1 Airframe Manufacturer and Model: Boeing 767-231 ETOPS Year of Airframe Manufacture: 1984 Manufacturer's Serial Number: 22571 Registration Mark: N608TW Engine Manufacturer and Model: Pratt & Whitney JT9D-7R4D Engine Serial Numbers and Year of Manufacture: P709654 and P709655, manufactured in 1984 Aircraft No. 2 Airframe Manufacturer and Model: Boeing 767-231 ETOPS Year of Airframe Manufacture: 1984 Manufacturer's Serial Number: 22572 Registration Mark: N609TW Engine Manufacturer and Model: Pratt & Whitney JT9D-7R4D Engine Serial Numbers and Year of Manufacture: P709643 and P709644, manufactured in 1984 Aircraft No. 3 Airframe Manufacturer and Model: Boeing 767-231 ETOPS Year of Airframe Manufacture: 1984 Manufacturer's Serial Number: 22573 Registration Mark: N610TW Engine Manufacturer and Model: Pratt & Whitney JT9D-7R4D Engine Serial Numbers and Year of Manufacture: P709659 and P709656, manufactured in 1984 EXHIBIT B AIRCRAFT DOCUMENTS ------------------ One copy of each of the following: Aircraft Documentation The Aircraft documents which Owner Trustee provided to TWA pursuant to the terms of the Leases and pursuant to the leases of the Aircraft dated as of January 27, 1992 and March 22, 1991. EXHIBIT C-1 ACCEPTANCE CERTIFICATE ---------------------- TRANS WORLD AIRLINES, INC. ("TWA"), a corporation organized under the laws of Delaware, hereby certifies to FIRST SECURITY BANK, NATIONAL ASSOCIATION a national banking association acting not in its individual capacity, but solely as Owner Trustee (the "Owner Trustee") under the Trust Agreement (the "Trust Agreement") dated January 24, 1995 between Owner Trustee and Seven Sixty Seven Leasing, Inc., as beneficiary thereunder as follows: 1. TWA and Owner Trustee and certain others have entered into an Aircraft Sale and Note Purchase Agreement made as of the 9th day of April, 1998 (the "Sale Agreement") pursuant to which TWA has purchased the three Aircraft (as defined therein). Words used herein with capital letters and not otherwise defined will have the meanings set forth in the Sale Agreement. 2. TWA has this __ day of _________, 19__ (Time: ____ _____________) at _________________________ accepted for purchase from Owner Trustee: (a) One (1) Boeing 767-231 ETOPS airframe, bearing Manufacturer's serial number 22571, together with two (2) accompanying Pratt & Whitney JT9D-7R4D engines bearing manufacturer's serial numbers P709654 and P709655, and all Parts attached thereto; and (b) All Aircraft Documentation, including the usual and customary manuals, logbooks, flight records and historical information regarding the Airframe, Engines and Parts, as listed in the Document Receipt attached hereto. 3. TWA agrees that it is purchasing the Aircraft "AS IS, WHERE IS AND WITH ALL FAULTS" and pursuant to the terms and conditions of the Sale Agreement. Dated on the date set forth above TRANS WORLD AIRLINES, INC. By: ---------------------------- Its: --------------------------- Attachments: Document Receipt EXHIBIT C-2 ACCEPTANCE CERTIFICATE ---------------------- TRANS WORLD AIRLINES, INC. ("TWA"), a corporation organized under the laws of Delaware, hereby certifies to FIRST SECURITY BANK, NATIONAL ASSOCIATION a national banking association acting not in its individual capacity, but solely as Owner Trustee (the "Owner Trustee") under the Trust Agreement (the "Trust Agreement") dated January 24, 1995 between Owner Trustee and Seven Sixty Seven Leasing, Inc., as beneficiary thereunder as follows: 1. TWA and Owner Trustee and certain others have entered into an Aircraft Sale and Note Purchase Agreement made as of the 9th day of April, 1998 (the "Sale Agreement") pursuant to which TWA has purchased the three Aircraft (as defined therein). Words used herein with capital letters and not otherwise defined will have the meanings set forth in the Sale Agreement. 2. TWA has this __ day of _________, 19__ (Time: ____ _____________) at _________________________ accepted for purchase from Owner Trustee: (a) One (1) Boeing 767-231 ETOPS airframe, bearing Manufacturer's serial number 22572, together with two (2) accompanying Pratt & Whitney JT9D-7R4D engines bearing manufacturer's serial numbers P709643 and P709644, and all Parts attached thereto; and (b) All Aircraft Documentation, including the usual and customary manuals, logbooks, flight records and historical information regarding the Airframe, Engines and Parts, as listed in the Document Receipt attached hereto. 3. TWA agrees that it is purchasing the Aircraft "AS IS, WHERE IS AND WITH ALL FAULTS" and pursuant to the terms and conditions of the Sale Agreement. Dated on the date set forth above TRANS WORLD AIRLINES, INC. By: ---------------------------- Its: --------------------------- Attachments: Document Receipt EXHIBIT C-3 ACCEPTANCE CERTIFICATE ---------------------- TRANS WORLD AIRLINES, INC. ("TWA"), a corporation organized under the laws of Delaware, hereby certifies to FIRST SECURITY BANK, NATIONAL ASSOCIATION a national banking association acting not in its individual capacity, but solely as Owner Trustee (the "Owner Trustee") under the Trust Agreement (the "Trust Agreement") dated January 24, 1995 between Owner Trustee and Seven Sixty Seven Leasing, Inc., as beneficiary thereunder as follows: 1. TWA and Owner Trustee and certain others have entered into an Aircraft Sale and Note Purchase Agreement made as of the 9th day of April, 1998 (the "Sale Agreement") pursuant to which TWA has purchased the three Aircraft (as defined therein). Words used herein with capital letters and not otherwise defined will have the meanings set forth in the Sale Agreement. 2. TWA has this __ day of _________, 19__ (Time: ____ _____________) at _________________________ accepted for purchase from Owner Trustee: (a) One (1) Boeing 767-231 ETOPS airframe, bearing Manufacturer's serial number 22573, together with two (2) accompanying Pratt & Whitney JT9D-7R4D engines bearing manufacturer's serial numbers P709656 and P709659, and all Parts attached thereto; and (b) All Aircraft Documentation, including the usual and customary manuals, logbooks, flight records and historical information regarding the Airframe, Engines and Parts, as listed in the Document Receipt attached hereto. 3. TWA agrees that it is purchasing the Aircraft "AS IS, WHERE IS AND WITH ALL FAULTS" and pursuant to the terms and conditions of the Sale Agreement. Dated on the date set forth above TRANS WORLD AIRLINES, INC. By: ---------------------------- Its: --------------------------- Attachments: Document Receipt DOCUMENT RECEIPT TWA acknowledges that it has received all of the Aircraft Documentation, including (i) all of the documents which Owner Trustee provided to it pursuant to the Leases and (ii) all of the documents provided pursuant to the leases of the Aircraft between Owner Trustee and TWA dated as of January 27, 1992 and March 22, 1991, respectively. EXHIBIT D WARRANTY BILL OF SALE --------------------- FIRST SECURITY BANK, NATIONAL ASSOCIATION a national banking association, acting not in its individual capacity, but solely as Owner Trustee (the "Owner Trustee") under the Trust Agreement (the "Trust Agreement") dated January 24, 1995 between Owner Trustee and Seven Sixty Seven Leasing, Inc., as beneficiary (the "Beneficiary") thereunder, is the owner of the full legal and beneficial title (except as provided below) to the following equipment (collectively, the "Aircraft"), all as described in the Aircraft Sale and Note Purchase Agreement among TRANS WORLD AIRLINES, INC. ("TWA"), Owner Trustee and the Beneficiary, made as of the 9th day of April, 1998: 1. Three (3) Boeing 767-231 ETOPS airframes bearing manufacturer's serial numbers 22571, 22572 and 22573, respectively. 2. Six (6) Pratt & Whitney JT9D-7R4D aircraft engines bearing manufacturer's serial numbers P709654 and P709655, P709643 and P709644, and P709656 and P709659, respectively. 3. All appliances, parts, components, instruments, appurtenances, accessories, furnishings or other equipment or property installed in or attached to such aircraft and engines (but excluding passenger telephone and passenger video equipment). 4. All logbooks, records and manuals applicable to such airframes and engines. For and in consideration of US$43,200,000 aggregate principal amount of TWA's 11 3/8% Senior Secured Notes due 2003 and US $31,800,000 aggregate principal amount of TWA's Mandatory Conversion Equity Notes due 1999 and other valuable consideration, receipt and the sufficiency of which is hereby acknowledged, Owner Trustee does hereby grant, convey, transfer, bargain, sell, deliver and set over to TWA and its successors and assignees forever all of Owner Trustee's right, title and interest in and to the Aircraft, to have and to hold the Aircraft for its and their use forever. Owner Trustee hereby warrants that title to the Aircraft is free and clear of all liens, claims, charges, security interests, leases, encumbrances and rights of others whatsoever, however and wherever created or arising ("Liens") other than (i) Liens relating to the Aircraft (except for the engine bearing manufacturer's serial number P709659) arising prior to TWA's conveyance of ownership to such property to First Security Bank of Utah, N.A., a national banking association, not in its individual capacity (except as set forth in Purchase Agreements UAC-4, UAC-5 and UAC-6, each dated as of March 1, 1990 between FSB (as hereafter defined), TWA and United Aviation Company) but as Trustee f/b/o 767 Leasing 4, Inc., 767 Leasing 5, Inc., and 767 Leasing 6, Inc., respectively, pursuant to those certain Trust Agreements UAC-4, UAC-5 and UAC-6, each dated as of March 1, 1990 ("FSB") between FSB and such respective beneficiaries, (ii) Liens relating to the engine bearing manufacturer's serial number P709659 arising prior to TWA's conveyance of ownership of such engine to FSB and (iii) Liens arising out of TWA's, its sublessees', bailees', or leasehold assignees' use or operation of the Aircraft ("Excepted Liens"). Owner Trustee will warrant and defend such title forever against any and all claims and demands whatsoever other than claims or demands arising out of Excepted Liens. IN TESTIMONY WHEREOF we have set our hand this _____ day of ___________, 19____. FIRST SECURITY BANK, NATIONAL ASSOCIATION, as Owner Trustee By: ---------------------------- Its: --------------------------- EXHIBIT E ASSIGNMENT OF RIGHTS -------------------- (Form of letter from Owner Trustee to TWA, with copies to be sent to Manufacturer and Engine Manufacturer) [DATE] TRANS WORLD AIRLINES, INC. One City Centre 515 N. Sixth Street St. Louis, Missouri 63101 United States of America Gentlemen: Reference is made to the Aircraft Sale and Note Purchase Agreement made as of the 9th day of April, 1998 among FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, acting not in its individual capacity, but solely as Owner Trustee (the "Owner Trustee") under the Trust Agreement (the "Trust Agreement") dated January 24, 1995 between Owner Trustee and Seven Sixty Seven Leasing, Inc., as beneficiary (the "Beneficiary") thereunder, TRANS WORLD AIRLINES, INC. ("TWA") and the Beneficiary pertaining to the sale of three (3) Boeing 767-231 ETOPS Aircraft bearing Manufacturer's serial numbers 22571, 22572 and 22573 and U.S. registration marks N608TW, N609TW and N610TW (the "Aircraft"). Owner Trustee hereby assigns to TWA any and all existing assignable warranties, obligations, liabilities, service life policies and patent indemnities of manufacturers and maintenance and overhaul agencies of and for the Aircraft and their respective engines and components, including any rights which may have accrued prior to TWA's purchase of the Aircraft but which have not been fully exercised by Owner Trustee. By copy of this letter, Owner Trustee is notifying The Boeing Company and United Technologies, Pratt & Whitney Division of this assignment by Owner Trustee to TWA. The engines associated with the Aircraft are as follows: Aircraft No. 1 Aircraft No. 2 Aircraft No. 3 - -------------- -------------- -------------- Engine #1: P709654 Engine #1: P709643 Engine #1: P709656 Engine #2: P709655 Engine #2: P709644 Engine #2: P709659
FIRST SECURITY BANK, NATIONAL ASSOCIATION as Owner Trustee By: ---------------------------- Its: --------------------------- cc: The Boeing Company United Technologies Corporation, Pratt & Whitney Division DEFINITIONS APPENDIX Appendix I To the Indenture between Trans World Airlines, Inc. and First Security Bank, National Association, as Trustee dated as of April 21, 1998 for the Company's 11 3/8% Senior Secured Notes due 2003 and the Aircraft Mortgage and Security Agreement dated as of an even date therewith TABLE OF CONTENTS Page ---- Section 1. Definitions..................................... 1 Act............................................. 1 Affiliate....................................... 1 Agent........................................... 1 Aircraft........................................ 1 Aircraft Sale Agreement ........................ 1 Airframe........................................ 1 Applicable Percentage........................... 1 Bankruptcy Law.................................. 1 Bills of Sale................................... 2 Board of Directors.............................. 2 Business Day.................................... 2 Capital Stock................................... 2 Capitalized Lease Obligation.................... 2 Certificated Air Carrier........................ 2 Certifying Officer.............................. 2 Change in Control............................... 2 CL/PK........................................... 3 Code............................................ 3 Collateral...................................... 3 Common Stock.................................... 3 Company......................................... 3 Corporate Trust Office.......................... 3 Custodian....................................... 3 Default......................................... 3 Definitions Appendix............................ 3 8% Preferred Stock.............................. 4 Employee Preferred Stock........................ 4 Engine.......................................... 4 Equity Notes.................................... 4 Equity Notes Indenture.......................... 4 Equity Notes Trustee............................ 4 ERISA........................................... 4 Event of Default................................ 4 Exchange Act.................................... 4 FAA............................................. 4 FAA Bill of Sale................................ 4 Federal Aviation Act............................ 4 GAAP............................................ 5 Global Security................................. 5 Holder or Holder of Securities.................. 5 Indebtedness.................................... 5 Indenture....................................... 5 Indenture Discharge Date........................ 6 Indenture Trustee............................... 6 Interest Payment Date........................... 6 Issue Date...................................... 6 Legal Holiday................................... 6 Lien............................................ 6 Mandatory Redemption Amount..................... 6 Mandatory Redemption Date....................... 6 Mortgage........................................ 6 Mortgage Supplement............................. 6 9 1/4% Preferred Stock.......................... 6 Obligations..................................... 6 Offer to Purchase............................... 6 Officer......................................... 8 Officers' Certificate........................... 8 Operative Documents............................. 8 Opinion of Counsel.............................. 8 Outstanding or outstanding...................... 9 Owner Trustee................................... 9 Parts........................................... 9 Paying Agent.................................... 10 Payment Date.................................... 10 Payments........................................ 10 Permitted Liens................................. 10 Person.......................................... 11 Placement Agreement............................. 11 Preferred Stock................................. 11 principal....................................... 11 Property........................................ 11 Record Date..................................... 11 Redemption Value................................ 11 Register........................................ 11 Registrar....................................... 11 Registration Rights Agreement................... 11 Replacement Engine.............................. 11 Request......................................... 12 Required Holders................................ 12 Sale OTP Amount................................. 12 SEC............................................. 12 Second Mortgage................................. 12 Securities...................................... 12 Securities Act.................................. 12 Securityholder.................................. 12 Seven Leasing................................... 12 Significant Subsidiary.......................... 12 Special Interest................................ 12 Special Record Date............................. 12 Stated Maturity................................. 12 Subsidiary...................................... 13 Taxes........................................... 13 Tender.......................................... 13 TIA............................................. 13 Total Loss and Total Loss Date.................. 13 Total Loss OTP Amount........................... 13 Trust Agreement................................. 13 Trust Officer................................... 13 Trustee......................................... 13 TWA............................................. 13 U.S. or United States........................... 13 U.S. Government Obligations..................... 13 Warranty Bill of Sale........................... 14 Section 2. Rules of Construction.......................... 14 DEFINITIONS APPENDIX Section 1. Definitions. Unless the context otherwise requires, each of the terms included in this Section 1 shall have the respective meanings given in this Section 1 for all purposes of the Indenture and the other Operative Documents (including this appendix and any other appendices, exhibits or schedules to any thereof) and of such other agreements as may incorporate this appendix by reference except as otherwise specifically provided herein or therein. "Act" means the Federal Aviation Act. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent" means any Registrar, Paying Agent or co-Registrar or co-Paying Agent. "Aircraft" means each Airframe together with the two associated Engines identified by manufacturer's serial number in the Mortgage Supplement for such Airframe executed and delivered on the Issue Date, whether or not any of such Engines may at any time be installed on such Airframe or installed on any other airframe. "Aircraft Sale Agreement" means the Aircraft Sale and Note Purchase Agreement, dated as of the 9th day of April, 1998, among the Company, the Owner Trustee and Seven Leasing. "Airframe" means each Boeing Model 767-231 ETOPS airframe (excluding any Engines and any other engines, but including any and all Parts which may from time to time be incorporated or installed in, or attached to such airframe, and including any and all Parts removed therefrom so long as the removed Parts remain subject to the Lien of the Mortgage under the terms thereof) purchased by the Company under the Aircraft Sale Agreement and identified by the FAA registration number and manufacturer's serial number in the Mortgage Supplements executed and delivered on the Issue Date. "Applicable Percentage" means (i) with respect to any amendment, supplement or waiver of the Indenture or any other Operative Document that would (A) terminate the Lien of the Mortgage with respect to any Collateral or permit the release of any Collateral (other than releases permitted by the applicable Operative Document, which releases shall not require any consent of the Holders) or permit the creation of any Lien on any Collateral (other than Permitted Liens), (B) increase the aggregate principal amount of Securities that may be issued under the Indenture or (C) modify this definition, 66 2/3%, and (ii) otherwise, a majority. "Bankruptcy Law" has the meaning provided in Section 6.1 of the Indenture. "Bills of Sale" means, for each Aircraft, the FAA Bill of Sale and the Warranty Bill of Sale. "Board of Directors" means the Board of Directors of the Company or any committee of such board duly authorized to act in respect of any particular matter. "Business Day" means each day which is not a Legal Holiday. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "Capitalized Lease Obligation" means, as applied to any Person for any period, an obligation of such Person to pay rent or other amounts under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP. "Certificated Air Carrier" means a United States "air carrier" within the meaning of the Act, holding an air carrier operating certificate issued pursuant to chapter 447 of the Act and of the type referred to in 11 U.S.C. Section 1110, or if such certification shall cease to be available, a carrier of comparable status under the laws of the United States then in force. "Certifying Officer" means an Officer or an assistant secretary of the Company. "Change in Control" means the occurrence of any of the following events: (i) any person (including any entity or group deemed to be a "person" under Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) is or becomes the direct or indirect beneficial owner (as determined in accordance with Rule 13d-3 under the Exchange Act) of shares of the Company's Capital Stock representing greater than 50% of the total voting power of all shares of Capital Stock of the Company entitled to vote in the election of directors of the Company under ordinary circumstances or to elect a majority of the Board of Directors of the Company, (ii) the Person then constituting the "Company" under the Indenture sells, transfers or otherwise disposes of all or substantially all of its assets, (regardless of whether such Person thereupon ceases to constitute the "Company" under the Indenture pursuant to Section 5.2 thereof), (iii) when, during any period of 12 consecutive months after the date of original issuance of the Securities, individuals who at the beginning of any such 12-month period constituted the Board of Directors (together with any new directors whose election by such Board or whose nomination for election by the stockholders of the Company was approved by a vote of majority of the directors still in office entitled to vote with respect to such nomination who were either directors at the beginning of such period or whose election or nomination for election was previously so approved, but excluding any of the individuals who at the beginning of such 12-month period constituted such Board but who ceased to be a member of the Board pursuant to the Company's mandatory retirement policy as in effect as of the Issue Date), cease for any reason to constitute a majority of the Board of Directors then in office or (iv) the date of the consummation of the merger or consolidation of the Person then constituting the "Company" under the Indenture with another corporation where the stockholders of such Person, immediately prior to the merger or consolidation, would not beneficially own, immediately after the merger or consolidation, shares entitling such stockholders to 50% or more of all votes (without consideration of the rights of any class of stock to elect directors by a separate class vote) to which all stockholders of the corporation issuing cash or securities in the merger or consolidation would be entitled in the election of directors or where members of the Board of Directors of the Person then constituting the "Company" under the Indenture, immediately prior to the merger or consolidation, would not, immediately after the merger or consolidation, constitute a majority of the board of directors of the corporation issuing cash or securities in the merger or consolidation. "CL/PK" means Credit Lyonnais/PK Airfinance, a financial sector corporation organized and existing under and by virtue of the laws of the Grand Duchy of Luxembourg. "Code" means the United States Internal Revenue Code of 1986, as amended from time to time, or any similar legislation of the United States enacted to supersede, amend or supplement such Code, and any reference to a provision or provisions of the Code shall also mean and refer to any successor provision or provisions, however designated or distributed. "Collateral" has the meaning specified in Section 2.1 of the Mortgage. "Common Stock" includes any stock of any class of the Company which has no preference in respect to dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which is not subject to redemption by the Company; initially it refers to the common stock, $0.01 par value, of the Company. "Company" means the party named as such in the Indenture or any obligor on the Securities until a successor replaces it pursuant to the Indenture and thereafter means the successor. "Corporate Trust Office" when used with respect to the Trustee means the office of the Trustee at which at any particular time its corporate trust business is administered and which, at the Issue Date, is located at First Security Bank, National Association, as Trustee, 79 South Main Street, Salt Lake City, Utah 84111, Attention: Corporate Trust Services. "Custodian" has the meaning provided in Section 6.1 of the Indenture. "Default" means any event which is, or after notice or passage of time, or both, would be, an Event of Default. "Definitions Appendix" means this Definitions Appendix attached as Appendix I to the Indenture and the Mortgage and constituting a part of the Indenture and each other Operative Document. "8% Preferred Stock" means the 8% Cumulative Convertible Exchangeable Preferred Stock of the Company and dividends on such stock, and payments on account of which are to be deemed equivalent to distributions on such stock. "Employee Preferred Stock" means the IFFA Preferred Stock, the ALPA Preferred Stock and the IAM Preferred Stock of the Company and dividends on such stock, and payments on account of which are to be deemed equivalent to distributions on such stock. "Engine" means (i) each of the Pratt & Whitney Model JT9D-7R4D aircraft engines identified by manufacturer's serial number in the Mortgage Supplements executed and delivered on the Issue Date, so long as a Replacement Engine shall not have been substituted therefor pursuant to the Mortgage, and (ii) each Replacement Engine, so long as another Replacement Engine shall not have been substituted therefor pursuant to the Mortgage, whether or not such engine or Replacement Engine, as the case may be, is from time to time installed on an Airframe or installed on another airframe, and including, in each case all Parts incorporated or installed in or attached thereto and any and all Parts removed therefrom so long as such Parts remain subject to the Lien of the Mortgage under the terms thereof. "Equity Notes" means the Mandatory Conversion Equity Notes due 1999 of the Company issued concurrently with the Securities. "Equity Notes Indenture" means the Indenture dated as of April 21, 1998 between the Company and First Security Bank, National Association, as trustee, pursuant to which the Company is issuing the Equity Notes. "Equity Notes Trustee" means First Security Bank, National Association, as trustee under the Equity Notes Indenture, and its successors and assigns in such capacity. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "Event of Default" has the meaning provided in Section 6.1 of the Indenture. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. "FAA" means the Federal Aviation Administration or similar regulatory authority established to replace it. "FAA Bill of Sale" means, for each Aircraft, the bill of sale for such Aircraft on AC Form 8050-2 or such other form as may be acceptable to the FAA for recordation with it, executed by the Owner Trustee in favor of the Company. "Federal Aviation Act" means Title 49 of the United States Code, "Transportation," as amended from time to time, or any similar legislation of the United States enacted in substitution or replacement thereof. In the event there is enacted any legislation replacing, modifying or repealing, in whole or in part, the Federal Aviation Act, then the term "certificated," when used with reference to the Federal Aviation Act or any particular provision thereof, shall mean authorized to provide, or not prohibited from providing, air transportation services. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Issue Date, including those set forth in (i) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, (ii) statements and pronouncements of the Financial Accounting Standards Board, (iii) such other statements by such other entity as approved by a significant segment of the accounting profession and (iv) the rules and regulations of the SEC governing the inclusion of financial statements (including pro forma financial statements) in periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the SEC. "Global Security" means a Security that evidences all or part of the Securities of any series and bears the legend set forth in Exhibit 1 to the Rule 144A/Regulation S Appendix to the Indenture. "Holder" or "Holder of Securities" means the Person in whose name a Security is registered on the Registrar's books. "Indebtedness" means, with respect to any Person at any date, without duplication, (a) all indebtedness, obligations and other liabilities (contingent or otherwise) of such Person for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (b) all obligations and other liabilities (contingent or otherwise) of such Person evidenced by bonds, notes or other similar instruments, (c) all obligations and other liabilities (contingent or otherwise) of such Person in respect of letters of credit or other similar instruments (and reimbursement obligations with respect thereto), (d) all obligations and other liabilities (contingent or otherwise) of such Person to pay the deferred and unpaid purchase price of property or services (other than any such obligations that represent trade payables or accrued expenses incurred in the ordinary course of business), (e) all Capitalized Lease Obligations of such Person, (f) all Indebtedness of others secured by a Lien on any asset or assets of such Person, whether or not such Indebtedness is assumed by such Person (and, if not assumed, such Indebtedness shall be limited to the fair market value of such asset or assets as determined on the date such Indebtedness was incurred), and (g) all Indebtedness of others guaranteed by such Person to the extent of such guarantee. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability of such Person for any such contingent obligations at such date. A change in GAAP that results in an obligation of the Company existing at the time of such change becoming Indebtedness shall not be deemed an incurrence of such Indebtedness. "Indenture" means the Indenture dated as of April 21, 1998 between the Company and the Trustee, under which the Securities are issued, as amended or supplemented from time to time. "Indenture Discharge Date" means the date of the effectiveness of the termination of the Company's obligations under the Indenture pursuant to Section 8.1(a) or (b) thereof. "Indenture Trustee" means the Trustee. "Interest Payment Date" means April 15 and October 15 of each year during which any Security is Outstanding (commencing October 15, 1998) and the date on which the Securities mature, if different. "Issue Date" means the date on which the Securities are originally issued. "Legal Holiday" means a Saturday, Sunday or any other day on which banks located in New York City or the city and state of the Trustee's Corporate Trust Office as of the Issue Date are authorized or obligated by law to remain closed. "Lien" means any conveyance in trust, assignment, mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Mandatory Redemption Amount" has the meaning provided in Section 3.8 of the Indenture. "Mandatory Redemption Date" has the meaning provided in Section 3.8 of the Indenture. "Mortgage" means the Aircraft Mortgage and Security Agreement, dated as of April 21, 1998, between the Company and the Trustee in substantially the form attached to the Indenture as Exhibit A. "Mortgage Supplement" means (i) each Mortgage and Security Agreement Supplement executed and delivered on the Issue Date for an Aircraft, in substantially the form attached to the Mortgage as Exhibit A, which describes with particularity the Airframe and Engines associated with such Aircraft, (ii) each other Mortgage and Security Agreement Supplement from time to time executed and delivered, in substantially the form attached to the Mortgage as Exhibit A, which shall describe with particularity any Replacement Engine and (iii) any other supplement to the Mortgage from time to time executed and delivered in accordance with the provisions of the Mortgage or any other Operative Document. "9 1/4% Preferred Stock" means the 9 1/4% Cumulative Convertible Exchangeable Preferred Stock of the Company and dividends on such stock, and payments on account of which are to be deemed equivalent to distributions on such stock. "Obligations" has the meaning provided in Section 2.1 of the Mortgage. "Offer to Purchase" means an offer to purchase all or a portion, as the case may be, of the Securities by the Company from the Holders commenced by the mailing (by first class mail, postage prepaid) by the Company (or, if requested by the Company on at least five Business Days' prior notice to the Trustee and at the Company's expense, by the Trustee) of a notice to each Holder (and, if mailed by the Company, to the Trustee) at such Holder's address appearing in the Register, stating: (i) the covenant pursuant to which the offer is being made and that all Securities validly tendered will be accepted for payment, provided, that if Securities in excess of the aggregate principal amount that the Company has offered to purchase are tendered by the Holders, then Securities will be purchased from the tendering Holders pro rata, based on the aggregate principal amount of Securities tendered by each such Holder; (ii) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Payment Date"); (iii) that any Security not tendered will continue to accrue interest pursuant to its terms (including, if such Offer to Purchase is being made pursuant to Section 4.12(c)(i)(A) of the Indenture, a statement that the rate of interest on such Security may be subject to increase in accordance with the provisions of such Section); (iv) that, unless the Company defaults in the payment of the purchase price on the Payment Date, any Security accepted for payment pursuant to the Offer to Purchase shall cease to accrue interest on and after the Payment Date; (v) that Holders electing to have a Security purchased pursuant to the Offer to Purchase will be required to surrender the Security, together with the form entitled "Option of the Holder to Elect Purchase" attached to or on the reverse side of the Security completed, to the Paying Agent at the address specified in the notice at any time beginning with the date of such notice but prior to the close of business on the Business Day immediately preceding the Payment Date (or, if such day is a Legal Holiday, on the next subsequent day which is not a Legal Holiday), and such Holder shall be entitled to receive from the Paying Agent a non-transferable receipt of deposit evidencing such deposit; (vi) that, unless the Company defaults in making the payment of the purchase price or shall otherwise, in its sole discretion, consent thereto, Holders will be entitled to withdraw their election only if the Trustee receives, not later than the close of business on the fifth Business Day immediately preceding the Payment Date, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Securities delivered for purchase and a statement that such Holder is withdrawing his election to have such Securities purchased; and (vii) that Holders whose Securities are being purchased only in part will be promptly issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered (which new Securities, if such Offer to Purchase is being made pursuant to Section 4.12(c)(i)(A) of the Indenture, will cease to be secured by the Aircraft released pursuant to such Section); provided that each Security purchased and each new Security issued shall be in a principal amount of $1,000 or integral multiples thereof. The Company shall place such notice in the national edition of The New York Times or The Wall Street Journal or, if such newspapers are not then in circulation, in a financial newspaper of general circulation in New York City. No failure of the Company to give the foregoing notice shall limit any Holder's right to exercise a repurchase right. On the Payment Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to an Offer to Purchase, provided, that if Securities in excess of the aggregate principal amount that the Company has offered to purchase are tendered by the Holders, then Securities will be purchased from the tendering Holders pro rata, based on the aggregate principal amount of Securities tendered by each such Holder; (ii) deposit with the Trustee money sufficient to pay the purchase price of all Securities or portions thereof so accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Securities or portions thereof so accepted together with an Officers' Certificate specifying the Securities or portions thereof accepted for payment by the Company. The Trustee shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate, and the Company shall promptly execute and mail (or cause to be mailed) to such Holders a new Security equal in principal amount to any unpurchased portion of the Securities surrendered; provided that each Security purchased and each new Security issued shall be in a principal amount of $1,000 or integral multiples thereof; provided further that if the Payment Date is between a regular Record Date and the next succeeding Interest Payment Date, Securities to be repurchased must be accompanied by payment of an amount equal to the interest and Special Interest, if any, payable on such succeeding Interest Payment Date on the principal amount to be repurchased, and the interest on the principal amount of the Security being repurchased, and Special Interest, if any, with respect thereto, will be paid on such next succeeding Interest Payment Date to the registered holder of such Security on the immediately preceding Record Date. A Security repurchased on an Interest Payment Date need not be accompanied by any such payment, and the interest on the principal amount of the Security being repurchased and Special Interest, if any, with respect thereto, will be paid on such Interest Payment Date to the registered holder of such Security on the corresponding Record Date. The Company will publicly announce the results of an Offer to Purchase as soon as practicable after the Payment Date. The Trustee shall act as the Paying Agent for an Offer to Purchase. The Company will comply with Rule 14e-l under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that the Company is required to repurchase Securities pursuant to an Offer to Purchase. Both the notice of the Company and the notice of the Holder having been given as specified above, the Securities so to be repurchased shall, on the Payment Date become due and payable at the purchase price applicable thereto and from and after such date (unless the Company shall default in the payment of such purchase price) such Securities shall cease to bear interest. If any Security shall not be paid upon surrender thereof for repurchase, the principal shall, until paid, bear interest from the Payment Date at the rate borne by such Security. Any Security which is to be submitted for repurchase only in part shall be delivered pursuant to the above provisions with (if the Company or Trustee so requires) due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing. "Officer" means the Chairman of the Board, the President, any Vice President of any grade, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Secretary or the Controller of the Company. "Officers' Certificate" means a certificate signed by an Officer and by a Certifying Officer satisfying the requirements of Sections 11.4 and 11.5 of the Indenture. "Operative Documents" means the Indenture, the Mortgage and the Mortgage Supplements. "Opinion of Counsel" means a written opinion from the General Counsel of the Company, legal counsel to the Company or another legal counsel who is reasonably acceptable to the Trustee, which Opinion of Counsel shall comply with Sections 11.4 and 11.5 of the Indenture. The counsel may be an employee of the Company. The acceptance by the Trustee (without written objection to the Company during the fifteen (15) Business Days following receipt) of, or its action on, an opinion of counsel not specifically referred to above shall be sufficient evidence that such counsel is acceptable to the Trustee. "Outstanding" or "outstanding" when used with respect to Securities or a Security, means all Securities theretofore authenticated and delivered under the Indenture, except: (a) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (b) Securities for which payment has been deposited with the Trustee or any Paying Agent in trust other than deposits pursuant to Section 8.1 of the Indenture; and (c) Securities which have been paid, or for which other Securities shall have been authenticated and delivered in lieu thereof or in substitution therefor pursuant to the terms of Section 2.7 of the Indenture, unless proof satisfactory to the Trustee is presented that any such Securities are held by holders in due course. A Security does not cease to be Outstanding because the Company or one of its Affiliates holds the Security; provided, however, that in determining whether the Holders of the requisite aggregate principal amount of Securities Outstanding have given any request, demand, authorization, direction, notice, consent or waiver under the Indenture, Section 2.8 of the Indenture shall be applicable. "Owner Trustee" means First Security Bank, National Association (f/k/a First Security Bank of Utah, National Association), not in its individual capacity (except as otherwise expressly set forth) but as trustee f/b/o Seven Leasing pursuant to the Trust Agreement. "Parts" means any and all appliances, parts, spare parts, instruments, appurtenances, accessories, furnishings, seats and other equipment of whatever nature (other than Engines or engines) which may from time to time be incorporated or installed in or attached to any Airframe or any Engine, or which have been removed therefrom but which remain subject to the Lien of the Mortgage in accordance with the terms thereof, exclusive of any items (i) permitted by the Mortgage to be leased by the Company in the ordinary course of business from third parties (and installed without discrimination with respect to other Boeing Model 767-231 ETOPS aircraft (or improved models) owned or operated by the Company) and (ii) not required in the navigation of the Aircraft in which they are installed. The terms "spare parts" and "appliances" (as used in this definition) shall include, but not be limited to, the definitions assigned to those terms by Section 40102 of Title 49 of the United States Code as amended from time to time or any recodification thereof or any regulation of the FAA. "Paying Agent" has the meaning provided in Section 2.3 of the Indenture, except that for the purposes of Article 8 of the Indenture and any Offer to Purchase, the Paying Agent shall not be the Company. "Payment Date" with respect to any Offer to Purchase, has the meaning specified in the definition herein of Offer to Purchase. "Payments" means such monies as the Company shall cause to be delivered to the Trustee or any Paying Agent for the purpose of paying principal, purchase price or redemption price of, or interest on, or Special Interest with respect to, the Securities on any Interest Payment Date, Payment Date, redemption date or acceleration; and "Pay" means paying such monies. "Permitted Liens" shall mean any of the following Liens: (a) Liens in favor of the Trustee arising by reason of the Mortgage or any other Operative Document and Liens in favor of the Equity Notes Trustee arising by reason of the Second Mortgage or any other Operative Document (as defined in the Equity Notes Indenture); (b) Liens for taxes, assessments or other governmental charges or levies not at the time delinquent or thereafter payable without penalty or being contested by the Company in good faith by appropriate proceedings and for which adequate reserves have been established if required in accordance with GAAP, and which Lien presents no material risk of sale, forfeiture or loss of any Collateral; (c) Liens of carriers, warehousemen, mechanics, materialmen and landlords incurred in the Company's ordinary course of business for sums not overdue or being contested by the Company in good faith by appropriate proceedings and for which adequate reserves have been established if required in accordance with GAAP, and which Lien presents no material risk of sale, forfeiture or loss of any Collateral; (d) Liens incurred in the ordinary course of business in connection with workmen's compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders and statutory obligations entered into in the ordinary course of business or to secure obligations on surety or appeal bonds; (e) judgment Liens (so long as the related judgments do not, individually or in the aggregate, constitute an Event of Default) in existence less than thirty (30) days after the entry thereof or with respect to which execution has been stayed or the payment of which is covered in full by insurance; (f) Liens on an Aircraft in favor of a permitted lessee of such Aircraft which result solely from the lease (so long as it is a permitted lease under the Mortgage) on such Aircraft; and (g) Liens on the Aircraft which are "Permitted Liens" arising under, and defined by definitions substantially similar to above subparagraphs (b) and (c) in, the leases (if any) for the Aircraft; provided, however, that such leases are permitted under the Mortgage. "Person" means any individual, corporation, partnership, limited liability issuer, joint venture, association, joint-stock issuer, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Placement Agreement" means the Placement Agreement, dated April 9, 1998, between Lazard Freres & Co. LLC and the Company. "Preferred Stock" as applied to the Capital Stock of any Person means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. "principal" of a Security means the principal of the Security plus the premium, if any, payable on the Security which is due or overdue or is to become due at the relevant time. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, present or future, or tangible or intangible. "Record Date" means the fifteenth (15th) day preceding any Interest Payment Date, whether or not a Business Day. "Redemption Value" means, on any date of determination with respect to any Offer to Purchase and for each Aircraft with respect to which such Offer to Purchase is being made, an amount equal to (a) if such date of determination is before October 15, 2000, $14,400,000, (b) if such date of determination is on or after October 15, 2000 and before October 15, 2001, $13,787,000, (c) if such date of determination is on or after October 15, 2001 and before October 15, 2002, $13,174,000 and (d) if such date of determination is on or after October 15, 2002, $12,561,000. "Register" has the meaning provided in Section 2.3 of the Indenture. "Registrar" has the meaning provided in Section 2.3 of the Indenture. "Registration Rights Agreement" means the Registration Rights Agreement, made and entered into as of April 21, 1998, by and among the Company, Lazard Freres & Co. LLC and the Owner Trustee, relating to the Securities. "Replacement Engine" means a Pratt & Whitney Model JT9D-7R4D aircraft engine (or engine of the same or another manufacturer of a comparable or an improved model and suitable for installation and use on an Airframe) (i) which has a value, utility and remaining useful life at least equal to the Engine which it is replacing, assuming such Engine was of the value and utility required by the terms of the Mortgage; provided that any such engine shall be of the same make and model as the other engine then installed on such Airframe, shall be an engine model then being utilized by the Company on other Boeing Model 767-231 ETOPS aircraft operated by the Company and, for so long as such engine has been operated by Company, shall have been maintained, serviced, repaired and overhauled in substantially the same manner as the Company maintains, services, repairs and overhauls similar engines utilized by the Company, and (ii) which shall have been made subject to the Lien of the Mortgage pursuant to Section 2 and Section 3.3 of the Mortgage. "Request" means a written request for the action therein specified signed on behalf of the Company by any Officer and delivered to the Trustee. Each Request shall be accompanied by an Officers' Certificate if and to the extent required by Section 11.4 of the Indenture. "Required Holders" means from time to time the Holders of the Applicable Percentage in principal amount of the Securities then Outstanding. "Sale OTP Amount" has the meaning provided in Section 4.12 of the Indenture. "SEC" means the Securities and Exchange Commission and any government agency succeeding to its functions. "Second Mortgage" means the Aircraft Second Mortgage and Security Agreement, dated as of April 21, 1998, between the Company and the Equity Notes Trustee, securing, among other things, the obligations of the Company under the Equity Notes Indenture. "Securities" means the "Securities" (as defined in the preamble to the Indenture and includes the Company's 11 3/8% Senior Secured Notes due 2003), as amended or supplemented from time to time, that are issued under the Indenture. "Securities Act" means the Securities Act of 1933, as amended. "Securityholder" means the Person in whose name a Security is registered on the Registrar's books. "Seven Leasing" means Seven Sixty Seven Leasing, Inc., a Delaware corporation. "Significant Subsidiary" means any Subsidiary which is a Significant Subsidiary within the meaning of Article I of Regulation S-X under the Exchange Act. "Special Interest" has the meaning assigned to such term in the Registration Rights Agreement. "Special Record Date" has the meaning provided in Section 2.1 of the Indenture. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred). "Subsidiary" means, in respect of any Person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including membership or partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person. "Taxes" means any and all fees (including, without limitation, license, documentation and registration fees), taxes (including, without limitation, income, gross receipts, sales, rental, use, turnover, value- added, property (tangible and intangible), excise and stamp taxes), levies, imposts, duties, recording charges or fees, charges, assessments or withholdings of any nature whatsoever, together with any and all assessments, penalties, additions to tax, fines or interest thereon. "Tender" means, with respect to any Security, the effective tender of such Security (in whole or in part) for repurchase in accordance with the provisions of the Indenture. "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa- 77bbbb) as in effect on the date of the Indenture; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Total Loss" and "Total Loss Date" have the meanings provided in Section 1.1 of the Mortgage. "Total Loss OTP Amount" has the meaning provided in Section 4.12 of the Indenture. "Trust Agreement" means the Trust Agreement, dated as of January 24, 1995, between Seven Leasing and First Security Bank, National Association (f/k/a First Security Bank of Utah, National Association). "Trust Officer" means any officer in the corporate trust department of the Trustee, or any other officer or assistant officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "Trustee" means the party named as such in the Indenture until a successor replaces it in accordance with the provisions of the Indenture and thereafter means the successor. "TWA" means the Company. "U.S." or "United States" means the United States of America. "U.S. Government Obligations" means securities which are (i) direct obligations of the United State government or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States government, are full faith and credit obligations of the United States government and are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust Company as custodian with respect to any such U.S. Government Obligation or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. "Warranty Bill of Sale" means, for each Aircraft, the full warranty (as to title) bill of sale covering such Aircraft executed by the Owner Trustee in favor of the Company. Section 2. Rules of Construction. Unless the context otherwise requires, the following rules of construction shall apply to all purposes of the Indenture and the other Operative Documents (including this appendix) and of such agreements as may incorporate this appendix by reference. (a) a term has the meaning assigned to it; (b) whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms; (c) the words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation"; (d) all terms used in Article 9 of the Uniform Commercial Code as in effect in the State of New York that are used but not defined herein shall have the meaning assigned to such terms therein; (e) references to a specific Person shall include the Person and (except as limited by any agreement by which such Person is bound) the successors and assigns of such Person; (f) references to "applicable laws" shall include statutes, ordinances, rules, regulations, court and administrative decisions and conditions, restrictions and limitations in licenses, permits, approvals and authorizations issued or granted by federal, state or local United States or foreign governmental bodies and agencies; (g) unless otherwise specified in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including", and the words "to" and "until" each mean "to but excluding"; (h) words in the singular include the plural, and words in the plural include the singular; (i) provisions apply to successive events and transactions; (j) "herein", "hereto" and other words of similar import in any agreement refer to that agreement as a whole and not to any particular Article, Section or other subsection of that agreement; (k) unless otherwise specified, all references in any Operative Document to Sections, Articles, Exhibits, Appendices and Schedules are to Sections of, Articles of, Exhibits to, Appendices to and Schedules to such Operative Document; (l) all accounting terms used herein and not expressly defined shall have the meanings given to them in accordance with GAAP; and (m) unless otherwise specified, references in this Definitions Appendix to any instrument, contract, agreement or other document shall be deemed to be references to such instrument, agreement or other document as it may be amended, restated, supplemented or otherwise modified from time to time pursuant to and as permitted by the terms thereof, whether or not so stated in any particular definition. EX-4.28 5 Exhibit 4.28 =============================================================================== TRANS WORLD AIRLINES, INC. and FIRST SECURITY BANK, NATIONAL ASSOCIATION, as Trustee INDENTURE Dated as of April 21, 1998 $43,200,000 11 3/8% Senior Secured Notes due 2003 =============================================================================== TABLE OF CONTENTS Page ---- ARTICLE 1. DEFINITIONS AND RULES OF CONSTRUCTION Section 1.1 Definitions.................................................. 1 Section 1.2 Rules of Construction........................................ 1 ARTICLE 2. THE SECURITIES Section 2.1 Designation, Form and Dating................................. 1 Section 2.2 Execution, Amount, Authentication and Delivery............... 2 Section 2.3 Registrar and Paying Agent................................... 4 Section 2.4 Paying Agent to Hold Payments In Trust....................... 5 Section 2.5 Securityholder Lists......................................... 6 Section 2.6 Transfer and Exchange........................................ 6 Section 2.7 Mutilated, Defaced, Destroyed, Lost and Stolen Securities............................................ 7 Section 2.8 Treasury Securities.......................................... 8 Section 2.9 Temporary Securities......................................... 9 Section 2.10 Cancellation................................................. 9 Section 2.11 Defaulted Interest; Interest on Defaulted Principal.......... 10 Section 2.12 CUSIP Numbers................................................ 10 ARTICLE 3. REDEMPTIONS Section 3.1 Optional Redemption.......................................... 10 Section 3.2 Redemption Notice to Trustee................................. 11 Section 3.3 Selection of Securities to be Redeemed....................... 11 Section 3.4 Notice of Redemption......................................... 11 Section 3.5 Effect of Notice of Redemption............................... 12 Section 3.6 Deposit of Redemption Price.................................. 12 Section 3.7 Securities Redeemed in Part.................................. 12 Section 3.8 Mandatory Redemption......................................... 12 ARTICLE 4. COVENANTS, REPRESENTATIONS AND WARRANTIES Section 4.1 Payment of Securities........................................ 14 Section 4.2 Maintenance of Office or Agency.............................. 15 Section 4.3 Limitation on Dividends and Acquisition of Common Stock.............................................. 15 Section 4.4 Corporate Existence.......................................... 16 Section 4.5 Payment of Taxes and Other Claims............................ 17 Section 4.6 Notices...................................................... 17 Section 4.7 Maintenance of Properties and Insurance...................... 18 Section 4.8 Default Notices and Compliance Certificates.................. 18 Section 4.9 SEC Reports.................................................. 19 Section 4.10 Waiver of Stay, Extension or Usury Laws...................... 20 Section 4.11 Amendment to Certain Agreements.............................. 20 Section 4.12 Title to Collateral and Limitation on Liens; Sale of Aircraft; Total Loss With Respect to Aircraft..................................... 20 Section 4.13 Books, Records, Access; Confidentiality...................... 23 Section 4.14 Security Interests........................................... 24 Section 4.15 Repurchase of Securities Upon a Change in Control............ 24 Section 4.16 Restrictions on Becoming an Investment Company............... 25 Section 4.17 Listing...................................................... 25 ARTICLE 5. SUCCESSOR CORPORATION Section 5.1 Covenant Not to Consolidate, Merge, Convey or Transfer Except Under Certain Conditions........... 25 Section 5.2 Successor Person Substituted................................. 26 Section 5.3 Limitation on Lease of Properties............................ 27 ARTICLE 6. DEFAULT AND REMEDIES Section 6.1 Events of Default............................................ 27 Section 6.2 Acceleration................................................. 29 Section 6.3 Other Remedies............................................... 29 Section 6.4 Waiver of Past Defaults...................................... 30 Section 6.5 Control by Majority.......................................... 30 Section 6.6 Limitation on Suits.......................................... 30 Section 6.7 Rights of Holders to Receive Payment......................... 31 Section 6.8 Collection Suit by Trustee................................... 31 Section 6.9 Trustee May File Proofs of Claim............................. 31 Section 6.10 Application of Proceeds...................................... 32 Section 6.11 Undertaking for Costs........................................ 33 Section 6.12 Restoration of Rights on Abandonment of Proceedings.......... 33 Section 6.13 Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default........................................ 34 ARTICLE 7. TRUSTEE Section 7.1 Duties of Trustee............................................ 34 Section 7.2 Rights of Trustee............................................ 35 Section 7.3 Individual Rights of Trustee................................. 36 Section 7.4 Trustee's Disclaimer......................................... 36 Section 7.5 Notice of Defaults........................................... 36 Section 7.6 Reports by Trustee to Holders................................ 36 Section 7.7 Compensation and Indemnity................................... 36 Section 7.8 Replacement of Trustee....................................... 37 Section 7.9 Successor Trustee by Merger, etc............................. 38 Section 7.10 Eligibility; Disqualification................................ 38 Section 7.11 Preferential Collection of Claims Against Company............ 39 ARTICLE 8. DISCHARGE OF INDENTURE Section 8.1 Termination of Company's Obligations......................... 39 Section 8.2 Application of Trust Money................................... 40 Section 8.3 Repayment to Company......................................... 41 Section 8.4 Reinstatement................................................ 41 ARTICLE 9. AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 9.1 Without Consent of Holders................................... 42 Section 9.2 With Consent of Holders...................................... 42 Section 9.3 Compliance with Trust Indenture Act.......................... 43 Section 9.4 Revocation and Effect of Consents............................ 43 Section 9.5 Notation on or Exchange of Securities........................ 44 Section 9.6 Trustee to Sign Amendments, etc.............................. 44 Section 9.7 Effect of Supplement and/or Amendment........................ 44 ARTICLE 10. SECURITY Section 10.1 Other Operative Documents.................................... 45 Section 10.2 Opinions, Certificates and Appraisals........................ 45 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................................ 47 ARTICLE 11. MISCELLANEOUS Section 11.1 Conflict with Trust Indenture Act of 1939.................... 47 Section 11.2 Notices; Waivers............................................. 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 Rules by Trustee, Paying Agent, Registrar.................... 50 Section 11.7 Holidays..................................................... 50 Section 11.8 Governing Law; Waiver of Jury Trial.......................... 50 Section 11.9 No Adverse Interpretation of Other Agreements................ 50 Section 11.10 No Recourse Against Others................................... 51 Section 11.11 Benefits of Indenture and the Securities Restricted.......... 51 Section 11.12 Successors and Assigns....................................... 51 Section 11.13 Counterpart Originals........................................ 51 Section 11.14 Severability................................................. 51 Section 11.15 Effect of Headings........................................... 52 ARTICLE 12. RELEASE OF COLLATERAL Section 12.1 Release of Collateral........................................ 52 APPENDIX I Definitions Appendix APPENDIX II Rule 144A/Regulation S Appendix (including forms of 11 3/8% Senior Secured Note as Exhibits 1 and 2 thereto) EXHIBIT A Form of Aircraft Mortgage and Security Agreement INDENTURE dated as of April 21, 1998 between TRANS WORLD AIRLINES, INC., a Delaware corporation (the "Company"), and FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, as Trustee (the "Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Company's 11 3/8% Senior Secured Notes due 2003 (the "Initial Securities") and, if and when issued pursuant to a resale of Initial Securities, the Company's 11 3/8% Senior Secured Notes due 2003 (the "Resale Securities") and, if and when issued pursuant to a registered exchange for Initial Securities or Resale Securities, the Company's 11 3/8% Senior Secured Notes due 2003 (the "Exchange Securities") and, if and when issued pursuant to a private exchange for Initial Securities, the Company's 11 3/8% Senior Secured Notes due 2003 (the "Private Exchange Securities" and, together with the Resale Securities, the Exchange Securities and the Initial Securities, the "Securities"). ARTICLE 1. DEFINITIONS AND RULES OF CONSTRUCTION Section 1.1 Definitions. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in Section 1 of the Definitions Appendix attached hereto as Appendix I, which shall be a part of this Indenture as if fully set forth in this place. Section 1.2 Rules of Construction. The rules of construction for this Indenture are set forth in Section 2 of the Definitions Appendix. ARTICLE 2. THE SECURITIES Section 2.1 Designation, Form and Dating. Provisions relating to the Initial Securities, the Resale 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 Resale Securities and the Trustee's certificate of authentication with respect to each thereof shall be substantially in the form of Exhibit 1 to the Rule 144A Appendix (with such appropriate insertions, omissions, substitutions and other variations as are required by this Indenture) and are hereby incorporated in and expressly made a part of this Indenture. The Exchange Securities, the Private Exchange Securities, and the Trustee's certificates of authentication shall be substantially in the form of Exhibit 2 to the Rule 144A Appendix (with such appropriate insertions, omissions, substitutions and other variations as are required by this Indenture) and are hereby incorporated in and expressly made a part of this Indenture. The 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 Person in whose name any Security is registered at the close of business on any Record Date with respect to any Interest Payment Date shall be entitled to receive the interest and Special Interest, if any, payable on such Interest Payment Date to the extent provided by such Security, except if and to the extent the Company shall default in the payment of the interest or Special Interest due on such Interest Payment Date, in which case defaulted interest or Special Interest, as the case may be, shall be paid to the Person in whose name the Outstanding Security is registered at the close of business on the subsequent record date (which shall be not less than five (5) Business Days prior to the date of payment of such defaulted interest) established by notice given by mail by or on behalf of the Company to the Holders of Securities not less than fifteen (15) days preceding such subsequent record date (a "Special Record Date"). Section 2.2 Execution, Amount, Authentication and Delivery. The Securities shall be signed for the Company by the manual or facsimile signatures of an Officer and a Certifying Officer. The Company's seal shall be affixed to or reproduced on the Securities. Typographical or other errors or defects in any such reproduction of the seal or any such signature shall not affect the validity or enforceability of any Security which has been duly authenticated and delivered by the Trustee. If an officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to $43,200,000 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 (as such terms are defined in the Rule 144A Appendix). The Securities shall be known and designated as the "11 3/8% Senior Secured Notes due 2003" of the Company. Their Stated Maturity shall be April 15, 2003, and, subject to the increases in the rate of interest set forth in Section 4.12 hereof and in the Securities, they shall bear interest at the rate of 11 3/8% per annum, from April 21, 1998 or from the most recent Interest Payment Date to which interest and Special Interest, if any, have been paid or duly provided for, as the case may be, payable semi- annually in arrears on April 15 and October 15, commencing October 15, 1998, until the principal thereof is paid or made available for payment. Subject to the limits set forth in the second preceding paragraph of this Indenture, the Trustee shall authenticate Securities for original issue upon written order of the Company signed by an Officer and by a Certifying Officer of the Company. The order shall specify the amount of Securities to be authenticated and the date on which the original issue of Securities is to be authenticated, shall provide instructions with respect to the delivery thereof and shall be accompanied by the documents specified in Sections 10.2 and 11.4 and by the following (provided, however, that the Trustee shall be authorized conclusively to rely upon the documents specified in Section 11.4): (a) the grant to the Trustee, by assignment, pledge, or otherwise pursuant to the Mortgage, of a security interest in the Collateral; (b) Officers' Certificates or other satisfactory confirmation (i) with respect to the Mortgage and the Collateral, that the Company is the legal and beneficial owner of the Collateral, free and clear of all Liens except Permitted Liens; and (ii) describing the actions taken to make, obtain and accomplish all necessary filings, confirmations and identifications referred to in Section 4.14 hereof; (c) compliance with all applicable provisions of Sections 4.12 and 4.14 hereof; (d) an Officers' Certificate confirming all representations and warranties of the Company contained in this Indenture and the other Operative Documents as of the date of authentication; (e) an Officers' Certificate containing representations and warranties of the type usual and customary to the issuance of the Securities such as, but not limited to, representations regarding due authorization of this Indenture; due authorization of the issuance and delivery of the Securities; that the Securities, when so issued and delivered against delivery of the Aircraft under the Aircraft Sale Agreement will be duly and validly issued, and constitute valid and binding obligations of the Company, enforceable in accordance with their terms; 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 this Indenture or the issuance 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, issuance 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 this Indenture and the other Operative Documents; that the Securities have been duly authorized and validly issued; and that the offer and issuance of the Securities have been registered or will be exempt from the registration requirements under the Securities Act; and (g) execution and delivery by the Company of the Securities and by all parties thereto of this Indenture and all other Operative Documents; provided, however, that any Securities in fact authenticated by the Trustee upon written order of the Company as set forth in the first sentence of this paragraph shall be deemed to have been duly authenticated hereunder and to constitute an enforceable contractual obligation of the Company and shall be entitled to all the benefits of this Indenture and the other Operative Documents equally and proportionately with any and all other Securities duly authenticated and delivered hereunder, in each case, notwithstanding any failure of the Company to deliver any of the documents specified in Sections 10.2 and 11.4 or above in this sentence. The Securities shall be issuable only in registered form, without coupons, in denominations of $1,000 and any integral multiple thereof, except that the Global Securities may be issued in a different denomination. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. An authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company, any guarantor or any Affiliate of the Company. Section 2.3 Registrar and Paying Agent. The Company shall maintain an office or agency where Securities eligible for transfer or exchange may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Securities may be presented for payment or repurchase ("Paying Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange ("Register"). Such Register shall be in written form in the English language or any other form capable of being converted into such form within a reasonable time. At all reasonable times such Register shall be open for inspection by the Trustee. The Company may have one or more co-Registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Company may enter into an appropriate agency agreement with any Agent not a party to this Indenture. Such agency agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such. The Company initially appoints the Trustee as Registrar and Paying Agent. Section 2.4 Paying Agent to Hold Payments In Trust. Each Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all Payments held by the Paying Agent for the payment of principal of, repurchase or redemption price, if any, of, interest on, and Special Interest, if any, with respect to, the Securities (whether such Payment has been paid to it by the Company or any other obligor on the Securities), and shall promptly notify the Trustee of any default by the Company (or any other obligor on the Securities) in making any such Payment. The Company at any time may require a Paying Agent to Pay all Payments held by it to the Trustee and account for any funds disbursed and the Trustee may at any time during the continuance of any payment default, upon written request to a Paying Agent, require such Paying Agent to Pay all Payments held by it to the Trustee and to account for any Payments distributed. Upon doing so the Paying Agent shall have no further liability for the Payments. If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of, repurchase or redemption price, if any, of, interest on, or Special Interest, if any, with respect to, any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto Payments sufficient to pay the principal, repurchase or redemption price, if any, of, interest or Special Interest, if any, so becoming due until such Payments shall be Paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of such action or any failure so to act. The Company will, on or before each due date for the payment of the principal of, repurchase or redemption price, if any, of, interest on, or Special Interest, if any, with respect to any of the Securities, deposit with a Paying Agent Payments (in same day funds) sufficient to pay the principal, repurchase or redemption price, if any, of, interest or Special Interest, if any, so becoming due, such Payments to be held in trust for the benefit of the Persons entitled to such principal, repurchase or redemption price, if any, of, interest, or Special Interest, if any, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of such action or any failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (a) hold all Payments received by it as such agent for the payment of the principal of, repurchase or redemption price, if any, of, interest on, or Special Interest, if any, with respect to the Securities (whether such Payments have been paid to it by the Company or by any other obligor on the Securities) in trust for the benefit of the Persons entitled thereto until such Payments shall be paid to such Persons or otherwise disposed of as herein provided; (b) promptly give the Trustee notice of any failure by the Company (or any other obligor upon the Securities) to make any payment of the principal of, repurchase or redemption price, if any, of, interest on, or Special Interest, if any, with respect to, the Securities when the same shall be due and payable; and (c) at any time during the continuance of any such failure, upon the written request of the Trustee, forthwith pay to the Trustee all Payments so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, Pay, or direct any Paying Agent to Pay, to the Trustee all Payments held in trust by the Company or such Paying Agent, such Payments to be held by the Trustee upon the same trusts as those upon which such Payments were held by the Company or such Paying Agent; and, upon such Payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such Payments held by it as Paying Agent. Any Payments deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, redemption or repurchase price, if any, of, interest on or Special Interest, if any, with respect to, any Security and unclaimed for two (2) years after such principal, redemption, repurchase price, interest or Special Interest 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. If the Trustee is not the Registrar, the Company shall furnish to the Trustee on or before each Interest Payment Date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders. Section 2.6 Transfer and Exchange. When Securities are presented to the Registrar or a co-Registrar with a request to register the transfer or to exchange them for an equal principal amount of Securities of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met. To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's request. All Securities presented for registration of transfer, exchange, redemption or payment shall (if so required by the Company or the Trustee) be duly endorsed by, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Company and the Trustee, duly executed by the Holder or his attorney duly authorized in writing. The Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with any registration of transfer or exchange, but not for any exchange pursuant to Sections 2.9, 3.7, 4.15 or 9.5 or any other Tender not involving any transfer of Securities (other than to the Company). No service charge shall be made for any such transaction. In the case of any Security which is Tendered in part only, upon such Tender the Company shall execute and the Trustee shall authenticate and make available for delivery to the Holder thereof, without service charge, a new Security or Securities of any authorized denomination as requested by such Holder in aggregate principal amount equal to the non-Tendered portion of the principal of such Security. No Securities will be issued in denominations of less than $1,000 upon tender of the Securities. All Securities issued upon any transfer or exchange of Securities shall be valid obligations of the Company, evidencing the same debt of the same series and entitled to the same benefits under this Indenture, as the Securities surrendered upon such transfer or exchange. 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 reasonably required by them to indemnify and defend and to save each of them harmless and, in every case of destruction, loss or theft, evidence to their satisfaction of the apparent destruction, loss or theft of such Security and of the ownership thereof. Upon the issuance of any substitute Security pursuant to the preceding paragraph, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. In case any Security which has matured or is about to mature, or has been tendered for repurchase pursuant to any of the provisions hereof (as evidenced by an irrevocable written notice from the Holder to the Company and the Trustee), shall become mutilated or defaced or be apparently destroyed, lost or stolen, the Company may, instead of issuing a substitute Security, pay or authorize the payment of such Security (without surrender of such Security except in the case of a mutilated or defaced Security), as applicable, if the applicant for such payment shall furnish to the Company and to the Trustee and any agent of the Company or the Trustee such security or indemnity as any of them may reasonably 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 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 denominations. Temporary Securities shall be substantially in the form of definitive Securities of the same series but may have variations that the Company reasonably considers appropriate and necessary for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate and deliver definitive Securities in exchange for temporary Securities. Until so exchanged, the temporary Securities shall be entitled to the same benefits under this Indenture as definitive Securities of the same series. Section 2.10 Cancellation. The Company may at any time deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for transfer, exchange (including without limitation, Initial Securities exchanged for Exchange Securities, Private Exchange Securities or both), repurchase or payment. All Securities purchased pursuant to any Offer to Purchase shall be canceled. The Trustee and no one else shall cancel all Securities surrendered for transfer, exchange, repurchase or cancellation. The Company may not issue new Securities to replace Securities it has paid (upon Tender or otherwise) or which have been delivered to the Trustee for cancellation. The Trustee shall destroy all canceled Securities and, if requested, deliver a certificate of such destruction to the Company. If the Company shall acquire any of the Securities, such acquisition shall not operate as a satisfaction of the indebtedness represented by such Securities unless and until the same are delivered to the Trustee for cancellation. Section 2.11 Defaulted Interest; Interest on Defaulted Principal. If the Company defaults in a payment of interest on, or Special Interest, if any, with respect to, the Securities, it shall pay the defaulted interest, plus interest on the defaulted interest or Special Interest, as the case may be, at the rate then borne on the Securities to the extent permitted by law and the terms thereof, to the persons who are Securityholders on a subsequent Special Record Date. The Company shall fix the Special Record Date and payment date. At least fifteen (15) days before the Special Record Date, the Company shall mail to each Securityholder a notice that states the Special Record Date, the payment date and the amount of defaulted interest or Special Interest, as the case may be, to be paid. If the Company defaults in the payment of principal on the Securities (whether on acceleration, at maturity, upon tender for repurchase, or otherwise), it shall pay interest on such defaulted principal at the rate then borne by the Securities to the Trustee upon demand. The Trustee shall apply any such payment in accordance with the provisions of Section 6.10. Section 2.12 CUSIP Numbers. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. ARTICLE 3. REDEMPTIONS Section 3.1 Optional Redemption. The Securities Outstanding shall not be subject to redemption in whole or in part at the option of the Company prior to April 15, 2001. On or after April 15, 2001, the Securities may be redeemed at any time in whole or in part (in any integral multiple of $1,000) by the Company at its sole option at redemption prices (expressed as a percentage of principal amount) as set forth below during the twelve-month periods beginning April 15 of the years shown below, plus in each case an amount equal to accrued and unpaid interest and Special Interest, if any, with respect to, the Securities to and including the redemption date: Redemption Year Price ---- ----- 2001 104.550% 2002 102.275% Section 3.2 Redemption Notice to Trustee. If the Company elects to redeem Securities as provided in Section 3.1, it shall notify the Trustee of the redemption date, the principal amount of Securities and all other information needed for the notice to be given by the Trustee pursuant to Section 3.4. The Company shall give the notice provided for in this Section at least ten (10) days (unless a shorter notice shall be satisfactory to the Trustee) prior to the date the Trustee must give notice pursuant to Section 3.4. Section 3.3 Selection of Securities to be Redeemed. If less than all the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed on either a pro rata basis or by lot. The Trustee shall make the selection from Securities outstanding not previously called for redemption. The Trustee may select for redemption portions of the principal of Securities that have denominations larger than $1,000. Securities and portions of them it selects shall be in amounts of $1,000 or whole multiples of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. Section 3.4 Notice of Redemption. At least 30 days but not more than 60 days before a redemption date, the Company shall mail by first-class mail a notice of redemption to each Holder whose Securities are to be redeemed. The notice shall identify the Securities and the principal amount thereof to be redeemed and shall state: (a) the principal amount of each Security held by each such Holder to be redeemed; (b) the redemption date; (c) the redemption price (including the amount of accrued and unpaid interest and Special Interest, if any, to be paid on the Securities called for redemption); (d) if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the redemption date, upon surrender of such Security, a new Security or Securities in principal amount equal to the unredeemed portion will be issued; (e) the name and address of the Paying Agent; (f) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; (g) that, unless the Company defaults in making the redemption payment, interest on the Securities to be redeemed ceases to accrue on and after the redemption date and the only remaining right of the Holders of such Securities is to receive payment of the redemption price upon surrender to the Paying Agent of the Securities. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. Section 3.5 Effect of Notice of Redemption. Once a notice of redemption is mailed, Securities called for redemption become due and payable on the redemption date at the redemption price and, on and after such date (unless the Company shall default in the payment of the redemption price), such Securities shall cease to bear interest. Upon surrender to the Paying Agent, such Securities shall be paid at the redemption price plus accrued interest and Special Interest, if any, to the redemption date. Section 3.6 Deposit of Redemption Price. On or before 10:00 a.m., Eastern Time, on the redemption date, the Company shall deposit with the Paying Agent money in funds immediately available on the redemption date sufficient to pay the redemption price of and accrued interest on and Special Interest, if any, with respect to, all Securities to be redeemed on that date. Section 3.7 Securities Redeemed in Part. Upon surrender of a Security that is redeemed in part, the Trustee shall authenticate for the Holder a new Security equal in principal amount to the unredeemed portion of the Security surrendered. Section 3.8 Mandatory Redemption. Subject to the other provisions of this Section 3.8, the Company shall, until all the Securities are paid or payment thereof has been provided for, deposit in accordance with Section 3.6, at least one Business Day prior to October 15 in each year, commencing October 15, 2000 (each such date being hereinafter referred to as a "Mandatory Redemption Date"), an amount in cash sufficient to redeem an aggregate principal amount of Securities (the "Mandatory Redemption Amount") equal to $1,840,000 on October 15, 2000 and $1,838,000 on each of October 15, 2001 and October 15, 2002 (or, if the aggregate principal amount of Securities Outstanding on any such Mandatory Redemption Date is less than the principal amount required to so be redeemed, then all the Outstanding Securities shall be redeemed on such date), at a redemption price (expressed as a percentage of the aggregate principal amount of Securities Outstanding) of 100% plus accrued and unpaid interest and Special Interest, if any, to the Mandatory Redemption Date (subject to the right of holders of record on the relevant record date to receive interest and Special Interest, if any, due on the relevant Interest Payment Date). Each such deposit shall be applied to the redemption of Securities on such Mandatory Redemption Date as herein provided. The Trustee shall, on or before the thirtieth day prior to such Mandatory Redemption Date (but not sooner than 45 days before such date), select, in the manner provided in Section 3.3, the Securities to be redeemed on the next Mandatory Redemption Date and cause notice of the redemption thereof to be given in the name and at the expense of the Company in the manner provided in Section 3.4. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner set forth in Sections 3.5 and 3.7. At its option the Company may at any time reduce its obligation to pay any Mandatory Redemption Amount in cash by delivering to the Trustee at least 45 days before the related Mandatory Redemption Date (i) Securities which have been acquired by the Company in open market purchases (and, for avoidance of doubt, not acquired by way of any redemption or Offer to Purchase hereunder) and have not been called for redemption under any provision of this Indenture, together with (ii) an Officers' Certificate directing the Trustee to cancel the Securities and stating the election of the Company to have credited against such Mandatory Redemption Amount on such Mandatory Redemption Date a specified principal amount of Securities so delivered. Each such Officers' Certificate shall state that the Securities forming the basis of such credit do not include any Securities theretofore credited against any Mandatory Redemption Amount pursuant to this Section 3.8. All Securities made the basis of a credit against a Mandatory Redemption Amount shall be credited at 100% of their principal amount. Although the Company may obtain credit against any Mandatory Redemption Amount in advance of the related Mandatory Redemption Date as provided herein, any such credit shall be applied against such Mandatory Redemption Amounts in the order in which they become due. In case of the failure of the Company to deliver such Officers' Certificate, the Mandatory Redemption Amount due on such Mandatory Redemption Date shall be paid entirely in cash without the option to reduce the Company's obligation to make such payment as specified in this Section 3.8. Each Mandatory Redemption Amount shall be automatically reduced by $613,000 for each Aircraft that is sold in accordance with Section 4.12(c) or that is the subject of a Total Loss, provided, that in each case, the Company has complied in full with the applicable provisions of Section 4.12 with respect to such sale or Total Loss, as the case may be. The effective date of any such reduction shall be either the Payment Date with respect to the related Offer to Purchase (so long as the Company does not default in the payment of the purchase price with respect to such Offer to Purchase) or, if no such Offer to Purchase is required pursuant to the provisions of Section 4.12, then such effective date shall be (with respect to the sale of an Aircraft) the date of consummation of the sale of such Aircraft or (with respect to Total Loss of an Aircraft) the date that is twenty-five days after the Total Loss Date with respect to such Total Loss, provided, however, that such reduction shall not apply to any Mandatory Redemption Amount for which a notice of redemption has been given under Section 3.8 on or prior to such effective date. On or after the Mandatory Redemption Date and upon Request (and so long as no Event of Default has occurred and is continuing), the Trustee shall promptly return to the Company any funds it is holding under this Section 3.8 in excess of the Mandatory Redemption Amount (as reduced pursuant to the provisions of this Section 3.8) related to such Mandatory Redemption Date and shall promptly authenticate and mail to the Company a new Security or Securities in an aggregate principal amount equal to that portion (if any) of the Securities delivered to the Trustee and not used by the Company as a credit under this Section 3.8 (provided, however, that the Company has previously delivered to the Trustee sufficient executed Securities to enable the Trustee to so authenticate such Securities). ARTICLE 4. COVENANTS, REPRESENTATIONS AND WARRANTIES Section 4.1 Payment of Securities. The Company shall pay the principal of, interest on and Special Interest, if any, with respect to, the Securities on the dates and in the manner provided in this Indenture and in the Securities. The Company shall pay interest semi-annually in arrears on each Interest Payment Date, commencing October 15, 1998. Interest shall be paid on each Interest Payment Date in an amount equal to the interest accrued for the period beginning from the Issue Date, or from the most recent date to which interest and Special Interest, if any, have been paid. All interest and Special Interest, if any, due and payable on the Securities shall be paid in cash, except that the Company may at its option, make such Payments by check mailed to the address of the Person entitled thereto as it appears in the Register; provided, however, that such Payments on a certificated Security will be made by wire transfer to a U.S. dollar account maintained by a Holder with a bank in New York City if such Holder owns at least $250,000 in aggregate principal amount of certificated Securities and elects payment by wire transfer by giving written notice to the Company and the Trustee to such effect designating such account no later than 10 days immediately preceding the relevant due date for payment (or such other date as the Company and the Trustee may accept in their discretion). An installment of principal, interest or Special Interest, if any, shall be considered paid on the date due if the Trustee or Paying Agent (other than the Company or any Affiliate thereof) holds on that date Payments designated for and sufficient to pay such installment and the Trustee or Paying Agent is not prohibited from Paying such Payments to the Holders of the Securities pursuant to this Indenture. The Company shall pay interest at the rate set forth in this Indenture and the Securities and the Company shall pay interest on unpaid interest or Special Interest, if any, at the same rate to the extent legally permitted. Section 4.2 Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be surrendered for registration of transfer or exchange or for presentation for payment or repurchase and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. At the request of the Company, said office or agency may be the office of an agent appointed by the Trustee for such purpose. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency not designated or appointed by the Trustee. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. Section 4.3 Limitation on 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, 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; (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 9 1/4,% 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. 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 of its Subsidiaries 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 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 of its Subsidiaries 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 and (b) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon the Collateral or the other Property of the Company or a Subsidiary; provided, however, that the Company or a Subsidiary, as the case may be, shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim (i) the amount, applicability or validity of which is being contested in good faith by appropriate proceedings as permitted by and in accordance with the provisions of the Operative Documents, to the extent applicable, and for which adequate reserves have been established in accordance with GAAP, as in effect from time to time, or (ii) if the Company delivers to the Trustee a Certificate of an Officer stating that such non-payment and non-discharge is in the interest of the Company and not prejudicial in any material respect to the Holders. Nothing contained herein or in the Securities shall be deemed to impose on the Trustee or on the Company any obligation to pay on behalf of the Holder of any Securities any tax, assessment or governmental charge required by any present or future law of the U.S. or of any state, county, municipality or other taxing authority thereof to be paid on behalf of, or withheld from the amount payable to, the Holder of any Securities; rather any tax, assessment or governmental charge shall, to the extent required by law, be withheld from the amounts provided for herein. Section 4.6 Notices. The Company shall notify the Trustee in writing of any of the following promptly (and in any event within five (5) Business Days after an Officer learns of the occurrence thereof) describing the same and, if applicable, the steps being taken by the Person(s) affected with respect thereto: (a) In the event that any Indebtedness of the Company or any Significant Subsidiary of the Company in a principal amount in excess of $10,000,000 (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 (b) Any litigation, arbitration proceeding or governmental proceeding involving damages or potential liability in excess of $10,000,000 is instituted against the Company or any of its Subsidiaries which, if adversely determined, would have a material adverse effect on the business, operations or financial condition of the Company and its Subsidiaries taken as a whole. Section 4.7 Maintenance of Properties and Insurance. Except as otherwise provided in this Indenture, the Company shall, and shall cause each of its Subsidiaries to, cause all Collateral and other Properties owned by or leased to it and used or useful in the conduct of the business of the Company or any such Subsidiary, as the case may be, to be maintained and kept in good repair, working order and condition, except for reasonable wear and use, and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary, so that the business carried on in connection therewith may be properly and advantageously conducted at all times, except, in every case, as and to the extent that the Company or any such Subsidiary may be prevented by fire, strikes, lockouts, acts of God, inability to obtain labor or materials, governmental restrictions, enemy action, civil commotion or unavoidable casualty or similar causes beyond the control of the Company or such Subsidiary; provided, however, that subject to all requirements of the Operative Documents, nothing in this Section 4.7 shall prevent the Company or any such Subsidiary from discontinuing the use, operation or maintenance of any such Properties, or disposing of any of them, if such 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 Company's business or that of its Subsidiaries. For so long as any Collateral or Property is deemed to be useful to the conduct of the business of the Company or its Subsidiaries, the Company shall, or shall cause such Subsidiaries to, maintain appropriate insurance, in accordance with industry practice, on such Collateral and Properties and as required under the provisions of the applicable Operative Documents. Notwithstanding the provisions of this Section 4.7, to the extent there exists any inconsistency between the provisions hereof and the provisions of the Mortgage relating to Property which constitutes Collateral, the provisions of the Mortgage shall prevail as to all Collateral. 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 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 after due inquiry, the Company is in compliance with all conditions and covenants under this Indenture and the Operative Documents (determined without regard to any period of grace or requirement of notice), and if the Company is not in compliance with all such conditions and covenants, describing each Default or Event of Default and its status. The first certificate to be delivered by the Company pursuant to this Section 4.8 shall be for the fiscal year ending December 31, 1998. 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 Exchange Act. The Company also shall comply with the other provisions of TIA Section 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 Exchange Act, 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 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 by a nationally recognized auditing firm and 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 Special Interest, if any, with respect to, the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture and the Operative Documents; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power granted to the Trustee herein and in the Operative Documents, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 4.11 Amendment to Certain Agreements. The Company shall not enter into or consent to any amendment, supplement or other modification of the Operative Documents except as permitted under Article 9 hereof. Section 4.12 Title to Collateral and Limitation on Liens; Sale of Aircraft; Total Loss With Respect to Aircraft. (a) 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 Trustee to the Collateral, against the claims of all persons and will maintain and preserve the security interests contemplated by Article 10; and the Company shall not, and not permit any of its Subsidiaries to, directly or indirectly, incur, assume or suffer to exist any Lien of any nature whatsoever upon or with respect to the Collateral, other than Permitted Liens. The Company shall cause the Operative Documents, including all necessary financing statements, notifications of secured transactions and other assurances or instruments to be properly recorded, registered and filed and to be kept, recorded, registered and filed in such manner and in such places as may be required by law and shall take all such other actions as may be required in order to make effective the security interests intended to be created in connection with this Indenture. The Company shall furnish to the Trustee the Opinions of Counsel required by Section 10.2 to confirm such action. (b) The Company shall not, directly or indirectly, consummate any sale, lease, transfer or other disposition of any Collateral except as permitted in paragraph (c) of this Section 4.12 or in the other Operative Documents. (c) (i) The Company may, at any time after the earlier to occur of the conversion of the Equity Notes into Common Stock or such other securities, cash or other Property, in each case, as provided in and in accordance with Article 13 of the Equity Notes Indenture or the payment in full of the Equity Notes, sell one or more of the Aircraft upon compliance with the following requirements: (A) the Company shall (unless the Company is not required to make such Offer to Purchase pursuant to the proviso in this clause (A) or the provisions of Section 4.12(e)) have commenced an Offer to Purchase Securities in an aggregate principal amount (the "Sale OTP Amount") equal to (for each Aircraft so sold) (1) the aggregate principal amount of the Securities Outstanding on the date of the commencement of such Offer to Purchase minus (2) the product of (x) the Redemption Value as of such date multiplied by (y) the number of Aircraft that will remain subject to the Mortgage after giving effect to such sale, at a purchase price (expressed as a percentage of principal amount of Securities to be purchased) equal to (I) 102%, if such Offer to Purchase is commenced prior to the first anniversary of the Issue Date, or (II) 101%, if such Offer to Purchase is commenced on or after the first anniversary of the Issue Date, plus, in each case, accrued and unpaid interest and Special Interest, if any, on such Securities to and including the Payment Date, provided, however, that if the foregoing calculation with respect to any such sale of an Aircraft results in a negative number, no Offer to Purchase shall be required with respect to such sale of such Aircraft; (B) the Company shall have given the Trustee prior notice of the pending sale of such Aircraft (which notice shall be given by the Company at least 15 days prior to the date of commencement of the Offer to Purchase (if any) for such Aircraft or, if no Offer to Purchase is required pursuant to the proviso in Section 4.12(c)(i)(A) or the provisions of Section 4.12(e), at least 15 days prior to the date of consummation of the sale of such Aircraft); (C) the Company shall have deposited with the Trustee an amount in cash equal to the purchase price with respect to the Offer to Purchase (if any) for such Aircraft on or prior to the date of sale of such Aircraft (which cash amount shall remain on deposit with the Trustee until the payment of the purchase price on the applicable Payment Date with respect to such Offer to Purchase); and (D) no Event of Default shall have occurred and be continuing or would result from the sale of such Aircraft. (ii) Effective as of the day immediately following the Payment Date with respect to the Offer to Purchase in connection with any sale of an Aircraft, the interest rate borne by the Securities then Outstanding shall be automatically, without any further act or deed, increased, if at all, by a per annum percent equal to the product of (A) 1.50 multiplied by (B) a fraction, (x) the numerator of which shall be the aggregate principal amount of Securities Outstanding on such Payment Date (after giving effect to the purchase of Securities pursuant to the Offer to Purchase on such Payment Date), minus the product of (1) the Redemption Value as of such Payment Date multiplied by (2) the number of Aircraft that will remain subject to the Mortgage after giving effect to such sale, and (y) the denominator of which shall be the aggregate principal amount of Securities Outstanding on such Payment Date (after giving effect to the purchase of Securities pursuant to the Offer to Purchase on such Payment Date). Any such increase shall be in addition to Special Interest, if any, then accruing with respect to such Security which Special Interest shall continue to accrue in accordance with the provisions of such Security. If, pursuant to the proviso in Section 4.12(c)(i)(A) or the provisions of Section 4.12(e), the Company is not required to make an Offer to Purchase in connection with a sale of Aircraft, then there shall be no increase in the rate of interest with respect to such sale. The amount of the increase in the interest rate borne by the Securities will be recalculated and reset following each sale of an Aircraft as of the Payment Date for the relevant Offer to Purchase. If on any such Payment Date the foregoing calculation results in a negative number or a numerator equal to zero, there shall be no increase in the interest rate resulting from such calculation and any such increase then in effect shall be reset to zero. (iii) Upon Request by the Company, payment by the Company of the Trustee's costs (including reasonable legal fees and disbursements) incurred in complying with such Request and satisfaction of the requirements of Section 4.12(c)(i), the Trustee shall release from the Lien of the Operative Documents, all right, title and interest of the Trustee in and to any Aircraft so sold and shall (so long as no Event of Default then exists) promptly after the Payment Date with respect to any Offer to Purchase made in connection with such sale, return to the Company any cash held in excess of the purchase price of the Securities tendered for purchase in connection with such Offer to Purchase. The Trustee may enter into any arrangements (including, without limitation, escrow arrangements) as it shall deem necessary or desirable to accomplish the intents and purposes of this Section 4.12(c). (d) In the event that there shall occur a Total Loss with respect to any Aircraft, the Company shall (unless the Company is not required to make such Offer to Purchase pursuant to the next succeeding sentence or the provisions of Section 4.12(e)) make an Offer to Purchase an aggregate principal amount of Outstanding Securities (the "Total Loss OTP Amount") equal to (for each Aircraft subject to such Total Loss) (i) the aggregate principal amount of the Securities Outstanding on the date such Offer to Purchase (if any) is required to be commenced hereunder minus (ii) the product of (A) the Redemption Value as of such date multiplied by (B) the number of Aircraft remaining that were not subject to such Total Loss, at a purchase price equal to 100% of the aggregate principal amount of Securities to be purchased, plus accrued and unpaid interest and Special Interest, if any, on such Securities, to and including the Payment Date. If the foregoing calculation with respect to any such Total Loss results in a negative number, no Offer to Purchase shall be required with respect to such Total Loss. The Company shall commence such Offer to Purchase (if any) within thirty (30) days after the Total Loss Date with respect to any such Total Loss. Upon Request by the Company and payment by the Company the purchase price with respect to such Offer to Purchase (if any) and the Trustee's costs (including reasonable legal fees and disbursements) incurred in complying with such Request, the Trustee shall release from the Lien of the Operative Documents, all right, title and interest of the Trustee in and to the Aircraft that was the subject of such Total Loss. (e) At its option the Company may reduce in whole or in part its obligation to pay any Sale OTP Amount or Total Loss OTP Amount in cash by delivering to the Trustee at least 15 days before the date of commencement of the related Offer to Purchase (i) Securities which have been acquired by the Company in open market purchases (and, for avoidance of doubt, not acquired by way of any redemption or Offer to Purchase hereunder) and have not been called for redemption under any provision of this Indenture, together with (ii) an Officers' Certificate directing the Trustee to cancel such Securities and stating the election of the Company to have credited against such Sale OTP Amount or Total Loss OTP Amount, as the case may be, a specified principal amount of Securities so delivered. Each such Officers' Certificate shall state that the Securities forming the basis of such credit do not include any Securities theretofore credited against any Sale OTP Amount or Total Loss OTP Amount pursuant to this Section 4.12(e). All Securities made the basis of a credit against a Sale OTP Amount or Total Loss OTP Amount shall be credited at 100% of their principal amount. Although the Company may obtain credit against the Sale OTP Amount or Total Loss OTP Amount, as the case may be, in advance of the related Payment Date as provided herein, any such credit shall be applied against such Sale OTP Amounts or Total Loss OTP Amounts, as the case may be, in the order in which they become due. In case of the failure of the Company to deliver such Officers' Certificate, the Sale OTP Amount or Total Loss OTP Amount, as the case may be, due on the Payment Date therefor shall be paid entirely in cash without the option to reduce the Company's obligation to make such payment as specified in this Section 4.12(e). If the principal amount of the Securities made the basis of a credit against any Sale OTP Amount (calculated, for this purpose, as of the date the Company is required to give to the Trustee the notice of the pending sale pursuant to Section 4.12(c)(i)(B)) or Total Loss OTP Amount (calculated, for this purpose, as of the date twenty-five days after the Total Loss Date with respect to such Total Loss), as the case may be, equals or exceeds such Sale OTP Amount or Total Loss OTP Amount, as the case may be, and the Company has otherwise complied with the applicable provisions of this Section 4.12(e), then the Company shall not be required to make the Offer to Purchase for which such Sale OTP Amount or Total Loss OTP Amount, as the case may be, was calculated. Such calculations shall be set forth in detail in the Officers' Certificate required under this Section 4.12(e). The Trustee shall promptly authenticate and mail to the Company a new Security or Securities in an aggregate principal amount equal to that portion (if any) of the Securities delivered to the Trustee and not used by the Company as a credit under this Section 4.12(e) (provided, that the Company has previously delivered to the Trustee sufficient executed Securities to enable the Trustee to so authenticate such Securities). Section 4.13 Books, Records, Access; Confidentiality. (a) The Company shall, and shall cause each of its Subsidiaries to, (i) maintain complete and accurate books and records in which full and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its respective business and activities, and (ii) permit authorized representatives of the 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, including the records, logs, and other materials referred to in Section 2.1(c) of the Mortgage, 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. (b) The Trustee and its 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 or legal process, 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 at the Company's expense with the Company's efforts to obtain a protective order or other reliable assurance that confidential treatment will be accorded any such information required to be so disclosed, and (iii) the recipient of the information may disclose any information necessary to be disclosed pursuant to any provision of the TIA. Section 4.14 Security Interests. The Company and its Subsidiaries shall perform any and all acts and execute any and all documents (including, without limitation, the execution, amendment or supplementation of any financing statement and continuation statement or other statement) for filing under the provisions of the Federal Aviation Act and the applicable Uniform Commercial Code and the rules and regulations thereunder or any other statute, 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 Trustee 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 Trustee from time to time such other documentation, consents, authorizations, approvals and orders in form and substance satisfactory to the Trustee as it shall deem reasonably necessary or advisable to perfect or maintain the Liens for the benefit of the Holders. Section 4.15 Repurchase of Securities Upon a Change in Control. (a) In the event that there shall occur a Change in Control, the Company shall make an Offer to Purchase all of the Outstanding Securities, at a purchase price equal to 101% of the aggregate principal amount of the Securities Outstanding, plus accrued and unpaid interest and Special Interest, if any, to and including the repurchase date. The right to require such repurchase of Securities shall not continue after a discharge of the Company from its obligations with respect to the Securities in accordance with Article 8. (b) The Company shall commence such Offer to Purchase within thirty (30) days after the occurrence of a Change in Control. Section 4.16 Restrictions on Becoming an Investment Company. The Company shall not become an investment company within the meaning of the Investment Company Act of 1940 as such statute and the regulations thereunder and any successor statute or regulations thereto may from time to time be in effect. Section 4.17 Listing. No later than the earliest to occur of (i) the effectiveness of the initial Exchange Offer Registration Statement and (ii) the effectiveness of the initial Shelf Registration Statement, in either case, filed under (and as defined in) the Registration Rights Agreement, the Company shall use its reasonable best efforts to cause the Exchange Securities and the Private Exchange Securities to be listed on the American Stock Exchange, or such other stock exchange or market as the Common Stock of the Company is then principally traded provided, that such Securities meet the minimum requirements for listing on any such exchange or market, and, if applicable, to use its reasonable best efforts to maintain such listing for so long as any of the Exchange Securities or Private Exchange Securities are Outstanding. ARTICLE 5. SUCCESSOR CORPORATION Section 5.1 Covenant Not to Consolidate, Merge, Convey or Transfer Except Under Certain Conditions. The Company shall not consolidate with, or merge with or into, or convey 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: (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 prior to or simultaneously with the consummation of such transaction, 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 Special Interest, if any, 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 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 (i) such merger, consolidation, transfer, conveyance, or acquisition of assets and such supplemental indenture (if any) comply with the terms of this Indenture, (ii) this Indenture and the Securities constitute the valid and legally binding obligations of the surviving Person, and (iii) this Indenture and the other Operative Documents are enforceable against the surviving Person in accordance with their terms. 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, but the predecessor Company in the event of any such conveyance or transfer shall not be released from the obligation to pay the principal of, interest on and Special Interest, if any, with respect to the Securities. 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 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 Special Interest, if any, with respect to, any Security when the same becomes due and payable and the default continues for thirty (30) days; (b) the Company defaults in the payment of the principal amount of any Securities when the same becomes due and payable at maturity, upon acceleration, redemption, tender for repurchase or otherwise; (c) the Company fails to comply with the agreements or covenants contained in Sections 3.8, 4.3 or 4.12 hereof, takes or agrees to take any action prohibited by Section 5.1 hereof, discontinues or agrees to discontinue substantially all of its commercial airlines operations or fails to comply with the covenants contained in Sections 3, 6.3, 6.5 or 6.8 of the Mortgage within the time periods (if any) provided therein; (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 other Operative Documents or (ii) any representation or warranty made by the Company in this Indenture, the other Operative Documents or any Mortgage Supplement or in any certificate of the Company delivered hereunder or under any such document shall prove to have been untrue in any material respect when made, 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 any Indebtedness of the Company or any of its Significant Subsidiaries in excess of $10,000,000 in principal amount, whether such Indebtedness 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 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; (f) the Company or any of its Significant Subsidiaries 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 of its Significant Subsidiaries in an involuntary case or proceeding, (ii) appoints a Custodian of the Company or any of its Significant Subsidiaries for all or substantially all of its properties, or (iii) orders the liquidation of the Company or any of its Significant Subsidiaries, 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 $10,000,000 shall be rendered against the Company or any of its Significant Subsidiaries by a court of competent jurisdiction and remain undischarged, unstayed and unsatisfied for the period and after the notice specified below; or (i) any of the Operative Documents ceases, without the consent of the Trustee, to be in full force and effect. 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 other Operative Documents in respect of any particular Default. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." When a Default is cured, it ceases. Section 6.2 Acceleration. If an Event of Default (other than an Event of Default specified in Section 6.1(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 Special Interest, if any, to the date of acceleration on the Securities Outstanding (if not then due and payable) to be due and payable and upon any such declaration, the same shall become and be immediately due and payable. If an Event of Default specified in Section 6.1(f) or (g) occurs, all unpaid principal of, accrued interest on and Special Interest, if any, with respect to, the Securities Outstanding shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholder. Upon payment of such principal amount, interest, and Special Interest, if any, all of the Company's obligations under the Securities and this Indenture, other than obligations under Sections 7.7 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 Special Interest, if any, which has become due solely by such declaration of acceleration, have been cured or waived, (b) to the extent the payment of such interest is permitted by law, interest on overdue installments of interest and on overdue principal which has become due otherwise than by such declaration of acceleration, has been paid, (c) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction, and (d) all payments due to the Trustee and any predecessor Trustee under Section 7.7 have been made. Section 6.3 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of, interest on or Special Interest, if any, with respect to the Securities or to enforce the performance of any provision of the Securities or this Indenture including, without limitation, instituting proceedings and exercising and enforcing, or directing exercise and enforcement of, all rights and remedies of the Trustee under the other Operative Documents. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. Section 6.4 Waiver of Past Defaults. Subject to Sections 6.7, 9.2 and 9.6, the Holders of a majority in aggregate principal amount of the Securities Outstanding by notice to the Trustee may authorize the Trustee to waive an existing Default or Event of Default and its consequences, except a Default (a) in the payment of principal of, or interest on, or Special Interest with respect to, any Security as specified in clauses (a) and (b) of Section 6.1 or (b) in respect of a covenant or provision hereof which cannot be modified or amended without the consent of the Holder of each Security affected. When a Default or Event of Default is waived, it is cured and ceases, and the Company, the Holders and the Trustee shall be restored to their former positions and rights hereunder respectively; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. Section 6.5 Control by Majority. The Holders of a majority in aggregate principal amount of the Securities Outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee 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 legal counsel to the Trustee determines in good faith conflicts with law or this Indenture, that the Trustee reasonably determines may be unduly prejudicial to the rights of another Securityholder, or that the Trustee reasonably determines may subject the Trustee to personal liability. However, the Trustee shall have no liability for any actions or omissions to act which are in accordance with any such direction or authorization. Section 6.6 Limitation on Suits. A Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless: (a) the Holder gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least twenty-five percent (25%) in principal amount of the Securities Outstanding make a written request to the Trustee to pursue the remedy; (c) such Holder or Holders offer to the Trustee indemnity reasonably satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within sixty (60) days after receipt of the request and the offer of indemnity; and (e) during such 60-day period the Holders of a majority in aggregate principal amount of the Securities Outstanding do not give the Trustee a direction which, in the reasonable opinion of the Trustee, is inconsistent with such request. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over such other Securityholder. Section 6.7 Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Security to receive payment of principal of, interest on, and Special Interest, if any, with respect to, the Security in cash, on or after the respective due dates expressed in the Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. It is hereby expressly understood, intended and agreed that any and all actions which a Holder of the Securities may take to enforce the provisions of this Indenture and/or collect Payments due hereunder or under the Securities, except to the extent that such action is determined to be on behalf of all Holders of the Securities, shall be in addition to and shall not in any way change, adversely affect or impair the rights and remedies of the Trustee or any other Holder of the Securities thereunder or under this Indenture and the other Operative Documents, including the right to foreclose upon and sell the Collateral or any part thereof and to apply any proceeds realized in accordance with the provisions of this Indenture. Section 6.8 Collection Suit by Trustee. If an Event of Default in payment of interest or principal specified in clause (a) or (b) of Section 6.1 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor on the Securities for the whole amount of principal, accrued interest and Special Interest, if any, remaining unpaid, together with interest on overdue principal and on overdue installments of interest to the extent that payment of such interest is permitted by law, in each case at the rate per annum provided for by the Securities, and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.9 Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Securityholders allowed in any judicial proceedings relative to the Company (or any other obligor upon the Securities), its creditors or its Property and shall be entitled and empowered to collect and receive any moneys or other Property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceedings is hereby authorized by each Securityholder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee under Section 7.7, and unless prohibited by law or applicable regulations to vote on behalf of the Holders of Securities for the election of a trustee in bankruptcy or other person performing similar functions. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding except, as aforesaid, for the election of a trustee in bankruptcy or person performing similar functions. Section 6.10 Application of Proceeds. Any moneys collected by the Trustee pursuant to this Article shall be applied in the following order at the date or dates fixed by the Trustee and, in case of the distribution of such moneys on account of principal, interest, or Special Interest, if any, upon presentation of the several Securities and stamping (or otherwise noting) thereon the 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 reasonable costs and expenses actually incurred, including reasonable compensation to the Trustee, its predecessors, if any, and their respective agents and attorneys (including amounts due and unpaid under Section 7.7), and of all reasonable costs, fees, expenses and liabilities incurred and all advances made by any and all of the foregoing (including amounts due and unpaid under Section 7.7), except as a result of negligence or bad faith; SECOND: In case the entire principal of the Securities shall not have become and be then due and payable, as to any Securities (a) first to the payment of interest and Special Interest, if any, in default in the order of the maturity of the installments of such interest and Special Interest, if any, with interest (to the extent that such interest has been collected by the Trustee) upon the overdue installments of interest or Special Interest, if any, at the rate of interest specified in the Securities and (b) second to the payment of principal of the Securities as the same shall become due and payable, such payments to be made ratably to the Persons entitled thereto, without discrimination or preference; THIRD: In case the entire principal of the Securities shall have become and shall be then due and payable, as to any Securities, to the payment of the whole amount then owing and unpaid upon all the Securities for principal, interest and Special Interest, with interest upon the overdue principal, and (to the extent that such interest has been collected by the Trustee) upon overdue installments of interest or Special Interest, if any, at the same rate as the rate of interest specified in this Indenture or in the Securities; and in case such moneys shall be insufficient to pay in full the whole amount so due and unpaid upon the Securities, then to the payment of such principal, interest and Special Interest, if any, without preference or priority of any of principal, interest or Special Interest, if any, over the other, or any installment of interest or Special Interest, if any, over any other installment of interest or Special Interest, if any, or of any Security over any other Security, ratably to the aggregate of such principal, and accrued and unpaid interest and Special Interest; and FOURTH: To the payment of the remainder, if any, after payment in full of the entire principal balance, if any, of the Securities and all interest, Special Interest and other amounts due upon or in respect of such Securities, to the Company or any other Person lawfully entitled thereto. The Trustee, upon prior written notice to the Company, may fix a record date and payment date for any payment to Securityholders pursuant to this Section 6.10. 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 of competent jurisdiction in its discretion may require in any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7, or a suit by Holders of more than ten percent (10%) in principal amount of the Securities Outstanding. Section 6.12 Restoration of Rights on Abandonment of Proceedings. In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee, then and in every such case the Company, the Trustee and the Securityholders shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Company, the Trustee and the Securityholders shall continue as though no such proceedings had been taken. Section 6.13 Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default. No right or remedy herein conferred upon or reserved to the Trustee or to the Securityholders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. No delay or omission of the Trustee or of any Holder of any of the Securities to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein; and, subject to the other applicable provisions of this Indenture, every power and remedy given by this Indenture or by law to the Trustee or to the Securityholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Securityholders. Any right or remedy herein conferred upon or reserved to the Trustee may be exercised by it in its capacity as Trustee, as 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. (b) Except during the continuance of an Event of Default: (i) The Trustee need perform only those duties as are specifically set forth in this Indenture and the other Operative Documents and no others. (ii) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct or bad faith, 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 shall be under no obligation to exercise any of the rights, trusts or powers vested in it by this Indenture at the request, order or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred by it in compliance with such request, order or direction. (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 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 reasonably believed by it to be genuine and to have been signed or presented by the proper person. Subject to Section 7.1(b)(ii), the Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel, which shall conform to Section 11.5. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. (c) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its attorneys and agents and the Trustee shall not be responsible for the misconduct or negligence of any agent or attorney appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it reasonably believes to be authorized or within its rights or powers. Section 7.3 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or Affiliates of the Company with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 7.10 and 7.11. Section 7.4 Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement in the Securities or in this Indenture other than its certificate of authentication. Section 7.5 Notice of Defaults. If a Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Securityholder notice of the Default within ninety (90) days after the occurrence thereof except as otherwise permitted by the TIA. Except in the case of a Default in payment of principal of, or interest on, or Special Interest, if any, with respect to, any Security, the Trustee may withhold the notice if and so long as it, in good faith, determines that withholding the notice is in the interests of the Securityholders. Section 7.6 Reports by Trustee to Holders. If circumstances require any report to Holders under TIA Section 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 Section 313. The Company shall promptly notify the Trustee if the Securities become listed on or delisted from any stock exchange or other recognized trading market. The Trustee shall, upon the written request of any Holder of Securities but subject to applicable laws and contractual limitations, provide to such Holder copies of any reports, certificates, opinions or other materials of any kind or nature required to be delivered to the Trustee under this Indenture or any of the other Operative Documents or otherwise delivered by or on behalf of the Company to the 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 hereunder and under the other Operative Documents. 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 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 Indenture 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 may resign by so notifying the Company and the Holders in writing. The Holders of a majority in aggregate principal amount of the Securities Outstanding may remove the 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 if: (a) the Trustee fails to comply with Section 7.10; (b) the Trustee is adjudged a bankrupt or an insolvent; (c) a receiver or other public officer takes charge of the Trustee or its Property; (d) the Trustee becomes incapable of acting; or (e) no Default or Event of Default has occurred and is continuing and the Company determines in good faith to remove the Trustee. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after any such successor Trustee takes office, the Holders of a majority in aggregate principal amount of the Securities Outstanding may appoint a successor Trustee to replace the successor Trustee appointed by the Company. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all Property held by it as Trustee to the successor Trustee, subject to the Lien provided in Section 7.7, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Securityholder. No resignation or removal of the Trustee and no appointment of a successor Trustee, pursuant to this Article, shall become effective until the acceptance of appointment by the successor Trustee under this Section 7.8. If a successor Trustee does not take office within sixty (60) days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least ten percent (10%) in principal amount of the Securities Outstanding may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Holder of Securities may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 shall continue for the benefit of the retiring Trustee which shall retain its claim pursuant to Section 7.7. Section 7.9 Successor Trustee by Merger, etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. Section 7.10 Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 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 Section 310(b); provided, however, that there shall be excluded from the operation of TIA 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 Section 310(b)(1) are met. Section 7.11 Preferential Collection of Claims Against Company. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated. 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 last paragraph of Section 8.1(b), 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 this Indenture except those obligations referred to in the immediately succeeding paragraph if (i) 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 the then maximum possible principal of, and the then maximum possible interest and Special Interest 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 Special Interest, if any, with respect to the Securities. (ii) 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 (i), 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); (iii) Such termination and deposit described in clause (i) shall not (A) cause the Trustee to have a conflicting interest as defined in TIA Section 310(b) or otherwise for purposes of the TIA 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; (iv) Such termination and deposit described in clause (i) 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; (v) 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 (i) 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 (vi) The Company shall have delivered to the Trustee and any Paying Agent 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. 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, 4.17, 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 last 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 of, and interest and Special Interest, 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(b)(i) or the principal and interest received in respect thereof. Section 8.3 Repayment to Company. 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 Special Interest, if any, that remains unclaimed for two (2) years after the Stated Maturity of such payment of principal, interest or Special Interest, 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 the national edition of The New York Times or The Wall Street Journal or, if such newspapers are not then in circulation, in a newspaper of general circulation in the City of New York and 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 (including any repayment to the Company under Section 8.3), 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 Special Interest, 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. ARTICLE 9. AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 9.1 Without Consent of Holders. The Company and the Trustee, as the case may be, may amend or supplement this Indenture, the Securities or the other Operative Documents without notice to or consent of any Securityholder: (a) to provide for uncertificated 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 may amend or supplement this Indenture, the Securities or the other Operative Documents without notice to any Securityholder but with the written consent of the Required Holders. Subject to Sections 6.4, 6.5 and 6.7, the Required Holders may authorize the Trustee to, and the Trustee, subject to Section 9.6, upon such authorization shall, waive compliance by the Company with any provision of this Indenture, the Securities or the other Operative Documents. However, an amendment, supplement or waiver, including a waiver pursuant to any provision of Section 6.4, may not without the consent of each Securityholder affected: (a) reduce the amount of Securities whose Holders must consent to an amendment, supplement or waiver; (b) reduce the rate or extend the time for payment of interest on, or Special Interest, if any, with respect to, any Security; (c) reduce the principal of, or the amount of Special Interest, if any, with respect to (in each case, whether on redemption, repurchase or otherwise), or change the fixed maturity of any Security; (d) change the place of payment where, or the coin or currency in which, any Security (or the repurchase or redemption price thereof), interest thereon, or Special Interest, if any, with respect thereto is payable; (e) waive a default in the payment of the principal of, or interest on, or Special Interest with respect to any Security; (f) make any changes in Sections 2.8, 6.4, 6.7 or 6.10 or the third sentence of this Section 9.2 or change the time at which any Security may or must be redeemed hereunder; or (g) reduce any amount payable upon exercise of any repurchase rights thereof or otherwise change any repurchase right provision or impair the right of any Holder to institute suit for the enforcement of any such payment on any Security when due or adversely effect any repurchase rights hereunder. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.2 becomes effective, the Company shall mail to the Holders affected thereby a brief notice describing such amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amendment, supplement or waiver. Section 9.3 Compliance with Trust Indenture Act. Every amendment to or supplement of this Indenture or the Securities shall comply with the TIA as then in effect. Section 9.4 Revocation and Effect of Consents. Until an amendment or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of 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. 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, interest and Special Interest, if any, when due and payable consented to by a Holder shall be binding upon any subsequent Holder of a Security or a portion of a Security that evidences the same debt as the consenting Holder's Security unless notation with regard thereto is made upon such Security or the Security representing such portion. Section 9.5 Notation on or Exchange of Securities. If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Section 9.6 Trustee to Sign Amendments, etc. The Trustee shall be entitled to receive and rely upon an Officers' Certificate and an Opinion of Counsel stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article 9 has been duly authorized by the Company and is authorized or permitted by this Indenture and the other applicable Operative Documents. The Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Section 9.7 Effect of Supplement and/or Amendment. Upon the execution of any supplemental indenture and/or any such amendment or supplement to the other Operative Documents pursuant to the provisions of this Article 9, this Indenture and such Operative Documents shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties and immunities under this Indenture and the other Operative Documents of the Trustee, the 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 other Operative Documents shall be and be deemed to be part of the terms and conditions of this Indenture and the other Operative Documents for any and all purposes. ARTICLE 10. SECURITY Section 10.1 Other Operative Documents. To secure the due and punctual payment, performance and observance of the Obligations, the Company has simultaneously with the execution of this Indenture entered into or caused to be assigned to the Trustee the other Operative Documents and has made an assignment and pledge of or otherwise transferred or caused to be transferred its right, title and interest in and to the Collateral to the Trustee pursuant to the other Operative Documents and in the manner and to the extent therein provided. Each Securityholder, by accepting a Security, agrees to all of the terms and provisions of each Operative Document (including, without limitation, the provisions providing for the release of Collateral), 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 such further assignments, transfers, assurances or other instruments as the Trustee may reasonably 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 to assure and confirm to the Trustee the security interest in the Collateral contemplated hereby and by the other Operative Documents or any part thereof, as from time to time constituted, so as to render the same available for the security and benefit of this Indenture and of the Securities secured hereby, according to the intent and purposes herein expressed. Section 10.2 Opinions, Certificates and Appraisals. (a) The Company shall furnish to the Trustee promptly after the execution and delivery of this Indenture but prior to authentication of any Securities, Opinions of Counsel covering such jurisdictions as the Owner Trustee may reasonably request either (i) stating that in the opinion of such Counsel the actions necessary to be taken under the Federal Aviation Act, the Uniform Commercial Code of all applicable jurisdictions, or otherwise with respect to the recording, registering and filing of this Indenture, the other Operative Documents, financing statements or other instruments to make effective and to perfect the Liens intended to be created by the Mortgage 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 Liens effective and perfected. (b) The Company shall furnish to the Trustee within one hundred and twenty (120) days after January 1 in each year beginning with January 1, 1999, an Opinion of Counsel, dated as of such date, either (i)(A) 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 Mortgage (if not then terminated pursuant to its terms) and the perfection thereof and reciting with respect to the security interests in the Collateral the details of such action or referring to prior Opinions of Counsel in which such details are given, and (B) 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 Trustee intended to be created hereunder and under the Mortgage with respect to the security interest in the Collateral and the perfection thereof, or (ii) stating that, in the opinion of such Counsel, no such action is necessary to maintain such Lien and the perfection thereof. (c) The release of any Collateral from the terms of the Mortgage will not be deemed to impair the security under this Indenture in contravention of the provisions hereof if and to the extent the Collateral is released pursuant to the Mortgage or this Indenture, as applicable. To the extent applicable, the Company shall cause TIA Section 314(d) relating to the release of Property or securities from the Lien of the Mortgage and relating to the substitution therefor of any Property or securities to be subjected to the Lien of the Mortgage, to be complied with. Any certificate or opinion required by TIA Section 314(d) may be made by an Officer of the Company, except in cases where TIA Section 314(d) requires that such certificate or opinion be made by an independent person. Section 10.3 Authorization of Actions to be Taken by the Trustee Under the Operative Documents. The 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 and thereunder. Subject to the provisions of this Indenture and the other Operative Documents, the Trustee shall have power to institute and to maintain such suits and proceedings as it may deem expedient to prevent any impairment of the Collateral by any acts which may be unlawful or in violation of the other Operative Documents or this Indenture, and such suits and proceedings as it may deem expedient to preserve or protect its interest and the interests of the Securityholders in the Collateral (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). 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 and the other Operative Documents. ARTICLE 11. MISCELLANEOUS Section 11.1 Conflict with Trust Indenture Act of 1939. If and to the extent that any provision of this Indenture limits, qualifies, or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the TIA, such imposed duties shall control. Section 11.2 Notices; Waivers. Any request, demand, authorization, direction, notice, consent, waiver or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with (a) the Company shall be sufficient for every purpose hereunder if in writing (including telecopied communications) and made, given, furnished or filed by personal delivery or mailed by registered or certified mail or by nationally recognized overnight courier, postage or courier charges, as the case may be, prepaid, to or with the Company at: Trans World Airlines, Inc. One City Centre 515 N. 6th Street St. Louis, Missouri 63101 Attention: Senior Vice President & General Counsel Telecopier No.: (314) 589-3267 (b) the Trustee shall be sufficient for every purpose hereunder if in writing (including telecopied communications) and made, given, furnished or filed by personal delivery or mailed by registered or certified mail or by nationally recognized overnight courier, postage or courier charges, as the case may be, prepaid, to or with the Trustee at: First Security Bank, National Association 79 South Main Street Salt Lake City, Utah 84111 Attention: Corporate Trust Services Telecopier No.: (801) 246-5053 or to any of the above parties at any other address or telecopier number subsequently furnished in writing by it to each of the other parties listed above. An affidavit by any person representing or acting on behalf of the Company or the Trustee as to such mailing, having any registry receipt required by this Section attached, shall be conclusive evidence of the giving of such demand, notice or communication. Any notice or communication mailed to a Holder shall be mailed to such holder by first-class mail or by nationally recognized overnight courier, postage or courier charges, as the case may be, prepaid, at such holder's address as it appears on the Register and shall be sufficiently given to such holder if so mailed within the time prescribed. Failure to mail a notice or send a communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. Notices to the Trustee or to the Company are deemed given only when received. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by the Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Section 11.3 Communications by Holders with Other Holders. Securityholders may communicate pursuant to TIA Section 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 section 312(c). Section 11.4 Certificate and Opinion as to Conditions Precedent. Upon any Request or application by the Company to the Trustee to take any action under this Indenture or the other Operative Documents, the Company shall furnish to the Trustee: (a) an Officers' Certificate, and (b) an Opinion of Counsel, each stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, provided, that in the case of any such application or Request as to which the furnishing of an Officers' Certificate or Opinion of Counsel is specifically required by any provision of this Indenture or the other Operative Documents relating to such particular application or Request, no additional certificate or opinion, as the case may be, need be furnished. Section 11.5 Statements Required in Certificate or Opinion. Each certificate or opinion provided for and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture or the other Operative Documents shall include: (a) a statement that the Person signing such certificate or opinion has read such condition or covenant and the definitions herein or therein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such condition or covenant has been complied with; and (d) a statement as to whether or not in the opinion of such Person, such condition or covenant has been complied with. Any certificate or opinion of an Officer or an engineer, insurance broker, accountant or other expert may be based, insofar as it relates to legal matters, upon a certificate or opinion of or upon representations by counsel, unless such officer, engineer, insurance broker, accountant or other expert knows that the certificate or opinion or representations with respect to the matters upon which his opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should have known that the same were erroneous. Any certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon the certificate or opinion of or representations by an officer or officers of the Company stating that the information with respect to such factual matters is in possession of the Company, unless such counsel knows that the certificate or opinion or representations with respect to the matters upon which his opinion may be based as aforesaid are erroneous and insofar as it relates to legal matters in a jurisdiction or area of law beyond the expertise of such counsel, such counsel may rely upon the opinion of counsel qualified in such other jurisdiction or area of law. Wherever in this Indenture or the other Operative Documents in connection with any application, certificate or report to the Trustee it is provided that the Company shall deliver any document as a condition of the granting of such application or as evidence of the Company's compliance with any term hereof, it is intended that the truth and accuracy at the time of the granting of such application or at the effective date of such certificate or report, as the case may be, of the facts and opinions stated in such document shall in each such case be a condition precedent to the right of the Company to have such application granted or to the sufficiency of such certificate or report. Nevertheless, in the case of any such application, certificate or report, any document required by any provision of this Indenture or the other Operative Documents to be delivered to the Trustee as a condition of the granting of such application or as evidence of such compliance may be received by the Trustee as conclusive evidence of any statement therein contained and shall be full warrant, authority and protection to the Trustee acting on the faith thereof. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Whenever any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements or opinions or other instruments under this Indenture or any other Operative Document such Person may, but need not, consolidate such instruments into one. Section 11.6 Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules for action by or at a meeting of Securityholders. The Registrar, Paying Agent or Tender Agent may make reasonable rules for their respective functions. Section 11.7 Holidays. In the event that any date for the payment of any amount due hereunder shall not be a Business Day, then (notwithstanding any other provision of this Indenture) such payment need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the due date, and no interest or Special Interest, if any, shall accrue from such due date to and including the next succeeding Business Day. Section 11.8 Governing Law; Waiver of Jury Trial. (a) The laws of the State of New York shall govern this Indenture and the Securities without regard to principles of conflict of laws. (b) The Company and the Trustee each waive any right to have a jury participate in resolving any dispute, whether sounding in contract, tort, or otherwise arising out of, connected with, related to or incidental to the relationship established between them in connection with this Indenture. Instead, any disputes resolved in court will be resolved in a bench trial without a jury. Section 11.9 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret any agreement of the Company or any of its Subsidiaries which is unrelated to this Indenture, the Securities or the other Operative Documents. Any such agreement may not be used to interpret this Indenture. Section 11.10 No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Securityholder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. Section 11.11 Benefits of Indenture and the Securities Restricted. Subject to the provisions of Section 11.12 hereof, nothing in this Indenture or the Securities, express or implied, shall give or be construed to give to any Person, firm or corporation, other than the parties hereto and the Holders, any legal or equitable right, remedy or claim under or in respect of this Indenture or under any covenant, condition, or provision herein contained, all such covenants, conditions and provisions, subject to Section 11.12 hereof, being for the sole benefit of the parties hereto and of the Holders. Section 11.12 Successors and Assigns. This Indenture and all obligations of the Company hereunder shall be binding upon the successors and permitted assigns of the Company, and shall, together with the rights and remedies of the Trustee hereunder, inure to the benefit of the Trustee, the Holders, and their respective successors and assigns. Any assignment in violation hereof shall be null and void ab initio. Section 11.13 Counterpart Originals. This Indenture may be signed in two or more counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same agreement. Section 11.14 Severability. The provisions of this Indenture are severable, and if any clause or provision shall be held invalid, illegal or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect in that jurisdiction only such clause or provision, or part thereof, and shall not in any manner affect such clause or provision in any other jurisdiction or any other clause or provision of this Indenture in any jurisdiction, and a Holder shall have no claim therefor against any party hereto. Section 11.15 Effect of Headings. The Article and Section headings and the Table of Contents contained in this Indenture have been inserted for convenience of reference only, and are and shall be without substantive meaning or content of any kind whatsoever and are not a part of this Indenture. 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 other Operative Documents from and to the extent provided by this Indenture and the other 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: ----------------------------- RULE 144A/REGULATION S APPENDIX Appendix II To the Indenture between Trans World Airlines, Inc. and First Security Bank, National Association, as Trustee dated as of April 21, 1998 for the Company's 11 3/8% Senior Secured Notes due 2003 RULE 144A/REGULATION S APPENDIX FOR INITIAL ISSUANCE AND FOR SUBSEQUENT OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO RULE 144A, INSTITUTIONAL "ACCREDITED INVESTORS" (AS DEFINED IN RULE 501(A)(1), (2), (3) or (7)) AND TO CERTAIN PERSONS IN OFFSHORE TRANSACTIONS IN RELIANCE ON REGULATION S PROVISIONS RELATING TO INITIAL SECURITIES, RESALE SECURITIES, ------------------------------------------------------------- PRIVATE EXCHANGE SECURITIES --------------------------- AND EXCHANGE SECURITIES ----------------------- 1. Definitions 1.1 Definitions For the purposes of this Appendix the following terms shall have the meanings indicated below: "Beneficiary" means Seven Sixty Seven Leasing, Inc., as beneficiary under the Trust Agreement dated as of January 24, 1995 between the Beneficiary and the Owner Trustee. "Definitive Security" means a certificated Security bearing the restricted securities legend set forth in Section 2.3(d) and which is held by an IAI. "Depository" means The Depository Trust Company, its nominees and their respective successors. "Exchange Securities" means the 11 3/8% Senior Secured Notes due 2003 to be issued pursuant to the Indenture in connection with a Registered Exchange Offer pursuant to the Registration Rights Agreement. "IAI" means an institutional "accredited investor" as described in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Initial Securities" means the 11 3/8% Senior Secured Notes due 2003, issued under the Indenture on or about the date of the Indenture to the Owner Trustee, the Beneficiary, CL/PK, the Participants (as such terms are defined in the Sale Agreement) and the Placement Agent as contemplated by the Sale Agreement. "Owner Trustee" means First Security Bank, National Association, not in its individual capacity, but solely as Owner Trustee under the Trust Agreement dated as of January 24, 1995 between the Beneficiary and the Owner Trustee. "Placement Agent" means Lazard Freres & Co. LLC. "Placement Agreement" means the Placement Agreement, dated as of April 9, 1998, between the Company and the Placement Agent. "Private Exchange" means the offer by the Company, pursuant to the Registration Rights Agreement, to the Placement Agent to issue and deliver to the Placement Agent, in exchange for the Initial Securities held by the Placement Agent which constitute payment of fees, a like aggregate principal amount of Private Exchange Securities. "Private Exchange Securities" means the 11 3/8% Senior Secured Notes due 2003 to be issued pursuant to the Indenture to the Placement Agent in a Private Exchange. "QIB" means a "qualified institutional buyer" as defined in Rule 144A under the Securities Act. "Registered Exchange Offer" means the offer by the Company, pursuant to the Registration Rights Agreement, to certain Holders of Initial Securities or Resale Securities, to issue and deliver to such Holders, in exchange for the Initial Securities or Resale Securities, as the case may be, a like aggregate principal amount of Exchange Securities registered under the Securities Act. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of April 21, 1998, among the Company, the Placement Agent and the Owner Trustee relating to the Registered Exchange Offer. "Resale Securities" means the 11 3/8% Senior Secured Notes due 2003 to be issued pursuant to the Indenture upon resales of (i) the Initial Securities held by the holders of the Initial Securities or (ii) the Resale Securities held by any subsequent transferee to, in each case, any of their subsequent transferees (other than those transfers to persons that are contemplated by the Sale Agreement to occur on the Closing Date as described in Section 4.04 thereof). "Sale Agreement" means the Aircraft Sale and Note Purchase Agreement, made and entered into as of April 9, 1998, among the Company, the Owner Trustee and the Beneficiary. "Securities" means the Initial Securities, the Resale Securities, the Exchange Securities and the Private Exchange Securities, treated as a single class. "Securities Act" means the Securities Act of 1933, as amended. "Securities Custodian" means the custodian with respect to a Global Security (as appointed by the Depository), or any successor person thereto and shall initially be the Trustee. "Shelf Registration Statement" means the registration statement of the Company, in connection with the offer and sale of Initial Securities or Private Exchange Securities, pursuant to the Registration Rights Agreement. "Transfer Restricted Securities" means Securities that bear or are required to bear the legend set forth in Section 2.3(d) hereto. 1.2 Other Definitions Defined in this Rule 144A/Regulation S --------------------------------------- Term Appendix in the Section indicated below - ---- --------------------------------------- "Agent Members"...........................................................2.1(b) "Global Security".........................................................2.1(b) "Indenture"..................................................................2.2 "Regulation S"............................................................2.1(c) "Rule 144A"...............................................................2.1(a) Unless otherwise indicated, all Section numbers referenced herein are to Sections of this Rule 144A/Regulation S Appendix. 2. The Securities. 2.1 Form and Dating. The Initial Securities are being offered and sold by the Company pursuant to the Sale Agreement and the Placement Agreement in reliance on Section 4(2) of the Securities Act and shall be issued initially in the form of definitive, fully registered Securities without interest coupons with the restricted securities legend set forth in Exhibit 1 hereto, registered in the name of, or as instructed by, the Owner Trustee, duly executed by the Company and authenticated by the Trustee as hereinafter provided. Resales of Initial Securities shall be in the form or forms provided below in this Section 2.1. (a) Global Securities. Resale Securities resulting from Securities offered and sold to a QIB in reliance on Rule 144A under the Securities Act ("Rule 144A") as provided in the Sale Agreement, shall be issued in the form of one permanent global Security in definitive, fully registered form without interest coupons with the global securities legend and restricted securities legend set forth in Exhibit 1 hereto (the "Global Security"), which shall be deposited on behalf of the purchasers of the Resale Securities represented thereby with the Trustee, at its New York office, as custodian for the Depository (or with such other custodian as the Depository may direct), and registered in the name of the Depository or a nominee of the Depository, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Global Security may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depository or its nominee as hereinafter provided. (b) Book-Entry Provisions. This Section 2.1(b) shall apply only to the Global Security deposited with or on behalf of the Depository. The Company shall execute and the Trustee shall, in accordance with this Section 2.1(b), authenticate and deliver initially one Global Security in respect of Resale Securities that are resold pursuant to Rule 144A that (a) shall be registered in the name of the Depository for such Global Security or the nominee of such Depository and (b) shall be delivered by the Trustee to such Depository or pursuant to such Depository's instructions or held by the Trustee as custodian for the Depository. Members of, or participants in, the Depository ("Agent Members") shall have no rights under the Indenture with respect to the Global Security held on their behalf by the Depository or by the Trustee as the custodian of the Depository or under any Global Security, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices of such Depository governing the exercise of the rights of a holder of a beneficial interest in any Global Security. (c) Certificated Securities. Except as provided in this Section 2.1 or Section 2.3 or 2.4, owners of beneficial interests in the Global Security will not be entitled to receive physical delivery of certificated Securities. Purchasers of Resale Securities who are IAI's and are not QIBs or who are non-U.S. persons within the meaning of Regulation S under the Securities Act ("Regulation S") will receive Definitive Securities; provided, however, that upon transfer of such Definitive Securities to a QIB in reliance on Rule 144A, such Definitive Securities will, unless the applicable Global Security has previously been exchanged for Definitive Securities, be exchanged for an interest in the Global Security pursuant to the provisions of Section 2.3. 2.2 Authentication. The Trustee shall authenticate and deliver: (1) Initial Securities for original issue on the Issue Date in an aggregate principal amount of $43,200,000, (2) Resale Securities upon a transfer of Initial Securities permitted in accordance with the terms of the Securities and consistent with the applicable restrictions on transfer set forth in the legend in Section 2.3(d) hereof and (3) Exchange Securities or Private Exchange Securities for issue only in a Registered Exchange Offer or a Private Exchange, respectively, pursuant to the Registration Rights Agreement, for a like principal amount of Initial Securities or Resale Securities, in the case of (1) and (3) above, upon a written order of the Company signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of the Company. Such order shall specify the amount of the Securities to be authenticated and the date on which the original issue of Securities is to be authenticated and whether the Securities are to be Initial Securities, Exchange Securities or Private Exchange Securities. The aggregate principal amount of Securities Outstanding at any time may not exceed $43,200,000 except as provided in Section 2.7 of the Indenture of which this Rule 144A/Regulation S Appendix forms a part (as it may be amended, restated, supplemented or otherwise modified from time to time, the "Indenture"). 2.3 Transfer and Exchange. (a) Transfer and Exchange of Definitive Securities. When Definitive Securities are presented to the Registrar or a co-Registrar with a request: (i) to register the transfer of such Definitive Securities; or (ii) to exchange such Definitive Securities for an equal principal amount of Definitive Securities of other authorized denominations, the Registrar or co-Registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; provided, however, that the Definitive Securities surrendered for transfer or exchange shall be accompanied by a duly executed Assignment Form in the form attached to Exhibit 1 hereto. (b) Restrictions on Transfer of a Definitive Security for a Beneficial Interest in the Global Security. A Definitive Security may not be exchanged for a beneficial interest in the Global Security except upon satisfaction of the requirements set forth below. Upon receipt by the Trustee of a Definitive Security, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Trustee, together with: (i) certification that such Definitive Security is being transferred to a QIB in accordance with Rule 144A; and (ii) written instructions directing the Trustee to make, or to direct the Securities Custodian to make, an adjustment on its books and records with respect to the Global Security to reflect an increase in the aggregate principal amount of the Securities represented by such Global Security, such instructions to contain information regarding the Depository account to be credited with such increase, then the Trustee shall cancel such Definitive Security and cause, or direct the Securities Custodian to cause, in accordance with the standing instructions and procedures existing between the Depository and the Securities Custodian, the aggregate principal amount of Securities represented by the Global Security to be increased by the aggregate principal amount of the Definitive Security to be exchanged and shall credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Global Security equal to the principal amount of the Definitive Security so canceled. If no Global Security is then outstanding, the Company shall issue and the Trustee shall authenticate, upon written order of the Company in the form of an Officers' Certificate, a new Global Security in the appropriate principal amount. (c) Transfer and Exchange of the Global Security. (i) The transfer and exchange of the Global Security or beneficial interests therein shall be effected through the Depository, in accordance with the Indenture (including applicable restrictions on transfer set forth herein, if any) and the procedures of the Depository therefor. A transferor of a beneficial interest in the Global Security shall deliver to the Registrar a written order given in accordance with the Depository's procedures containing information regarding the participant account of the Depository to be credited with a beneficial interest in the Global Security. The Registrar shall, in accordance with such instructions, instruct the Depository to credit to the account of the Person specified in such instructions a beneficial interest in the Global Security and to debit the account of the Person making the transfer the beneficial interest in the Global Security being transferred. (ii) Notwithstanding any other provisions of this Rule 144A/Regulation S Appendix (other than the provision set forth in Section 2.4 hereof), the Global Security may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. (iii) In the event that the Global Security is exchanged for Securities in definitive registered form pursuant to Section 2.4 hereof or Section 2.9 of the Indenture prior to the consummation of a Registered Exchange Offer or the effectiveness of a Shelf Registration Statement with respect to such Securities, such Securities may be exchanged only in accordance with such procedures as are substantially consistent with the provisions of this Section 2.3 (including the certification requirements intended to ensure that such transfers comply with Rule 144A or Regulation S, as the case may be) and such other procedures as may from time to time be adopted by the Company. (d) Legends. (i) Except as permitted by the following paragraphs (ii), (iii) and (iv), each Security certificate evidencing the Global Securities and the Definitive Securities (and all Securities issued in exchange therefor or in substitution thereof) shall bear a legend in substantially the following form: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT, OR ANY STATE SECURITIES LAWS. NEITHER THESE SECURITIES NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THESE SECURITIES BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL, OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE RESALE RESTRICTION TERMINATION DATE WHICH IS THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE DATE OF ORIGINAL ISSUANCE OF THESE SECURITIES AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THESE SECURITIES (OR ANY PREDECESSOR OF THESE SECURITIES) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE, OR TRANSFER (i) PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM ATTACHED TO OR ON THE REVERSE SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. 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 TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS THE TRUSTEE MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS." Regulation S Securities will also bear the following additional legend: [ON OR PRIOR TO THE 40TH DAY AFTER THE LATER OF THE COMMENCEMENT OF THE OFFERING AND THE CLOSING DATE, TRANSFERS OF REGULATION S SECURITIES TO U.S. PERSONS SHALL BE LIMITED TO TRANSFERS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO RULE 144A UNDER THE SECURITIES ACT.] (ii) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by the Global Security) pursuant to Rule 144 under the Securities Act: (A) in the case of any Transfer Restricted Security that is a Definitive Security, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a certificated Security that does not bear the legend set forth above and rescind any restriction on the transfer of such Transfer Restricted Security; and (B) in the case of any Transfer Restricted Security that is represented by the Global Security, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a certificated Security that does not bear the legend set forth above and rescind any restriction on the transfer of such Transfer Restricted Security, if the Holder certifies in writing to the Registrar that its request for such exchange was made in reliance on such Rule 144. (iii) After a transfer of any Initial Securities, Resale Securities or Private Exchange Securities during the period of the effectiveness of a Shelf Registration Statement with respect to such Initial Securities, Resale Securities or Private Exchange Securities, as the case may be, all requirements pertaining to legends on such Initial Security, Resale Security or such Private Exchange Security will cease to apply, the requirements requiring any such Initial Security, Resale Security or such Private Exchange Security issued to certain Holders to be issued in global form will cease to apply, and a certificated Initial Security, Resale Security or Private Exchange Security without legends will be available to the transferee of the Holder of such Initial Securities, Resale Securities or Private Exchange Securities upon exchange of such transferring Holder's certificated Initial Security, Resale Security or Private Exchange Security or directions to transfer such Holder's interest in the Global Security, as applicable. (iv) Upon the consummation of a Registered Exchange Offer with respect to the Initial Securities or Resale Securities pursuant to which Holders of such Initial Securities or Resale Securities are offered Exchange Securities in exchange for their Initial Securities or Resale Securities, all requirements pertaining to such Initial Securities or Resale Securities that Initial Securities or Resale Securities issued to certain Holders be issued in global form will cease to apply and certificated Initial Securities or Resale Securities with the Restricted Securities Legend set forth in Exhibit 1 hereto will be available to Holders of such Initial Securities or Resale Securities that do not exchange their Initial Securities or Resale Securities, and Exchange Securities in certificated or global form will be available to Holders that exchange such Initial Securities or Resale Securities in such Registered Exchange Offer. (v) Upon consummation of a Private Exchange with respect to the Initial Securities pursuant to which Holders of such Initial Securities are offered Private Exchange Securities in exchange for their Initial Securities, Private Exchange Securities in definitive form with the Restricted Securities Legend set forth in Exhibit 1 hereto will be available to Holders that exchange such Initial Securities in such Private Exchange. (e) Cancellation or Adjustment of the Global Security. At such time as all beneficial interests in the Global Security have either been exchanged for certificated or Definitive Securities, redeemed, repurchased or canceled, such Global Security shall be returned to the Depository for cancellation or retained and canceled by Trustee. At any time prior to such cancellation, if any beneficial interest in the Global Security is exchanged for certificated or Definitive Securities, redeemed, repurchased or canceled, the principal amount of Securities represented by such Global Security shall be reduced and an adjustment shall be made on the books and records of the Trustee (if it is then the Securities Custodian for such Global Security) with respect to the Custodian, to reflect such reduction. (f) Obligations with Respect to Transfers and Exchanges of Securities. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate certificated Securities, Definitive Securities and any Global Security at the Registrar's or co-Registrar's request. (ii) No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax, assessments or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessment or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.9, 3.7, 4.15 or 9.5 of the Indenture). (iii) The Registrar or co-Registrar shall not be required to register the transfer or exchange of any certificated or Definitive Security tendered for repurchase in whole or in part pursuant to an Offer to Purchase (as defined in Appendix I to the Indenture), except the unredeemed portion of any certificated or Definitive Security being repurchased in part and except to the Company. (iv) Prior to the due presentation for registration of transfer of any Security, the Company, the Trustee, the Paying Agent, the Registrar or any co-Registrar may deem and treat the person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of, premium, if any, or, interest on, or Special Interest, if any, with respect to, such Security and for all other purposes whatsoever, whether or not such Security is overdue and none of the Company, the Trustee, the Paying Agent, the Register or any co-Registrar shall be affected by notice to the contrary. (v) All Securities issued upon any transfer or exchange pursuant to the terms of the Indenture shall evidence the same debt and shall be entitled to the same benefits under the Indenture as the Securities surrendered upon such transfer or exchange. (g) No Obligation of the Trustee. (i) The Trustee shall have no responsibility or obligation to any beneficial owner of the Global Security, a member of or a participant in the Depository or other Person with respect to the accuracy of the records of the Depository or its nominee or of any participant or member thereof with respect to any ownership interest in the Securities or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depository) of any notice (including any notice of redemption) or the payment of any amount under or with respect to such Securities. All notices and communications to be given to the Holders and all payments to be made to Holders under the Securities shall be given or made only to or upon the order of the registered Holders (which shall be the Depository or its nominee in the case of the Global Security). The rights of beneficial owners in the Global Security shall be exercised only through the Depository subject to the applicable rules and procedures of the Depository. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depository with respect to its members, participants and any beneficial owners. (ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under the Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Depository participants, members or beneficial owners in the Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of the Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. 2.4 Certificated Securities. (a) All or any portion of the Global Security deposited with the Depository or with the Trustee as custodian for the Depository pursuant to Section 2.1 shall be transferable to the beneficial owners thereof in the form of certificated Securities in an aggregate principal amount equal to the principal amount of such certificated security, in exchange for such interest in the applicable Global Security, only if such transfer complies with Section 2.3 and (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for such Global Security or if at any time such Depository ceases to be a "clearing agency" registered under the Exchange Act, or (ii) an Event of Default (as defined in the Indenture) has occurred and is continuing or (iii) the Company, in its sole discretion, notifies the Trustee in writing such Global Security or Global Securities shall be exchangeable. (b) Any Global Security that is transferable to the beneficial owners thereof pursuant to this Section shall be surrendered by the Depository to the Trustee located in the Borough of Manhattan, The City of New York, to be so transferred, in whole or from time to time in part, without charge, and the Trustee shall authenticate and deliver, upon such transfer of each portion of such Global Security, an equal aggregate principal amount of certificated Resale Securities of authorized denominations. Any portion of the Global Security transferred pursuant to this Section shall be executed, authenticated and delivered only in denominations of $1,000 principal amount and any integral multiple thereof (except that the Global Security may be issued in a different denomination) and registered in such names as the Depository shall direct. Any certificated Resale Security delivered in exchange for an interest in the Global Security shall, except as otherwise provided by Section 2.3, bear the legend set forth in Section 2.3(d). (c) Subject to the provision of Section 2.4(b), the registered Holder of the Global Security may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under the Indenture or the Securities. (d) In the event of the occurrence of any of the events specified in Section 2.4(a), the Company will promptly make available to the Trustee a reasonable supply of certificated Securities in definitive, fully registered form without interest coupons. EXHIBIT 1 to RULE 144A/REGULATION S APPENDIX [FORM OF FACE OF INITIAL SECURITY AND RESALE SECURITY] [Global Securities Legend]* UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. [Restricted Securities Legend] THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT, OR ANY STATE SECURITIES LAWS. NEITHER THESE SECURITIES NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THESE SECURITIES BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL, OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE RESALE RESTRICTION TERMINATION DATE WHICH IS THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE DATE OF ORIGINAL ISSUANCE OF THESE SECURITIES AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THESE SECURITIES (OR ANY PREDECESSOR OF THESE SECURITIES) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2) (3), OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE, OR TRANSFER (i) PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM ATTACHED TO OR ON THE REVERSE SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. 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 TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS THE TRUSTEE MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS. [Regulation S Securities Legend] [ON OR PRIOR TO THE 40TH DAY AFTER THE LATER OF THE COMMENCEMENT OF THE OFFERING AND THE CLOSING DATE, TRANSFERS OF REGULATION S SECURITIES TO U.S. PERSONS SHALL BE LIMITED TO TRANSFERS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO RULE 144A UNDER THE SECURITIES ACT.] No. CUSIP No. $ 11 3/8% Senior Secured Note due 2003 TRANS WORLD AIRLINES, INC., a Delaware corporation promises to pay to __________, or registered assigns, the principal sum of __________ Dollars on April 15, 2003. Interest Payment Dates: April 15 and October 15. Record Dates: April 1 and October 1. Additional provisions of this Security are set forth on the other side of this Security. Dated: TRANS WORLD AIRLINES, INC. By:________________________________ Name: Title: Attest: ________________________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION First Security Bank, National Association, as Trustee, certifies that this is one of the Securities referred to in the Indenture. By:_______________________________ Authorized Signatory ______________________ * Only if the Security is a Resale Security transferred pursuant to Rule 144A is the Global Securities Legend applicable. [FORM OF REVERSE SIDE OF INITIAL SECURITY AND RESALE SECURITY] 11 3/8% Senior Secured Note due 2003 This Security is one of a duly authorized issue of securities of the Company designated as its 11 3/8% Senior Secured Notes due 2003 (hereinafter called the "Securities"), limited in aggregate principal amount Outstanding to $43,200,000, issued or to be issued pursuant to an Indenture, dated as of April 21, 1998 (hereinafter called the "Indenture") between the Company and First Security Bank, National Association, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture). 1. Interest; Special Interest. The Company promises to pay interest on the principal amount of this Security at the rate of Eleven and Three-Eighths percent (11 3/8%) per annum, subject to increase as provided in paragraph 8 below; provided, however, that if a Registration Default (as defined in and subject to the provisions of the Registration Rights Agreement) occurs (each period during which a Registration Default has occurred and is continuing referred to herein as a "Registration Default Period"), additional interest will accrue on this Security at a per annum rate of 0.50% for the first 90 days of the Registration Default Period, at a per annum rate of 1.0% for the second 90 days of the Registration Default Period, at a per annum rate of 1.5% for the third 90 days of the Registration Default Period and at a per annum rate of 1.5% thereafter for the remaining portion of the Registration Default Period (such additional interest is referred to herein as "Special Interest"). The Company will pay interest and Special Interest, if any, semi-annually on the Interest Payment Dates set forth on the face of this Security, commencing October 15, 1998. Interest on the Securities will accrue from April 21, 1998 or the most recent Interest Payment Date to which interest and Special Interest, if any, have been paid. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment. The Company will pay interest on and Special Interest, if any, with respect to, the Securities (except defaulted interest and interest on defaulted principal) to the persons who are registered Holders of Securities at the close of business on the Record Date set forth on the face of this Security next preceding the applicable Interest Payment Date. Defaulted interest and interest on defaulted principal will be paid by the Company in accordance with the applicable provisions of the Indenture. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal, interest and Special Interest, if any, at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York and at any other office or agency maintained by the Company for such purpose in money of the United States that at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company, payment of interest on and Special Interest, if any, with respect to, the Securities may be by check payable in such money and mailed to a Holder's registered address; provided further, however, that payments on a certificated Security will be made by wire transfer to a U.S. dollar account maintained by a Holder with a bank in New York City if such Holder owns at least $250,000 in aggregate principal amount of certificated Securities and elects payment by wire transfer by giving written notice to the Company and the Trustee to such effect designating such account no later than 10 days immediately preceding the relevant due date for payment (or such other date as the Company and the Trustee may accept in their discretion). If a payment date is a legal holiday at a place of payment, payment may be made at that place on the next succeeding Business Day, and no interest shall accrue for the intervening period. 3. Registrar, Paying Agent and Tender Agent. Initially, the Trustee will act as Registrar and Paying Agent. The Company may change any Paying Agent or Registrar or co-registrar without prior notice to any Securityholder. The Company may act in any such capacity, except in certain circumstances. 4. Indenture. The Company issued the Securities under the Indenture. The terms of the Securities include those stated in the Indenture and those made applicable to the Indenture by the TIA. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and such Act for a statement of such terms. Subject to paragraph 7 hereof, the Securities are senior secured obligations of the Company limited to $43,200,000 aggregate principal amount, except as otherwise provided in the Indenture. Terms used in this Security and not defined in this Security shall have the meaning set forth in Section 1 of the Definitions Appendix attached as Appendix I to the Indenture, which shall be a part of this Security as if fully set forth in this place. The rules of construction for this Security are set forth in Section 2 of the Definitions Appendix. 5. Optional and Mandatory Redemption. Except as set forth in the second paragraph under this paragraph 5, the Securities may not be redeemed prior to April 15, 2001. On and after that date, the Company may redeem the Securities at any time in whole or in part (in any integral multiple of $1,000) at its sole option at redemption prices (expressed as a percentage of principal amount) as set forth below during the twelve month periods beginning April 15 of the years shown below, plus in each case an amount equal to accrued and unpaid interest and Special Interest, if any, with respect to, the Securities to and including the redemption date: Year Redemption Price ---- ---------------- 2001 104.550% 2002 102.275% In addition, subject to the provisions of the Indenture, the Company shall, until all the Securities are paid or payment thereof provided for, deposit in accordance with Section 3.6 of the Indenture, at least one Business Day prior to October 15 in each year, commencing October 15, 2000 (each such date being hereinafter referred to as a "Mandatory Redemption Date"), an amount in cash sufficient to redeem an aggregate principal amount of Securities (the "Mandatory Redemption Amount") equal to $1,840,000 on October 15, 2000 and $1,838,000 on each of October 15, 2001 and October 15, 2002 (or, if the aggregate principal amount of Securities Outstanding on any such Mandatory Redemption Date is less than the principal amount required to so be redeemed, then all the Outstanding Securities shall be redeemed on such date), at a redemption price (expressed as a percentage of the aggregate principal amount of Securities Outstanding) of 100% plus accrued and unpaid interest and Special Interest, if any, to the Mandatory Redemption Date (subject to the right of holders of record on the relevant record date to receive interest and Special Interest, if any, due on the relevant Interest Payment Date). Each such deposit shall be applied to the redemption of Securities on such Mandatory Redemption Date as provided in the Indenture. The Company may at its option receive credit against any or all of the cash portion of the Mandatory Redemption Amount for open market purchases of Securities, and such Mandatory Redemption Amount is subject to automatic reduction in connection with any permitted sale of or Total Loss with respect to any Aircraft, all as provided in the Indenture. 6. Notice of Redemption. Notice of any redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at his registered address. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued interest on, and Special Interest, if any, with respect to, all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 7. Security. The Securities are secured by Liens on certain Properties of the Company pursuant to the Mortgage and the other Operative Documents described in the Indenture and such Liens are subject to release as provided herein and in the Mortgage and the other Operative Documents. 8. Offers to Purchase. In the event that there shall occur a Change in Control, the Company shall make an Offer to Purchase all of the Outstanding Securities, at a purchase price equal to 101% of the aggregate principal amount of the Securities Outstanding, plus accrued and unpaid interest and Special Interest, if any, to and including the repurchase date. The right to require such repurchase of Securities shall not continue after a discharge of the Company from its obligations with respect to the Securities in accordance with Article 8 of the Indenture. The Company shall commence such Offer to Purchase within thirty (30) days after the occurrence of a Change in Control. In the event that the Company desires to sell any of the Aircraft as and when permitted in Section 4.12 of the Indenture, the Company shall (unless the Company is not required to make such Offer to Purchase pursuant to the provisions of such Section 4.12) have commenced an Offer to Purchase Securities in an aggregate principal amount (the "Sale OTP Amount") equal to (for each Aircraft so sold) (a) the aggregate principal amount of the Securities Outstanding on the date of the commencement of such Offer to Purchase minus (b) the product of the (i) Redemption Value as of such date multiplied by (ii) the number of Aircraft that will remain subject to the Mortgage after giving effect to such sale, at a purchase price (expressed as a percentage of principal amount of Securities to be purchased) equal to (A) 102%, if such Offer to Purchase is commenced prior to the first anniversary of the Issue Date, or (B) 101%, if such Offer to Purchase is commenced on or after the first anniversary of the Issue Date, plus in each case, accrued and unpaid interest and Special Interest, if any, on such Securities to and including the Payment Date. Effective as of the day immediately following the Payment Date with respect to the Offer to Purchase in connection with any sale of an Aircraft, the interest rate borne by the Securities then Outstanding shall be subject to possible automatic increase as set forth in Section 4.12 of the Indenture, and the Aircraft so sold shall be released from the Lien of the Operative Documents in accordance with the provisions thereof. The Company may receive credit against any or all of the Sale OTP Amount for open market purchases of Securities as provided in the Indenture. In the event that there shall occur a Total Loss with respect to any Aircraft, the Company shall (unless the Company is not required to make such Offer to Purchase pursuant to the provisions of Section 4.12 of the Indenture) make an Offer to Purchase an aggregate principal amount of Outstanding Securities (the "Total Loss OTP Amount") equal to (for each Aircraft subject to such Total Loss) (a) the aggregate principal amount of the Securities Outstanding on the date such Offer to Purchase (if any) is required to be commenced under the Indenture minus (b) the product of (i) the Redemption Value as of such date multiplied by (ii) the number of Aircraft remaining that were not subject to such Total Loss, at a purchase price equal to 100% of the aggregate principal amount of Securities to be purchased, plus accrued and unpaid interest and Special Interest, if any, on such Securities, to and including the Payment Date, and the Aircraft that was the subject of such Total Loss shall be released from the Lien of the Operative Documents in accordance with the provisions thereof. The Company shall commence such Offer to Purchase (if any) within thirty (30) days after the Total Loss Date with respect to any such Total Loss. The Company may receive credit against any or all of the Total Loss OTP Amount for open market purchases of Securities as provided in the Indenture. "Offer to Purchase" means an offer to purchase all or a portion, as the case may be, of the Securities by the Company from the Holders commenced by the mailing (by first class mail, postage prepaid) by the Company (or, if requested by the Company on at least five Business Days' prior notice to the Trustee and at the Company's expense, by the Trustee) of a notice to each Holder (and, if mailed by the Company, to the Trustee) at such Holder's address appearing in the Register, stating: (i) the covenant pursuant to which the offer is being made and that all Securities validly tendered will be accepted for payment, provided, that if Securities in excess of the aggregate principal amount that the Company has offered to purchase are tendered by the Holders, then Securities will be purchased from the tendering Holders pro rata, based on the aggregate principal amount of Securities tendered by each such Holder; (ii) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Payment Date"); (iii) that any Security not tendered will continue to accrue interest pursuant to its terms (including, if such Offer to Purchase is being made pursuant to Section 4.12(c)(i)(A) of the Indenture, a statement that the rate of interest on such Security may be subject to increase in accordance with the provisions of such Section); (iv) that, unless the Company defaults in the payment of the purchase price on the Payment Date, any Security accepted for payment pursuant to the Offer to Purchase shall cease to accrue interest on and after the Payment Date; (v) that Holders electing to have a Security purchased pursuant to the Offer to Purchase will be required to surrender the Security, together with the form entitled "Option of the Holder to Elect Purchase" attached to or on the reverse side of the Security completed, to the Paying Agent at the address specified in the notice at any time beginning with the date of such notice but prior to the close of business on the Business Day immediately preceding the Payment Date (or, if such day is a Legal Holiday, on the next subsequent day which is not a Legal Holiday), and such Holder shall be entitled to receive from the Paying Agent a non-transferable receipt of deposit evidencing such deposit; (vi) that, unless the Company defaults in making the payment of the purchase price or shall otherwise, in its sole discretion, consent thereto, Holders will be entitled to withdraw their election only if the Trustee receives, not later than the close of business on the fifth Business Day immediately preceding the Payment Date, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Securities delivered for purchase and a statement that such Holder is withdrawing his election to have such Securities purchased; and (vii) that Holders whose Securities are being purchased only in part will be promptly issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered (which new Securities, if such Offer to Purchase is being made pursuant to Section 4.12(c)(i)(A) of the Indenture, will cease to be secured by the Aircraft released pursuant to such Section); provided that each Security purchased and each new Security issued shall be in a principal amount of $1,000 or integral multiples thereof. The Company shall place such notice in the national edition of The New York Times or The Wall Street Journal or, if such newspapers are not then in circulation, in a financial newspaper of general circulation in New York City. No failure of the Company to give the foregoing notice shall limit any Holder's right to exercise a repurchase right. On the Payment Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to an Offer to Purchase, provided, that if Securities in excess of the aggregate principal amount that the Company has offered to purchase are tendered by the Holders, then Securities will be purchased from the tendering Holders pro rata, based on the aggregate principal amount of Securities tendered by each such Holder; (ii) deposit with the Trustee money sufficient to pay the purchase price of all Securities or portions thereof so accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Securities or portions thereof so accepted together with an Officers' Certificate specifying the Securities or portions thereof accepted for payment by the Company. The Trustee shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate, and the Company shall promptly execute and mail (or cause to be mailed) to such Holders a new Security equal in principal amount to any unpurchased portion of the Securities surrendered; provided that each Security purchased and each new Security issued shall be in a principal amount of $1,000 or integral multiples thereof; provided further that if the Payment Date is between a regular Record Date and the next succeeding Interest Payment Date, Securities to be repurchased must be accompanied by payment of an amount equal to the interest and Special Interest, if any, payable on such succeeding Interest Payment Date on the principal amount to be repurchased, and the interest on the principal amount of the Security being repurchased, and Special Interest, if any, with respect thereto, will be paid on such next succeeding Interest Payment Date to the registered holder of such Security on the immediately preceding Record Date. A Security repurchased on an Interest Payment Date need not be accompanied by any such payment, and the interest on the principal amount of the Security being repurchased and Special Interest, if any, with respect thereto, will be paid on such Interest Payment Date to the registered holder of such Security on the corresponding Record Date. The Company will publicly announce the results of an Offer to Purchase as soon as practicable after the Payment Date. The Trustee shall act as the Paying Agent for an Offer to Purchase. The Company will comply with Rule 14e-l under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that the Company is required to repurchase Securities pursuant to an Offer to Purchase. Both the notice of the Company and the notice of the Holder having been given as specified above, the Securities so to be repurchased shall, on the Payment Date become due and payable at the purchase price applicable thereto and from and after such date (unless the Company shall default in the payment of such purchase price) such Securities shall cease to bear interest. If any Security shall not be paid upon surrender thereof for repurchase, the principal shall, until paid, bear interest from the Payment Date at the rate borne by such Security. Any Security which is to be submitted for repurchase only in part shall be delivered pursuant to the above provisions with (if the Company or Trustee so requires) due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing. 9. Denominations, Transfer, Exchange. The Securities shall be issuable only in registered form without coupons and in denominations of $1,000 and integral multiples thereof. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes required by law or permitted by the Indenture. 10. Persons Deemed Owners. The Company, the Trustee and any agent of the Company or the Trustee may treat the person in whose name this Security is registered with the Registrar as the owner for all purposes. 11. Discharge. Subject to certain conditions set forth in Article 8 of the Indenture, the Company may terminate its obligations under the Securities and the Indenture, except those obligations referred to in Section 8.1(b) of the Indenture, if the Company deposits with the Trustee or a Paying Agent cash or U.S. Government Obligations for the payment of principal of, interest on, and Special Interest, if any, with respect to, the Securities to Stated Maturity. 12. Amendments and Waivers. Subject to certain exceptions, the Indenture, the Securities, or the other Operative Documents may be amended with the consent of the Holders of at least a majority in principal amount of the then Outstanding Securities, and any existing Default, Event of Default or acceleration may be waived with the consent of the Holders of a majority in principal amount of the then Securities Outstanding. Without the consent of any Holder, the Indenture, the Securities or any of the Operative Documents may be amended to, among other things, cure any ambiguity, defect or inconsistency. 13. Defaults and Remedies. Events of Default under the Indenture include the following: default for the period specified in the Indenture in payment of interest on, or Special Interest, if any, with respect to the Securities; default in payment of the principal amount of any Securities when the same becomes due and payable (at maturity, upon acceleration, redemption, tender for repurchase or otherwise); failure by the Company to comply with specific covenants of the Indenture or of the Mortgage within the time periods provided therein, discontinuing substantially all of its commercial airlines operations, or failure to pay over amounts required under the Mortgage; failure to comply in any material respect with any of its other agreements contained in the Indenture, the other Operative Documents or the Securities; a representation or warranty of the Company in the Indenture, the other Operative Documents or any Mortgage Supplement or in any certificate of the Company delivered under any such document proves to be untrue in any material respect when made; the occurrence of certain defaults under any Indebtedness of the Company or any of its Significant Subsidiaries in excess of $10,000,000 in principal amount; the rendering or domestication of final judgments by a court of competent jurisdiction against the Company or any of its Significant Subsidiaries in an aggregate amount of $10,000,000 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 percent (25%) in principal amount of the Securities Outstanding may declare all the Securities to be due and payable immediately, except that in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all Securities Outstanding become due and payable immediately without further action or notice. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in principal amount of the then Outstanding Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing default (except a default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company must furnish compliance certificates to the Trustee. The above description of Events of Default and remedies is qualified by reference, and subject in its entirety to the more complete description thereof contained in the Indenture. 14. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may 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. 15. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Securityholder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 16. Authentication. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 17. Unclaimed Money. If money for the payment of principal of, interest on, or Special Interest, with respect to, or the purchase price for the Securities remains unclaimed for two (2) years, the Trustee or Paying Agent will pay the money back to the Company at its request. After such payment, Holders entitled to any portion of such money must look to the Company for payment unless an applicable law designates another person. 18. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 19. CUSIP Numbers. The Company in issuing this Security may use a "CUSIP" number (if then generally in use) and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. 20. Holders' Compliance with Registration Rights Agreement. Each Holder of a Security, by acceptance hereof, acknowledges and agrees to the provisions of the Registration Rights Agreement, including, without limitation, the obligations of the Holders with respect to a registration and the indemnification of the Company to the extent provided therein. 21. Governing Law. THIS SECURITY SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. The Company will furnish to any Holder of this Security, upon written request and without charge, a copy of the Indenture. Request may be made to: Trans World Airlines, Inc., One City Centre, 515 N. 6th Street, St. Louis, Missouri 63101, Attention: Corporate Secretary. 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. Date:________________________________ Signature(s):____________________________ ____________________________ (Sign exactly as your name(s) appear(s) on the other side of this Security) Signature(s) guaranteed by: ____________________________ (All signatures must be guaranteed by a member of a national securities exchange or of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company located in the United States) OPTION OF THE HOLDER TO ELECT PURCHASE If you want to elect to have this Security repurchased by the Company pursuant to any Offer to Purchase under the Indenture, check the box: [ ] If you want to elect to have only part of this Security repurchased by the Company pursuant to any Offer to Purchase under the Indenture, state the principal amount to be repurchased: $___________________________ (in an integral multiple of $1,000) Date:________________________________ Signature(s):____________________________ ____________________________ (Sign exactly as your name(s) appear(s) on the other side of this Security) Signature(s) guaranteed by: _________________________________________ (All signatures must be guaranteed by a member of a national securities exchange or of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company located in the United States) CERTIFICATE OF TRANSFER Re: 11 3/8% Senior Secured Notes due 2003 (the "Notes") of Trans World Airlines, Inc. (the "Company") This Certificate relates to Notes held in definitive form by ___________ (the "Transferor"). The Transferor has requested the Registrar by written order to exchange or register the transfer of a Note or Notes. In connection with such request and in respect of each such Note, the Transferor does hereby certify that the Transferor is familiar with the Indenture relating to the above captioned Notes and that the transfer of this Note does not require registration under the Securities Act of 1933 (the "Securities Act"), because:* [ ] Such Note is being transferred to the Company. [ ] Such Note is being transferred pursuant to an effective Registration Statement under the Securities Act. [ ] Such Note is being transferred to a qualified institutional buyer (as defined in Rule 144A under the Securities Act) in reliance on Rule 144A. [ ] Such Note is being transferred pursuant to an offshore transaction in accordance with Rule 904 under the Securities Act. [ ] Such Note is being transferred to an Institutional "Accredited Investor" within the meaning of Subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act. [ ] Such Note is being transferred in a transaction meeting the requirements of Rule 144 under the Securities Act. The Registrar and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any 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. EXHIBIT 2 to RULE 144A/REGULATION S APPENDIX [FORM OF FACE OF EXCHANGE SECURITY OR PRIVATE EXCHANGE SECURITY] [*] [**] No. CUSIP No. $ 11 3/8% Senior Secured Note due 2003 TRANS WORLD AIRLINES, INC., a Delaware corporation promises to pay to __________, or registered assigns, the principal sum of __________ Dollars on April 15, 2003. Interest Payment Dates: April 15 and October 15. Record Dates: April 1 and October 1. Additional provisions of this Security are set forth on the other side of this Security. Dated: TRANS WORLD AIRLINES, INC. By:_____________________________________ Name: Title: Attest: _____________________________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION First Security Bank, National Association, as Trustee, certifies that this is one of the Securities referred to in the Indenture. By:_____________________________ Authorized Signatory ______________________ * If the Security is to be issued in global form add the Global Securities Legend from Exhibit 1 to the Rule 144A/Regulation S Appendix. ** If the Security is a Private Exchange Security issued in a Private Exchange to the Placement Agent with respect to Securities acquired in other than market making or trading activities, add the Restricted Securities Legend from Exhibit 1 to the Rule 144A/Regulation S Appendix and add the Certificate of Transfer from such Exhibit to the end of this Exhibit 2. [FORM OF REVERSE SIDE OF EXCHANGE OR PRIVATE EXCHANGE SECURITY] 11 3/8% Senior Secured Note due 2003 This Security is one of a duly authorized issue of securities of the Company designated as its 11 3/8% Senior Secured Notes due 2003 (hereinafter called the "Securities"), limited in aggregate principal amount Outstanding to $43,200,000, issued or to be issued pursuant to an Indenture, dated as of April 21, 1998 (hereinafter called the "Indenture") between the Company and First Security Bank, National Association, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture). 1. Interest; Special Interest. The Company promises to pay interest on the principal amount of this Security at the rate of Eleven and Three-Eighths percent (11 3/8%) per annum, subject to increase as provided in paragraph 8 below; provided, however, that if a Registration Default (as defined in and subject to the provisions of the Registration Rights Agreement) occurs (each period during which a Registration Default has occurred and is continuing referred to herein as a "Registration Default Period"), additional interest will accrue on this Security at a per annum rate of 0.50% for the first 90 days of the Registration Default Period, at a per annum rate of 1.0% for the second 90 days of the Registration Default Period, at a per annum rate of 1.5% for the third 90 days of the Registration Default Period and at a per annum rate of 1.5% thereafter for the remaining portion of the Registration Default Period (such additional interest is referred to herein as "Special Interest"). The Company will pay interest and Special Interest, if any, semi-annually on the Interest Payment Dates set forth on the face of this Security, commencing October 15, 1998. Interest on the Securities will accrue from April 21, 1998 or the most recent Interest Payment Date to which interest and Special Interest, if any, have been paid. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment. The Company will pay interest on and Special Interest, if any, with respect to, the Securities (except defaulted interest and interest on defaulted principal) to the persons who are registered Holders of Securities at the close of business on the Record Date set forth on the face of this Security next preceding the applicable Interest Payment Date. Defaulted interest and interest on defaulted principal will be paid by the Company in accordance with the applicable provisions of the Indenture. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal, interest and Special Interest, if any, at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York and at any other office or agency maintained by the Company for such purpose in money of the United States that at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company, payment of interest on and Special Interest, if any, with respect to, the Securities may be by check payable in such money and mailed to a Holder's registered address; provided further, however, that payments on a certificated Security will be made by wire transfer to a U.S. dollar account maintained by a Holder with a bank in New York City if such Holder owns at least $250,000 in aggregate principal amount of certificated Securities and elects payment by wire transfer by giving written notice to the Company and the Trustee to such effect designating such account no later than 10 days immediately preceding the relevant due date for payment (or such other date as the Company and the Trustee may accept in their discretion). If a payment date is a legal holiday at a place of payment, payment may be made at that place on the next succeeding Business Day, and no interest shall accrue for the intervening period. 3. Registrar, Paying Agent and Tender Agent. Initially, the Trustee will act as Registrar and Paying Agent. The Company may change any Paying Agent or Registrar or co-registrar without prior notice to any Securityholder. The Company may act in any such capacity, except in certain circumstances. 4. Indenture. The Company issued the Securities under the Indenture. The terms of the Securities include those stated in the Indenture and those made applicable to the Indenture by the TIA. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and such Act for a statement of such terms. Subject to paragraph 7 hereof, the Securities are senior secured obligations of the Company limited to $43,200,000 aggregate principal amount, except as otherwise provided in the Indenture. Terms used in this Security and not defined in this Security shall have the meaning set forth in Section 1 of the Definitions Appendix attached as Appendix I to the Indenture, which shall be a part of this Security as if fully set forth in this place. The rules of construction for this Security are set forth in Section 2 of the Definitions Appendix. 5. Optional and Mandatory Redemption. Except as set forth in the second paragraph under this paragraph 5, the Securities may not be redeemed prior to April 15, 2001. On and after that date, the Company may redeem the Securities at any time in whole or in part (in any integral multiple of $1,000) at its sole option at redemption prices (expressed as a percentage of principal amount) as set forth below during the twelve month periods beginning April 15 of the years shown below, plus in each case an amount equal to accrued and unpaid interest and Special Interest, if any, with respect to, the Securities to and including the redemption date: Year Redemption Price ---- ---------------- 2001 104.550% 2002 102.275% In addition, subject to the provisions of the Indenture, the Company shall, until all the Securities are paid or payment thereof provided for, deposit in accordance with Section 3.6 of the Indenture, at least one Business Day prior to October 15 in each year, commencing October 15, 2000 (each such date being hereinafter referred to as a "Mandatory Redemption Date"), an amount in cash sufficient to redeem an aggregate principal amount of Securities (the "Mandatory Redemption Amount") equal to $1,840,000 on October 15, 2000 and $1,838,000 on each of October 15, 2001 and October 15, 2002 (or, if the aggregate principal amount of Securities Outstanding on any such Mandatory Redemption Date is less than the principal amount required to so be redeemed, then all the Outstanding Securities shall be redeemed on such date), at a redemption price (expressed as a percentage of the aggregate principal amount of Securities Outstanding) of 100% plus accrued and unpaid interest and Special Interest, if any, to the Mandatory Redemption Date (subject to the right of holders of record on the relevant record date to receive interest and Special Interest, if any, due on the relevant Interest Payment Date). Each such deposit shall be applied to the redemption of Securities on such Mandatory Redemption Date as provided in the Indenture. The Company may at its option receive credit against any or all of the cash portion of the Mandatory Redemption Amount for open market purchases of Securities, and such Mandatory Redemption Amount is subject to automatic reduction in connection with any permitted sale of or Total Loss with respect to any Aircraft, all as provided in the Indenture. 6. Notice of Redemption. Notice of any redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at his registered address. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued interest on, and Special Interest, if any, with respect to, all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 7. Security. The Securities are secured by Liens on certain Properties of the Company pursuant to the Mortgage and the other Operative Documents described in the Indenture and such Liens are subject to release as provided herein and in the Mortgage and the other Operative Documents. 8. Offers to Purchase. In the event that there shall occur a Change in Control, the Company shall make an Offer to Purchase all of the Outstanding Securities, at a purchase price equal to 101% of the aggregate principal amount of the Securities Outstanding, plus accrued and unpaid interest and Special Interest, if any, to and including the repurchase date. The right to require such repurchase of Securities shall not continue after a discharge of the Company from its obligations with respect to the Securities in accordance with Article 8 of the Indenture. The Company shall commence such Offer to Purchase within thirty (30) days after the occurrence of a Change in Control. In the event that the Company desires to sell any of the Aircraft as and when permitted in Section 4.12 of the Indenture, the Company shall (unless the Company is not required to make such Offer to Purchase pursuant to the provisions of such Section 4.12) have commenced an Offer to Purchase Securities in an aggregate principal amount (the "Sale OTP Amount") equal to (for each Aircraft so sold) (a) the aggregate principal amount of the Securities Outstanding on the date of the commencement of such Offer to Purchase minus (b) the product of the (i) Redemption Value as of such date multiplied by (ii) the number of Aircraft that will remain subject to the Mortgage after giving effect to such sale, at a purchase price (expressed as a percentage of principal amount of Securities to be purchased) equal to (A) 102%, if such Offer to Purchase is commenced prior to the first anniversary of the Issue Date, or (B) 101%, if such Offer to Purchase is commenced on or after the first anniversary of the Issue Date, plus in each case, accrued and unpaid interest and Special Interest, if any, on such Securities to and including the Payment Date. Effective as of the day immediately following the Payment Date with respect to the Offer to Purchase in connection with any sale of an Aircraft, the interest rate borne by the Securities then Outstanding shall be subject to possible automatic increase as set forth in Section 4.12 of the Indenture, and the Aircraft so sold shall be released from the Lien of the Operative Documents in accordance with the provisions thereof. The Company may receive credit against any or all of the Sale OTP Amount for open market purchases of Securities as provided in the Indenture. In the event that there shall occur a Total Loss with respect to any Aircraft, the Company shall (unless the Company is not required to make such Offer to Purchase pursuant to the provisions of Section 4.12 of the Indenture) make an Offer to Purchase an aggregate principal amount of Outstanding Securities (the "Total Loss OTP Amount") equal to (for each Aircraft subject to such Total Loss) (a) the aggregate principal amount of the Securities Outstanding on the date such Offer to Purchase (if any) is required to be commenced under the Indenture minus (b) the product of (i) the Redemption Value as of such date multiplied by (ii) the number of Aircraft remaining that were not subject to such Total Loss, at a purchase price equal to 100% of the aggregate principal amount of Securities to be purchased, plus accrued and unpaid interest and Special Interest, if any, on such Securities, to and including the Payment Date, and the Aircraft that was the subject of such Total Loss shall be released from the Lien of the Operative Documents in accordance with the provisions thereof. The Company shall commence such Offer to Purchase (if any) within thirty (30) days after the Total Loss Date with respect to any such Total Loss. The Company may receive credit against any or all of the Total Loss OTP Amount for open market purchases of Securities as provided in the Indenture. "Offer to Purchase" means an offer to purchase all or a portion, as the case may be, of the Securities by the Company from the Holders commenced by the mailing (by first class mail, postage prepaid) by the Company (or, if requested by the Company on at least five Business Days' prior notice to the Trustee and at the Company's expense, by the Trustee) of a notice to each Holder (and, if mailed by the Company, to the Trustee) at such Holder's address appearing in the Register, stating: (i) the covenant pursuant to which the offer is being made and that all Securities validly tendered will be accepted for payment, provided, that if Securities in excess of the aggregate principal amount that the Company has offered to purchase are tendered by the Holders, then Securities will be purchased from the tendering Holders pro rata, based on the aggregate principal amount of Securities tendered by each such Holder; (ii) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Payment Date"); (iii) that any Security not tendered will continue to accrue interest pursuant to its terms (including, if such Offer to Purchase is being made pursuant to Section 4.12(c)(i)(A) of the Indenture, a statement that the rate of interest on such Security may be subject to increase in accordance with the provisions of such Section); (iv) that, unless the Company defaults in the payment of the purchase price on the Payment Date, any Security accepted for payment pursuant to the Offer to Purchase shall cease to accrue interest on and after the Payment Date; (v) that Holders electing to have a Security purchased pursuant to the Offer to Purchase will be required to surrender the Security, together with the form entitled "Option of the Holder to Elect Purchase" attached to or on the reverse side of the Security completed, to the Paying Agent at the address specified in the notice at any time beginning with the date of such notice but prior to the close of business on the Business Day immediately preceding the Payment Date (or, if such day is a Legal Holiday, on the next subsequent day which is not a Legal Holiday), and such Holder shall be entitled to receive from the Paying Agent a non-transferable receipt of deposit evidencing such deposit; (vi) that, unless the Company defaults in making the payment of the purchase price or shall otherwise, in its sole discretion, consent thereto, Holders will be entitled to withdraw their election only if the Trustee receives, not later than the close of business on the fifth Business Day immediately preceding the Payment Date, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Securities delivered for purchase and a statement that such Holder is withdrawing his election to have such Securities purchased; and (vii) that Holders whose Securities are being purchased only in part will be promptly issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered (which new Securities, if such Offer to Purchase is being made pursuant to Section 4.12(c)(i)(A) of the Indenture, will cease to be secured by the Aircraft released pursuant to such Section); provided that each Security purchased and each new Security issued shall be in a principal amount of $1,000 or integral multiples thereof. The Company shall place such notice in the national edition of The New York Times or The Wall Street Journal or, if such newspapers are not then in circulation, in a financial newspaper of general circulation in New York City. No failure of the Company to give the foregoing notice shall limit any Holder's right to exercise a repurchase right. On the Payment Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to an Offer to Purchase, provided, that if Securities in excess of the aggregate principal amount that the Company has offered to purchase are tendered by the Holders, then Securities will be purchased from the tendering Holders pro rata, based on the aggregate principal amount of Securities tendered by each such Holder; (ii) deposit with the Trustee money sufficient to pay the purchase price of all Securities or portions thereof so accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Securities or portions thereof so accepted together with an Officers' Certificate specifying the Securities or portions thereof accepted for payment by the Company. The Trustee shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate, and the Company shall promptly execute and mail (or cause to be mailed) to such Holders a new Security equal in principal amount to any unpurchased portion of the Securities surrendered; provided that each Security purchased and each new Security issued shall be in a principal amount of $1,000 or integral multiples thereof; provided further that if the Payment Date is between a regular Record Date and the next succeeding Interest Payment Date, Securities to be repurchased must be accompanied by payment of an amount equal to the interest and Special Interest, if any, payable on such succeeding Interest Payment Date on the principal amount to be repurchased, and the interest on the principal amount of the Security being repurchased, and Special Interest, if any, with respect thereto, will be paid on such next succeeding Interest Payment Date to the registered holder of such Security on the immediately preceding Record Date. A Security repurchased on an Interest Payment Date need not be accompanied by any such payment, and the interest on the principal amount of the Security being repurchased and Special Interest, if any, with respect thereto, will be paid on such Interest Payment Date to the registered holder of such Security on the corresponding Record Date. The Company will publicly announce the results of an Offer to Purchase as soon as practicable after the Payment Date. The Trustee shall act as the Paying Agent for an Offer to Purchase. The Company will comply with Rule 14e-l under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that the Company is required to repurchase Securities pursuant to an Offer to Purchase. Both the notice of the Company and the notice of the Holder having been given as specified above, the Securities so to be repurchased shall, on the Payment Date become due and payable at the purchase price applicable thereto and from and after such date (unless the Company shall default in the payment of such purchase price) such Securities shall cease to bear interest. If any Security shall not be paid upon surrender thereof for repurchase, the principal shall, until paid, bear interest from the Payment Date at the rate borne by such Security. Any Security which is to be submitted for repurchase only in part shall be delivered pursuant to the above provisions with (if the Company or Trustee so requires) due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing. 9. Denominations, Transfer, Exchange. The Securities shall be issuable only in registered form without coupons and in denominations of $1,000 and integral multiples thereof. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes required by law or permitted by the Indenture. 10. Persons Deemed Owners. The Company, the Trustee and any agent of the Company or the Trustee may treat the person in whose name this Security is registered with the Registrar as the owner for all purposes. 11. Discharge. Subject to certain conditions set forth in Article 8 of the Indenture, the Company may terminate its obligations under the Securities and the Indenture, except those obligations referred to in Section 8.1(b) of the Indenture, if the Company deposits with the Trustee or a Paying Agent cash or U.S. Government Obligations for the payment of principal of, interest on, and Special Interest, if any, with respect to, the Securities to Stated Maturity. 12. Amendments and Waivers. Subject to certain exceptions, the Indenture, the Securities, or the other Operative Documents may be amended with the consent of the Holders of at least a majority in principal amount of the then Outstanding Securities, and any existing Default, Event of Default or acceleration may be waived with the consent of the Holders of a majority in principal amount of the then Securities Outstanding. Without the consent of any Holder, the Indenture, the Securities or any of the Operative Documents may be amended to, among other things, cure any ambiguity, defect or inconsistency. 13. Defaults and Remedies. Events of Default under the Indenture include the following: default for the period specified in the Indenture in payment of interest on, or Special Interest, if any, with respect to the Securities; default in payment of the principal amount of any Securities when the same becomes due and payable (at maturity, upon acceleration, redemption, tender for repurchase or otherwise); failure by the Company to comply with specific covenants of the Indenture or of the Mortgage within the time periods provided therein, discontinuing substantially all of its commercial airlines operations, or failure to pay over amounts required under the Mortgage; failure to comply in any material respect with any of its other agreements contained in the Indenture, the other Operative Documents or the Securities; a representation or warranty of the Company in the Indenture, the other Operative Documents or any Mortgage Supplement or in any certificate of the Company delivered under any such document proves to be untrue in any material respect when made; the occurrence of certain defaults under any Indebtedness of the Company or any of its Significant Subsidiaries in excess of $10,000,000 in principal amount; the rendering or domestication of final judgments by a court of competent jurisdiction against the Company or any of its Significant Subsidiaries in an aggregate amount of $10,000,000 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 percent (25%) in principal amount of the Securities Outstanding may declare all the Securities to be due and payable immediately, except that in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all Securities Outstanding become due and payable immediately without further action or notice. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in principal amount of the then Outstanding Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing default (except a default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company must furnish compliance certificates to the Trustee. The above description of Events of Default and remedies is qualified by reference, and subject in its entirety to the more complete description thereof contained in the Indenture. 14. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may 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. 15. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Securityholder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 16. Authentication. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 17. Unclaimed Money. If money for the payment of principal of, interest on, or Special Interest, with respect to, or the purchase price for the Securities remains unclaimed for two (2) years, the Trustee or Paying Agent will pay the money back to the Company at its request. After such payment, Holders entitled to any portion of such money must look to the Company for payment unless an applicable law designates another person. 18. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 19. CUSIP Numbers. The Company in issuing this Security may use a "CUSIP" number (if then generally in use) and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. 20. Holders' Compliance with Registration Rights Agreement. Each Holder of a Security, by acceptance hereof, acknowledges and agrees to the provisions of the Registration Rights Agreement, including, without limitation, the obligations of the Holders with respect to a registration and the indemnification of the Company to the extent provided therein. 21. Governing Law. THIS SECURITY SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. The Company will furnish to any Holder of this Security, upon written request and without charge, a copy of the Indenture. Request may be made to: Trans World Airlines, Inc., One City Centre, 515 N. 6th Street, St. Louis, Missouri 63101, Attention: Corporate Secretary. 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. Date:_________________________________ Signature(s):_________________________ ______________________________________ (Sign exactly as your name(s) appear(s) on the other side of this Security) Signature(s) guaranteed by: (All signatures must be guaranteed by a member of a national securities exchange or of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company located in the United States) OPTION OF THE HOLDER TO ELECT PURCHASE If you want to elect to have this Security repurchased by the Company pursuant to any Offer to Purchase under the Indenture, check the box: [ ] If you want to elect to have only part of this Security repurchased by the Company pursuant to any Offer to Purchase under the Indenture, state the principal amount to be repurchased: $___________________________ (in an integral multiple of $1,000) Date:_________________________________ Signature(s):__________________________ _______________________________________ (Sign exactly as your name(s) appear(s) on the other side of this Security) Signature(s) guaranteed by: _______________________________________ (All signatures must be guaranteed by a member of a national securities exchange or of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company located in the United States) EXHIBIT A to INDENTURE [FORM OF FACE OF SECURITY] [Restricted Securities Legend] THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT, OR ANY STATE SECURITIES LAWS. NEITHER THESE SECURITIES NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THESE SECURITIES BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL, OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE RESALE RESTRICTION TERMINATION DATE WHICH IS THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE DATE OF ORIGINAL ISSUANCE OF THESE SECURITIES AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THESE SECURITIES (OR ANY PREDECESSOR OF THESE SECURITIES) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) 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, (D) 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 (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE, OR TRANSFER (i) PURSUANT TO CLAUSES (C), (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM ATTACHED TO OR ON THE REVERSE SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. 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 TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS THE TRUSTEE MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS. No. CUSIP No. $ Mandatory Conversion Equity Note due 1999 TRANS WORLD AIRLINES, INC., a Delaware corporation promises to pay to __________, or registered assigns, the principal sum of __________ Dollars on April 15, 1999. Interest Payment Dates (if any): The 15th day of each month. Record Dates: The 1st day of each month. Additional provisions of this Security are set forth on the other side of this Security. Dated: TRANS WORLD AIRLINES, INC. By:________________________________________ Name: Title: Attest: ________________________________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION First Security Bank, National Association, as Trustee, certifies that this is one of the Securities referred to in the Indenture. By:______________________________________ Authorized Signatory [FORM OF REVERSE SIDE OF SECURITY] Mandatory Conversion Equity Note due 1999 This Security is one of a duly authorized issue of securities of the Company designated as its Mandatory Conversion Equity Notes due 1999 (hereinafter called the "Securities"), limited in aggregate principal amount Outstanding to $31,800,000, issued or to be issued pursuant to an Indenture, dated as of April 21, 1998 (hereinafter called the "Indenture") between the Company and First Security Bank, National Association, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture). 1. Interest. This Security shall not bear interest; provided, however, that upon a default in payment of principal on the Securities (whether on acceleration, at maturity, upon tender for repurchase or otherwise) or a Registration Default (as for so long as such default or Registration Default, as the case may be, shall continue uncured and unwaived), this Security shall bear interest at the rate of Twelve percent (12%) per annum, from the date of such default or Registration Default, as the case may be, payable (a) in the case of a Registration Default, monthly in arrears on the 15th day of each month commencing the 15th day of the month next succeeding the month in which such Registration Default occurred, and (b) in the case of a default in payment of principal, payable on demand, in each case until the principal thereof is paid or made available for payment. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company and each Holder of a Security, by the acceptance hereof, agree that in the event a Registration Default shall occur and be continuing and the Company shall have failed to use its reasonable best efforts to avoid or cure such Registration Default, Holders shall be entitled to make a claim for damages incurred as a result of such Registration Default, which damages shall not necessarily be limited to the increase in the interest rate hereunder to 12% per annum; provided, however, that any amount of interest paid pursuant to this provision shall be credited against any amount of damages to be paid by the Company in connection with such claim. 2. Method of Payment. Subject to the provisions of paragraph 8 hereof, the Company will pay interest, if any, on the Securities (except defaulted interest and interest on defaulted principal) to the persons who are registered Holders of Securities at the close of business on the Record Date set forth on the face of this Security next preceding the applicable Interest Payment Date. Defaulted interest and interest on defaulted principal will be paid by the Company in accordance with the applicable provisions of the Indenture. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest, if any, at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York and at any other office or agency maintained by the Company for such purpose in money of the United States that at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company, payment of interest, if any, on the Securities may be by check payable in such money and mailed to a Holder's registered address; provided further, however, that payments on a certificated Security will be made by wire transfer to a U.S. dollar account maintained by a Holder with a bank in New York City if such Holder owns at least $250,000 in aggregate principal amount of certificated Securities and elects payment by wire transfer by giving written notice to the Company and the Trustee to such effect designating such account no later than 10 days immediately preceding the relevant due date for payment (or such other date as the Company and the Trustee may accept in their discretion). If a payment date is a legal holiday at a place of payment, payment may be made at that place on the next succeeding Business Day, and no interest shall accrue for the intervening period. 3. Registrar, Paying Agent and Tender Agent. Initially, the Trustee will act as Registrar and Paying Agent. The Company may change any Paying Agent or Registrar or co-registrar without prior notice to any Securityholder. The Company may act in any such capacity, except in certain circumstances. 4. Indenture. The Company issued the Securities under the Indenture. The terms of the Securities include those stated in the Indenture and those made applicable to the Indenture by the TIA. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and such Act for a statement of such terms. Until converted to Common Stock as described in paragraph 8 hereof and in the Indenture and subject to paragraphs 6 and 9 hereof, the Securities are senior secured obligations of the Company limited to $31,800,000 aggregate principal amount, except as otherwise provided in the Indenture. Terms used in this Security and not defined in this Security shall have the meaning set forth in Section 1 of the Definitions Appendix attached as Appendix I to the Indenture, which shall be a part of this Security as if fully set forth in this place. The rules of construction for this Security are set forth in Section 2 of the Definitions Appendix. 5. Redemption. This Security is not subject to redemption in whole or in part at any time. 6. Security. The Securities are secured by second priority Liens on certain Properties of the Company pursuant to the Mortgage and the other Operative Documents described in the Indenture and such Liens are subject to release as provided herein and in the Mortgage and the other Operative Documents. Enforcement of the Lien of the Mortgage is limited to an aggregate amount of Obligations not exceeding $24,300,000 and is further restricted due to its second priority status, as more fully set forth in the Mortgage, and each Holder, by accepting a Security, agrees to all the provisions thereof. 7. Offers to Purchase. In the event that there shall occur a Change in Control, the Company shall make an Offer to Purchase all of the Outstanding Securities, at a purchase price equal to 101% of the aggregate principal amount of the Securities Outstanding, plus accrued and unpaid interest, if any, to and including the repurchase date. The right to require such repurchase of Securities shall not continue after a discharge of the Company from its obligations with respect to the Securities in accordance with Article 8 of the Indenture. The Company shall commence such Offer to Purchase within thirty (30) days after the occurrence of a Change in Control. In the event that there shall occur a Total Loss with respect to any Aircraft, the Company shall (unless the Company is not required to make such Offer to Purchase pursuant to the provisions of Section 4.12 of the Indenture) make an Offer to Purchase an aggregate principal amount of Outstanding Securities (the "Total Loss OTP Amount") equal to (for each Aircraft subject to such Total Loss) (a) the aggregate principal amount of the Securities Outstanding on the date such Offer to Purchase (if any) is required to be commenced under the Indenture, minus (b) the product of (i) $10,600,000 multiplied by (ii) the number of Aircraft remaining that were not subject to such Total Loss, at a purchase price equal to 100% of the aggregate principal amount of Securities to be purchased, plus accrued and unpaid interest, if any, on such Securities, to and including the Payment Date, and the Aircraft that was the subject of such Total Loss shall be released from the Lien of the Operative Documents in accordance with the provisions thereof. The Company shall commence such Offer to Purchase (if any) within thirty (30) days after the Total Loss Date with respect to any such Total Loss. The Company may receive credit against any or all of the Total Loss OTP Amount for open market purchases of Securities as provided in the Indenture. "Offer to Purchase" means an offer to purchase all, or a portion, as the case may be, of the Securities by the Company from the Holders commenced by the mailing (by first class mail, postage prepaid) by the Company (or, if requested by the Company on at least five Business Days' prior notice to the Trustee and at the Company's expense, by the Trustee) of a notice to each Holder (and, if mailed by the Company, to the Trustee) at such Holder's address appearing in the Register, stating: (i) the covenant pursuant to which the offer is being made and that all Securities validly tendered will be accepted for payment, provided, that if Securities in excess of the aggregate principal amount that the Company has offered to purchase are tendered by the Holders, then Securities will be purchased from the tendering Holders pro rata, based on the aggregate principal amount of Securities tendered by each such Holder; (ii) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Payment Date"); (iii) that any Security not tendered will continue to accrue interest (if any) pursuant to its terms; (iv) that, unless the Company defaults in the payment of the purchase price on the Payment Date, any Security accepted for payment pursuant to the Offer to Purchase shall cease to accrue interest on and after the Payment Date; (v) that Holders electing to have a Security purchased pursuant to the Offer to Purchase will be required to surrender the Security, together with the form entitled "Option of the Holder to Elect Purchase" attached to or on the reverse side of the Security completed, to the Paying Agent at the address specified in the notice at any time beginning with the date of such notice but prior to the close of business on the Business Day immediately preceding the Payment Date (or, if such day is a Legal Holiday, on the next subsequent day which is not a Legal Holiday), and such Holder shall be entitled to receive from the Paying Agent a non-transferable receipt of deposit evidencing such deposit; (vi) that, unless the Company defaults in making the payment of the purchase price or shall otherwise, in its sole discretion, consent thereto, Holders will be entitled to withdraw their election only if the Trustee receives, not later than the close of business on the fifth Business Day immediately preceding the Payment Date, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Securities delivered for purchase and a statement that such Holder is withdrawing his election to have such Securities purchased; and (vii) that Holders whose Securities are being purchased only in part will be promptly issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered; provided that each Security purchased and each new Security issued shall be in a principal amount of $1,000 or integral multiples thereof. The Company shall place such notice in the national edition of The New York Times or The Wall Street Journal or, if such newspapers are not then in circulation, in a financial newspaper of general circulation in New York City. No failure of the Company to give the foregoing notice shall limit any Holder's right to exercise a repurchase right. On the Payment Date, the Company shall (i) accept for payment Securities or portions thereof tendered pursuant to an Offer to Purchase, provided, that if Securities in excess of the aggregate principal amount that the Company has offered to purchase are tendered by the Holders, then Securities will be purchased from the tendering Holders pro rata, based on the aggregate principal amount of Securities tendered by each such Holder; (ii) deposit with the Trustee money sufficient to pay the purchase price of all Securities or portions thereof so accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Securities or portions thereof so accepted together with an Officers' Certificate specifying the Securities or portions thereof accepted for payment by the Company. The Trustee shall promptly mail to the Holders of Securities so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate, and the Company shall promptly execute and mail (or cause to be mailed) to such Holders a new Security equal in principal amount to any unpurchased portion of the Securities surrendered; provided that each Security purchased and each new Security issued shall be in a principal amount of $1,000 or integral multiples thereof; provided further that if the Payment Date is between a regular Record Date and the next succeeding Interest Payment Date, Securities to be repurchased must be accompanied by payment of an amount equal to the interest, if any, payable on such succeeding Interest Payment Date on the principal amount to be repurchased, and the interest, if any, on the principal amount of the Security being repurchased, will be paid on such next succeeding Interest Payment Date to the registered holder of such Security on the immediately preceding Record Date. A Security repurchased on an Interest Payment Date need not be accompanied by any such payment, and the interest, if any, on the principal amount of the Security being repurchased, will be paid on such Interest Payment Date to the registered holder of such Security on the corresponding Record Date. The Company will publicly announce the results of an Offer to Purchase as soon as practicable after the Payment Date. The Trustee shall act as the Paying Agent for an Offer to Purchase. The Company will comply with Rule 14e-l under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that the Company is required to repurchase Securities pursuant to an Offer to Purchase. Both the notice of the Company and the notice of the Holder having been given as specified above, the Securities so to be repurchased shall, on the Payment Date become due and payable at the purchase price applicable thereto and from and after such date (unless the Company shall default in the payment of such purchase price) such Securities shall cease to bear interest. If any Security shall not be paid upon surrender thereof for repurchase, the principal shall, until paid, bear interest from the Payment Date at the rate and in accordance with the provisions set forth in this Security and the Indenture. Any Security which is to be submitted for repurchase only in part shall be delivered pursuant to the above provisions with (if the Company or Trustee so requires) due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing. 8. Mandatory Conversion. Subject to the provisions of Article 13 of the Indenture, on the Conversion Date, so long as no Default or Event of Default shall then exist, this Security (if then Outstanding) shall be automatically converted into that number of fully paid and non-assessable shares of Common Stock equal to the sum of (i) the then outstanding principal amount of this Security, plus (ii) accrued and unpaid interest, if any, on this Security to the Conversion Date, divided by the lesser of (A) 0.95 multiplied by the Average Market Price per share of Common Stock or (B) $10 7/8 (such lesser amount being hereinafter referred to as the "Conversion Price"). Any such conversion is subject to the procedures, restrictions and adjustments to the Conversion Price as set forth in Article 13 of the Indenture, and on or after the effectiveness of the conversion, the Liens on the Collateral are subject to release as provided in the Indenture. 9. Possible Subordination. If, on the Business Day immediately succeeding the Issue Date, the Holders (other than Lazard Freres & Co. LLC, as Holder of the Compensation Notes, as defined in the Placement Agreement) do not include at least one of the Owner Trustee, Seven Sixty Seven Leasing, Inc. or any member of the Bank Group, then this Security shall automatically, without any further act or deed, become an unsecured obligation of the Company and shall rank junior in priority to all secured indebtedness of the Company and pari passu with all unsecured indebtedness of the Company, in each case whether such indebtedness is existing on the Issue Date or thereafter incurred, and the Trustee shall be authorized to enter into or execute and deliver such agreements, instruments or other documents as may be reasonably requested by (and at the cost and expense of) the Company to evidence or confirm the release of Liens on the Collateral or such subordination of the Securities. 10. 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. 11. 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. 12. Discharge. Subject to certain conditions set forth in Article 8 of the Indenture, the Company may terminate its obligations under the Securities and the Indenture, except those obligations referred to in Section 8.1(b) of the Indenture, if the Company deposits with the Trustee or a Paying Agent cash or U.S. Government Obligations for the payment of principal of, interest, if any, on the Securities to Stated Maturity. 13. Amendments and Waivers. Subject to certain exceptions, the Indenture, the Securities, or the other Operative Documents may be amended with the consent of the Holders of at least a majority in principal amount of the then Outstanding Securities, and any existing Default, Event of Default or acceleration may be waived with the consent of the Holders of a majority in principal amount of the then Securities Outstanding. Without the consent of any Holder, the Indenture, the Securities or any of the Operative Documents may be amended to, among other things, cure any ambiguity, defect or inconsistency. 14. Defaults and Remedies. Events of Default under the Indenture include the following: default for the period specified in the Indenture in payment of interest, if any, on the Securities; default in payment of the principal amount of any Securities when the same becomes due and payable (at maturity, upon acceleration, redemption, tender for repurchase or otherwise); failure by the Company to comply with specific covenants of the Indenture or of the Mortgage within the time periods provided therein, discontinuing substantially all of its commercial airlines operations, or failure to pay over amounts required under the Mortgage; failure to comply in any material respect with any of its other agreements contained in the Indenture, the other Operative Documents or the Securities; a representation or warranty of the Company in the Indenture, the other Operative Documents or any Mortgage Supplement or in any certificate of the Company delivered under any such document proves to be untrue in any material respect when made; the occurrence of certain defaults under any Indebtedness of the Company or any of its Significant Subsidiaries in excess of $10,000,000 in principal amount; the rendering or domestication of final judgments by a court of competent jurisdiction against the Company or any of its Significant Subsidiaries in an aggregate amount of $10,000,000 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 percent (25%) in principal amount of the 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 and the Mortgage. Enforcement of the Lien of the Mortgage is limited to an aggregate amount of Obligations not exceeding $24,300,000 and is further restricted due to its second priority status, as more fully set forth in the Mortgage. 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 and the other Operative Documents. 15. Trustee Dealings with Company. The Trustee under the Indenture, 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. 16. 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. 17. Authentication. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 18. Unclaimed Money. If money for the payment of principal of, or interest, if any, on, or the purchase price for the Securities remains unclaimed for two (2) years, the Trustee or Paying Agent will pay the money back to the Company at its request. After such payment, Holders entitled to any portion of such money must look to the Company for payment unless an applicable law designates another person. 19. 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). 20. CUSIP Numbers. The Company in issuing this Security may use a "CUSIP" number (if then generally in use) and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. 21. Holders' Compliance with Registration Rights Agreement. Each Holder of a Security, by acceptance hereof, acknowledges and agrees to the provisions of the Registration Rights Agreement, including, without limitation, the obligations of the Holders with respect to a registration and the indemnification of the Company to the extent provided therein. 22. Governing Law. THIS SECURITY SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. The Company will furnish to any Holder of this Security, upon written request and without charge, a copy of the Indenture. Request may be made to: Trans World Airlines, Inc., One City Centre, 515 N. 6th Street, St. Louis, Missouri 63101, Attention: Corporate Secretary. 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. Date:_________________________ Signature(s):________________________________ ________________________________ (Sign exactly as your name(s) appear(s) on the other side of this Security) Signature(s) guaranteed by: ______________________________________________ (All signatures must be guaranteed by a member of a national securities exchange or of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company located in the United States) OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security repurchased by the Company pursuant to any Offer to Purchase under the Indenture, check the box: [ ] If you want to elect to have only part of this Security repurchased by the Company pursuant to any Offer to Purchase under the Indenture, state the amount to be repurchased: $ __________________________ (in an integral multiple of $1,000) Date:_________________________ Signature(s):________________________________ ______________________________________________ (Sign exactly as your name(s) appear(s) on the other side of this Security) Signature(s) guaranteed by: ______________________________________________ (All signatures must be guaranteed by a member of a national securities exchange or of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company located in the United States) CERTIFICATE OF TRANSFER Re: Mandatory Conversion Equity Notes due 1999 (the "Notes") of Trans World Airlines, Inc. (the "Company") This Certificate relates to Notes held in definitive form by ___________ (the "Transferor"). The Transferor has requested the Registrar by written order to exchange or register the transfer of a Note or Notes. In connection with such request and in respect of each such Note, the Transferor does hereby certify that the Transferor is familiar with the Indenture relating to the above captioned Notes and that the transfer of this Note does not require registration under the Securities Act of 1933 (the "Securities Act"), because:* [ ] Such Note is being transferred to the Company. [ ] Such Note is being transferred pursuant to an effective Registration Statement under the Securities Act. [ ] Such Note is being transferred to a qualified institutional buyer (as defined in Rule 144A under the Securities Act) in reliance on Rule 144A. [ ] Such Note is being transferred pursuant to an offshore transaction in accordance with Rule 904 under the Securities Act. [ ] Such Note is being transferred to an Institutional "Accredited Investor" within the meaning of Subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act. [ ] Such Note is being transferred in a transaction meeting the requirements of Rule 144 under the Securities Act. The Registrar and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any 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. /dpw/cw/005/20263/012/S4/EDGAR/ex5.ed EX-5 6 Exhibit 5 [Letterhead of Davis Polk & Wardwell] May 1, 1998 Trans World Airlines, Inc. One City Centre, 515 N. Sixth Street St. Louis, Missouri 63101 Ladies and Gentlemen: We have acted as special counsel to Trans World Airlines, Inc. (the "Company") in connection with the Company's offer (the "Exchange Offer") to exchange its 11 3/8% Senior Notes due 2006 (the "Exchange Notes") for any and all of its outstanding 11 3/8% Senior Notes due 2006 (the "Old Notes"). We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments as we have deemed necessary or advisable for the purpose of rendering this opinion. Upon the basis of the foregoing and, assuming the due execution and delivery of the Exchange Notes, we are of the opinion that the Exchange Notes, when executed, authenticated and delivered in exchange for the Old Notes in accordance with the Exchange Offer, will be valid and binding obligations of the Company enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and similar laws affecting creditors' rights generally and equitable principles. We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York, the federal laws of the United States of America and the General Corporation Law of the State of Delaware. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement relating to the Exchange Offer. We also consent to the reference to us under the caption "Legal Matters" in the Prospectus contained in such Registration Statement. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by or furnished to any other person without written consent. Very truly yours, /s/ DAVIS POLK & WARDWELL --------------------------- EX-23.1 7 Exhibit 23.1 AUDITORS' CONSENT ----------------- The Board of Directors Trans World Airlines, Inc. We consent to the use of our report included herein and incorporated by reference and to the reference to our firm under the hearing "Experts" in the prospectus. Our report, dated March 4, 1998 refers to the application of fresh start reporting as of September 1, 1995. KPMG Peat Marwick LLP Kansas City, Missouri April 30, 1998 EX-24 8 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, John W. Bachmann, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Gerald L. Gitner, Michael J. Palumbo and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution and resubstitution for me in my name, place and stead, in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its Exchange Notes issuable in exchange for the Company's 11-3/8% Senior Notes due 2006, and to file the same with the Securities and Exchange Commission, together with all exhibits thereto and other documents in connection therewith, and to sign on my behalf and in my stead, in any and all capacities, any amendments (including post-effective amendments) and supplements to said Registration Statement, incorporating such changes as any of the said attorneys-in-fact deems appropriate, in the matter of the proposed offering by the Company of the securities registered pursuant to said Registration Statement, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 28 day of April, 1998. /s/ John W. Bachmann -------------------------------- John W. Bachmann POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, William F. Compton, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Gerald L. Gitner, Michael J. Palumbo and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution and resubstitution for me in my name, place and stead, in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its Exchange Notes issuable in exchange for the Company's 11-3/8% Senior Notes due 2006, and to file the same with the Securities and Exchange Commission, together with all exhibits thereto and other documents in connection therewith, and to sign on my behalf and in my stead, in any and all capacities, any amendments (including post-effective amendments) and supplements to said Registration Statement, incorporating such changes as any of the said attorneys-in-fact deems appropriate, in the matter of the proposed offering by the Company of the securities registered pursuant to said Registration Statement, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 28 day of April, 1998. /s/ William F. Compton -------------------------------- William F. Compton POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, Eugene P. Conese, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Gerald L. Gitner, Michael J. Palumbo and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution and resubstitution for me in my name, place and stead, in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its Exchange Notes issuable in exchange for the Company's 11-3/8% Senior Notes due 2006, and to file the same with the Securities and Exchange Commission, together with all exhibits thereto and other documents in connection therewith, and to sign on my behalf and in my stead, in any and all capacities, any amendments (including post-effective amendments) and supplements to said Registration Statement, incorporating such changes as any of the said attorneys-in-fact deems appropriate, in the matter of the proposed offering by the Company of the securities registered pursuant to said Registration Statement, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 29 day of April, 1998. /s/ Eugene P. Conese -------------------------------- Eugene P. Conese POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, William M. Hoffman, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Gerald L. Gitner, Michael J. Palumbo and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution and resubstitution for me in my name, place and stead, in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its Exchange Notes issuable in exchange for the Company's 11-3/8% Senior Notes due 2006, and to file the same with the Securities and Exchange Commission, together with all exhibits thereto and other documents in connection therewith, and to sign on my behalf and in my stead, in any and all capacities, any amendments (including post-effective amendments) and supplements to said Registration Statement, incorporating such changes as any of the said attorneys-in-fact deems appropriate, in the matter of the proposed offering by the Company of the securities registered pursuant to said Registration Statement, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 29th day of April, 1998. /s/ William M. Hoffman -------------------------------- William M. Hoffman POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, Edgar M. House, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Gerald L. Gitner, Michael J. Palumbo and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution and resubstitution for me in my name, place and stead, in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its Exchange Notes issuable in exchange for the Company's 11-3/8% Senior Notes due 2006, and to file the same with the Securities and Exchange Commission, together with all exhibits thereto and other documents in connection therewith, and to sign on my behalf and in my stead, in any and all capacities, any amendments (including post-effective amendments) and supplements to said Registration Statement, incorporating such changes as any of the said attorneys-in-fact deems appropriate, in the matter of the proposed offering by the Company of the securities registered pursuant to said Registration Statement, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 28 day of April, 1998. /s/ Edgar M. House -------------------------------- Edgar M. House POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, Thomas H. Jacobsen, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Gerald L. Gitner, Michael J. Palumbo and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution and resubstitution for me in my name, place and stead, in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its Exchange Notes issuable in exchange for the Company's 11-3/8% Senior Notes due 2006, and to file the same with the Securities and Exchange Commission, together with all exhibits thereto and other documents in connection therewith, and to sign on my behalf and in my stead, in any and all capacities, any amendments (including post-effective amendments) and supplements to said Registration Statement, incorporating such changes as any of the said attorneys-in-fact deems appropriate, in the matter of the proposed offering by the Company of the securities registered pursuant to said Registration Statement, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 27th day of April, 1998. /s/ Thomas H. Jacobsen -------------------------------- Thomas H. Jacobsen POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, Myron Kaplan, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Gerald L. Gitner, Michael J. Palumbo and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution and resubstitution for me in my name, place and stead, in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its Exchange Notes issuable in exchange for the Company's 11-3/8% Senior Notes due 2006, and to file the same with the Securities and Exchange Commission, together with all exhibits thereto and other documents in connection therewith, and to sign on my behalf and in my stead, in any and all capacities, any amendments (including post-effective amendments) and supplements to said Registration Statement, incorporating such changes as any of the said attorneys-in-fact deems appropriate, in the matter of the proposed offering by the Company of the securities registered pursuant to said Registration Statement, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 28th day of April, 1998. /s/ Myron Kaplan -------------------------------- Myron Kaplan POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, David M. Kennedy, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Gerald L. Gitner, Michael J. Palumbo and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution and resubstitution for me in my name, place and stead, in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its Exchange Notes issuable in exchange for the Company's 11-3/8% Senior Notes due 2006, and to file the same with the Securities and Exchange Commission, together with all exhibits thereto and other documents in connection therewith, and to sign on my behalf and in my stead, in any and all capacities, any amendments (including post-effective amendments) and supplements to said Registration Statement, incorporating such changes as any of the said attorneys-in-fact deems appropriate, in the matter of the proposed offering by the Company of the securities registered pursuant to said Registration Statement, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 27th day of April, 1998. /s/ David M. Kennedy -------------------------------- David M. Kennedy POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, General Merrill A. McPeak, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Gerald L. Gitner, Michael J. Palumbo and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution and resubstitution for me in my name, place and stead, in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its Exchange Notes issuable in exchange for the Company's 11-3/8% Senior Notes due 2006, and to file the same with the Securities and Exchange Commission, together with all exhibits thereto and other documents in connection therewith, and to sign on my behalf and in my stead, in any and all capacities, any amendments (including post-effective amendments) and supplements to said Registration Statement, incorporating such changes as any of the said attorneys-in-fact deems appropriate, in the matter of the proposed offering by the Company of the securities registered pursuant to said Registration Statement, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 30 day of April, 1998. /s/ General Merrill A. McPeak -------------------------------- General Merrill A. McPeak POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, Thomas F. Meagher, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Gerald L. Gitner, Michael J. Palumbo and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution and resubstitution for me in my name, place and stead, in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its Exchange Notes issuable in exchange for the Company's 11-3/8% Senior Notes due 2006, and to file the same with the Securities and Exchange Commission, together with all exhibits thereto and other documents in connection therewith, and to sign on my behalf and in my stead, in any and all capacities, any amendments (including post-effective amendments) and supplements to said Registration Statement, incorporating such changes as any of the said attorneys-in-fact deems appropriate, in the matter of the proposed offering by the Company of the securities registered pursuant to said Registration Statement, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 28 day of April, 1998. /s/ Thomas F. Meagher -------------------------------- Thomas F. Meagher POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, G. Joseph Reddington, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Gerald L. Gitner, Michael J. Palumbo and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution and resubstitution for me in my name, place and stead, in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its Exchange Notes issuable in exchange for the Company's 11-3/8% Senior Notes due 2006, and to file the same with the Securities and Exchange Commission, together with all exhibits thereto and other documents in connection therewith, and to sign on my behalf and in my stead, in any and all capacities, any amendments (including post-effective amendments) and supplements to said Registration Statement, incorporating such changes as any of the said attorneys-in-fact deems appropriate, in the matter of the proposed offering by the Company of the securities registered pursuant to said Registration Statement, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 29th day of April, 1998. /s/ G. Joseph Reddington -------------------------------- G. Joseph Reddington POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, Blanche M. Touhill, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Gerald L. Gitner, Michael J. Palumbo and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution and resubstitution for me in my name, place and stead, in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its Exchange Notes issuable in exchange for the Company's 11-3/8% Senior Notes due 2006, and to file the same with the Securities and Exchange Commission, together with all exhibits thereto and other documents in connection therewith, and to sign on my behalf and in my stead, in any and all capacities, any amendments (including post-effective amendments) and supplements to said Registration Statement, incorporating such changes as any of the said attorneys-in-fact deems appropriate, in the matter of the proposed offering by the Company of the securities registered pursuant to said Registration Statement, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 27 day of April, 1998. /s/ Blanche M. Touhill -------------------------------- Blanche M. Touhill POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, Stephen M. Tumblin, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Gerald L. Gitner, Michael J. Palumbo and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution and resubstitution for me in my name, place and stead, in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-4 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its Exchange Notes issuable in exchange for the Company's 11-3/8% Senior Notes due 2006, and to file the same with the Securities and Exchange Commission, together with all exhibits thereto and other documents in connection therewith, and to sign on my behalf and in my stead, in any and all capacities, any amendments (including post-effective amendments) and supplements to said Registration Statement, incorporating such changes as any of the said attorneys-in-fact deems appropriate, in the matter of the proposed offering by the Company of the securities registered pursuant to said Registration Statement, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 25th day of April, 1998. /s/ Stephen M. Tumblin -------------------------------- Stephen M. Tumblin EX-25 9 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) TRANS WORLD AIRLINES, INC. OFFER TO EXCHANGE 11 3/8% SENIOR NOTES DUE 2006 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL OUTSTANDING 11 3/8% SENIOR NOTES 2006 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 30(th) day of April, 1998. 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 enclosed a certificate issued by the Federal Reserve Board showing the trust powers heretofore granted to the bank under its former name and that it is authorized to exercise such powers under its new name. Very truly yours, S.R. Carpenter S.R. Carpenter, Assistant Secretary. Enclosure - ------------------------------------------------------------------------------- Comptroller of the Currency Administrator of National Banks - ------------------------------------------------------------------------------- Licensing Unit (Applications) 50 Fremont Street, Suite 3900 San Francisco, CA 94105 (415) 545-5900, FAX (415) 545-5925 June 20, 1996 Board of Directors First Security Bank of Utah, N.A. c/o First Security Corporation Attn: Brad D. Hardy, EVP Post Office Box 30006 Salt Lake City, Utah 84130 Re: Merger - First Security Bank of Idaho, N.A., Boise, Idaho into First Security Bank of Utah, N.A., Ogden, Utah, under the title of First Security Bank, N.A., Odgen, Utah. Control No: 96-WE-02-010 Dear Members of the Board: This letter is the official certification of the Comptroller of the Currency to merge First Security Bank of Idaho, National Association, Boise, Idaho into First Security Bank of Utah, National Association, Ogden, Utah, effective as of June 21, 1996. The resulting bank title is First Security Bank, National Association and charter number is 2597. This is also the official authorization given to First Security Bank, National Association to operate the branches of the target institution and to operate the main office of the target institution as a branch. Branches of a national bank target are not listed since they are automatically carried over to the resulting bank and retain their current OCC branch numbers. Please be advised that the Charter Certificate for the merged bank, First Security Bank of Idaho, National Association, must be returned to the Western District Office for cancellation. Very truly yours, Robert G. Tornborg Robert G. Tornborg Acting Director of Bank Supervision - Compliance and Analysis 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. First Security Bank, N.A. EXHIBIT 7 P.O. Box 30011 Salt Lake City, UT 84130 Call Date: 03/31/97 ST-BK: 49-0290 FFIEC 031 Vendor ID: D CERT: 13718 Page RI-9 Transit Number: 12400001 Transmitted to EDS as 0042861 on 11 4/30/97 at 19:02:11 CST 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 C400 Dollar Amounts in Thousands - ------------------------------------------------------------------------------- ASSETS 1. Cash and balances due from depository RCFD institutions (from Schedule RC-A): ---- a. Noninterest-bearing balances and currency and coin (1)....................... 0081 .... 655,052 1.a b. Interest-bearing balances (2)............... 0071 .... 67 1.b 2. Securities: a. Held-to-maturity securities (from Schedule RC-B, column A).................... 1754 .... 0 2.a b. Available-for-sale securities (from Schedule RC-B, column D).............. 1773 .... 2,180,112 2.b 3. Federal funds sold and securities purchased under agreements to resell......... 1350 .... 66,178 3. 4. Loans and lease financing receivables: a. Loans and leases, net of RCFD unearned income (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. First Security Bank, N.A. P.O. Box 30011 Salt Lake City, UT 84130 EXHIBIT 7 Call Date: 03/31/97 ST-BK: 49-0290 FFIEC 031 Vendor ID: D CERT: 13718 Page RI-10 Transit Number: 12400001 Transmitted to EDS as 0042861 on 12 4/30/97 at 19:01:12 CST 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 - ------------------------------------------------------------------------------- LIABILITIES 13. Deposits: RCOM a. In domestic offices (sum of totals of ---- columns A and C from Schedule RC-E, part 1) 2200 .. 7,079,084 13.a RCDN ---- (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 sub- sidiaries, and IBFs (from Schedule RC-E, part II)...................................... 2200 .. 51,656 13.b RCFW ---- (1) Noninterest-bearing .... 6631 .. 0 ............. 13.b.1 (2) Interest-bearing........ 6636 .. 51,656 ............. 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 indebted- ness 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 adjust- ments............................................ 3284 .. 0 27. 28. Total equity capital (sum of items 23 through 27) 3210 .. 920,887 28. 29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21 and 28)...... 3300 .. 11,373,780 29. Memorandum To be reported only with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that best describes the most comprehensive level of audting work RCFD Number 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 with generally accepted auditing standards by a certified public accounting firm which submits a report on the bank 2 = Independent audit of the bank's parent holding company conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the consolidated holding company (but not on the bank separately) 3 = Directors' examination of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority) 4 = Directors' examination of the bank performed by other external auditors (may be required by state chartering authority) 5 = Review of the bank's financial statements by external auditors 6 = Compilation of the bank's financial statements by external auditors 7 = Other audit procedures (exluding tax preparation work) 8 = No external audit work - ---------------- (1) Includes total demand deposits and noninterest-bearing time and savings deposits. (2) Includes limited-life preferred stock and related surplus. -----END PRIVACY-ENHANCED MESSAGE-----