-----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, P+dUGxQMARSPL48wzP4xo3SBfWu/B78vqMxjxy71mCRXBdh7m9JcfiCe4kfq2yH6 mLEJrHKRl3UjYrNfeTL6Sw== 0000950130-98-000256.txt : 19980123 0000950130-98-000256.hdr.sgml : 19980123 ACCESSION NUMBER: 0000950130-98-000256 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19980122 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-3 SEC ACT: SEC FILE NUMBER: 333-44689 FILM NUMBER: 98510817 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-3 1 FORM S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 22, 1998 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------- TRANS WORLD AIRLINES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) 43-1145889 DELAWARE 4512 (I.R.S. EMPLOYER (STATE OF (PRIMARY STANDARD IDENTIFICATION NO.) INCORPORATION) INDUSTRIAL CLASSIFICATION CODE NUMBER) ONE CITY CENTRE 515 N. SIXTH STREET ST. LOUIS, MISSOURI 63101 (314) 589-3000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) -------------- COPY TO: GERALD L. GITNER DIANE G. KERR, ESQ. CHAIRMAN AND CHIEF EXECUTIVE DAVIS POLK & WARDWELL OFFICER 450 LEXINGTON AVENUE ONE CITY CENTRE, 515 N. SIXTH NEW YORK, NEW YORK 10017 STREET (212) 450-4000 ST. LOUIS, MISSOURI 63101 (314) 589-3000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENTS FOR SERVICE) APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of this registration statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [_] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] 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 number of the earlier effective 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 under the Securities Act, please check the following box. [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM AMOUNT MAXIMUM AGGREGATE AMOUNT OF TITLE OF EACH CLASS OF TO BE AGGREGATE PRICE OFFERING REGISTRATION SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE - ------------------------------------------------------------------------------------------------ 9 1/4% Cumulative Convertible Ex- changeable Preferred Stock, $0.1 1,725,000 par value per share................ shares $50(1) $86,250,000(1) $25,444(1) $86,250,000 9 1/4% Convertible Subordinated De- principal bentures due 2007.................. amount N/A N/A N/A(2) Common Stock, $.01 par value per share.............................. 10,917,823 N/A N/A N/A(3) Total............................... N/A N/A N/A $25,444
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Estimated solely for the purpose of calculating the registration fee based upon the $50 initial sale price of the 9 1/4% Cumulative Convertible Exchangeable Preferred Stock, $.01 par value per share (the "Preferred Stock"). (2) No additional consideration will be received by the Registrant for the issuance of the 9 1/4% Convertible Subordinated Debentures due 2007 (the "Debentures") upon exchange of the Preferred Stock. Accordingly, no additional registration fee is required in respect of the Debentures pursuant to Rule 457(i) under the Securities Act. (3) No additional consideration will be received by the Registrant for the issuance of shares of the Company's Common Stock, $.01 par value per share (the "Common Stock") upon the conversion of the Preferred Stock or the Debentures. Accordingly, no additional registration fee is required in respect of such shares of Common Stock pursuant to Rule 157(i) under the Securities Act. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PROSPECTUS TRANS WORLD AIRLINES, INC. 1,725,000 SHARES OF 9 1/4% CUMULATIVE CONVERTIBLE EXCHANGEABLE PREFERRED STOCK (PAR VALUE $.01 PER SHARE) $86,250,000 PRINCIPAL AMOUNT OF 9 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2007 10,917,525 SHARES OF COMMON STOCK ---------------- This Prospectus relates to the 1,725,000 shares of the 9 1/4% Cumulative Convertible Exchangeable Preferred Stock, par value $.01 per share (the "Preferred Stock"), of Trans World Airlines, Inc., a Delaware corporation ("TWA" or the "Company"), the $86,250,000 aggregate principal amount of the Company's 9 1/4% Convertible Subordinated Debentures due 2007 (the "Debentures") issuable upon exchange of the Preferred Stock and the 10,917,525 shares of the Company's Common Stock, $.01 par value per share (the "Common Stock"), issuable upon conversion of the Preferred Stock or the Debentures, subject to adjustment under certain circumstances. The Preferred Stock was initially issued and sold by TWA to Lazard Freres & Co. LLC and PaineWebber Incorporated (the "Initial Purchasers") and were offered by the Initial Purchasers on December 2, 1997 (the "Original Offering"), in transactions exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), to persons reasonably believed by the Initial Purchasers of the Preferred Stock to be "qualified institutional buyers" (as defined by Rule 144A under the Securities Act ("Rule 144A")) or "accredited investors" (as defined by Rule 501(a)(1), (2), (3) or (7)) under the Securities Act or in transactions complying with the provisions of Regulation S under the Securities Act ("Regulation S"). The Preferred Stock, along with the Debentures issuable upon exchange of the Preferred Stock and the Common Stock issuable upon conversion of the Preferred Stock or the Debentures, may be offered and sold from time to time by the holders named herein or by their transferees, pledgees, donees, or their successors (collectively, the "Selling Holders") pursuant to this Prospectus. The Registration Statement on Form S-3 of which this Prospectus is a part (the "Registration Statement") has been filed with the Securities and Exchange Commission (the "SEC" or the "Commission") pursuant to the Company's obligations under a registration rights agreement dated as of December 2, 1997 (the "Registration Rights Agreement") among the Company and the Initial Purchasers, which was entered into in connection with the Original Offering. Dividends on the Preferred Stock are cumulative from the date of original issuance and payable quarterly in arrears commencing March 15, 1998 at an annual rate of 9 1/4% (equivalent to $4.625 per share per annum). The Preferred Stock has a liquidation preference of $50.00 per share, plus accrued and unpaid dividends. Continued on next page PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER MATTERS DISCUSSED UNDER THE CAPTION "RISK FACTORS" ON PAGE 9. 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 REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. ---------------- THE DATE OF THIS PROSPECTUS IS JANUARY , 1998. Continued from cover page Each share of the Preferred Stock (or, if issued, each $50.00 principal amount of Debentures) 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 $7.90 per share or $50.00 principal amount of Debentures (equivalent to a conversion rate of approximately 6.329 shares of Common Stock for each share of Preferred Stock or $50.00 principal amount of Debentures). The number of shares of Common Stock issuable upon conversion of the Preferred Stock or the Debentures is subject to possible adjustment under certain circumstances. Therefore, the number of shares of Common Stock registered hereunder may increase or decrease. See "Description of Preferred Stock--Conversion Rights." The Preferred Stock may be exchanged, in whole but not in part, at the option of the Company, for the Debentures on any dividend date beginning on December 15, 1999 at the rate of $50.00 principal amount of Debentures for each share of Preferred Stock outstanding at the time of exchange; provided, that all accrued and unpaid dividends on the 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. The Debentures, if issued, will bear interest payable semiannually and will have the terms and conditions set forth elsewhere in this Prospectus. As of September 30, 1997, the amount of the Company's Senior Indebtedness (as defined herein) aggregated approximately $965.1 million, and the amount of the trade payables and other indebtedness of the Company's subsidiaries was immaterial in amount. If issued, the Debentures will be effectively subordinated to all rights of third party creditors of the Company's subsidiaries. The Company and its subsidiaries expect from time to time to incur additional indebtedness, including, but not limited to, Senior Indebtedness. The Indenture will not prohibit or limit the incurrence of such additional indebtedness. (All other obligations would rank pari passu to the Debentures, including obligations under noncancellable operating leases, advance ticket sales, and trade payables, among others, which obligations were approximately $10.9 million, $272.1 million and $268.8 million, respectively, at September 30, 1997.) The Preferred Stock may not be redeemed prior to December 15, 2000. On or after December 15, 2000, the Preferred Stock may be redeemed, in whole or in part, at the option of the Company, at the redemption prices set forth elsewhere in this Prospectus plus accrued and unpaid dividends thereon to the date fixed for redemption. See "Description of Preferred Stock--Optional Redemption by the Company." Upon the occurrence of a Change in Control (as defined herein), the conversion price of the Preferred Stock will be reduced for a limited period of time in the event that the Market Value (as defined herein) of the Common Stock is less than the then prevailing conversion price, but in no event will the conversion price be lower than $4.67, subject to certain adjustments as set forth herein. The Preferred Stock, the Debentures and the shares of Common Stock issuable upon conversion of the Preferred Stock or Debentures may be sold by the Selling Holders from time to time directly to purchasers or through agents, underwriters or dealers. See "Plan of Distribution." If required, the names of any agents or underwriters involved in the sale of the securities in respect of which this Prospectus is being delivered, along with any applicable agent's commission, dealer's purchase price or underwriter's discount, will be set forth in an accompanying supplement to this Prospectus (the "Prospectus Supplement"). Furthermore, information concerning Selling Holders set forth herein may change from time to time, and the changes will be set forth in such a Prospectus Supplement. The Selling Holders will receive all of the net proceeds from the sale of the Preferred Stock, the Debentures and the shares of Common Stock issuable upon conversion of the Preferred Stock or Debentures and will pay any and all underwriting discounts and selling commissions applicable to the sale of such securities. The Company is responsible for payment of all other expenses incident to the registration of the securities registered hereunder. The Selling Holders and any broker-dealers, agents or underwriters which participate in the distribution of the securities offered hereby may be deemed to be "underwriters" within the meaning of the Securities Act, and any commission received by them or purchases by them of such securities at a price less than the initial price to the public may be deemed to be underwriting commission for discounts under the Securities Act. 2 Pursuant to the Registration Rights Agreement, the Company has also agreed to pay certain fees and expenses incident to the registration of the Preferred Stock, the Debentures and the shares of Common Stock issuable upon conversion of the Preferred Stock or Debentures. It is estimated that the aggregate amount of fees and expenses payable by the Company in connection with the registration of the securities offered hereby will be approximately $ . The Company intends to keep the Registration Statement effective until the earlier of (i) the sale of all securities covered by the Registration Statement and (ii) the expiration of two years after the date of the initial issuance of shares of Preferred Stock on December 2, 1997, or, if the period applicable under Rule 144(k) under the Securities Act, or any successor provision, is shortened, such shorter period. The Company has listed the Common Stock into which the Preferred Stock is convertible with the American Stock Exchange ("AMEX"). There has not previously been any public market for the Preferred Stock, and there can be no assurance that an active public trading market will ever develop for the Preferred Stock, or, if issued, the Debentures. The Common Stock is listed on AMEX under the symbol "TWA." On , 1998, the closing sale price on AMEX for one share of the Common Stock was $ per share. No person has been authorized to give any information or to make any representations not contained in this Prospectus in connection with the offer of securities made by this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or by any underwriter, dealer or agent. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than those to which it relates. Neither the delivery of this Prospectus nor any sale of, or offer to sell, the securities offered hereby shall, under any circumstances, create an implication that there has been no change in the affairs of the Company since the date hereof or that the information herein is correct as of any time subsequent to its date. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information filed by the Company with the Commission pursuant to the informational requirements of the Exchange Act can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549, and at the following Regional Offices of the Commission: Northeast Regional Office, 7 World Trade Center, Suite 1300, New York City, New York 10048 and Midwest Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can also be obtained upon written request addressed to the Securities and Exchange Commission, Public Reference Section, Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549 at prescribed rates. Such reports, proxy statements and other information can also be inspected at the offices of the American Stock Exchange, 86 Trinity Place, New York City, New York 10006-1881, on which the Common Stock of the Company is listed. The Commission maintains a Web Site that contains reports, proxy statements and other materials that are filed through the Commission's Electronic Data Gathering Analysis and Retrieval System. This Web Site can be accessed at http://www.sec.gov. In addition, the Company has agreed, for so long as any of the securities offered hereby remain outstanding, to make available to any prospective purchaser or beneficial holder of such securities in connection with any sale thereof, the information required by subsection (d) of Rule 144A under the Securities Act ("Rule 144A"), until such time as the holders thereof have disposed of such securities pursuant to an effective registration statement filed by the Company. This Prospectus contains summaries believed to be accurate and complete in all material respects of material terms of certain agreements; however, in each such case, reference is made to the actual agreements (copies of which will be made available upon request to the Company) for complete information with respect thereto, and all such summaries are qualified in their entirety by this reference. 3 This Prospectus forms a part of the Registration Statement, including all amendments (including post-effective amendments) and exhibits thereto, which the Company has filed under the Securities Act with respect to the securities offered hereby. This Prospectus does not contain all the information otherwise set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information, reference is made to the Registration Statement and the exhibits filed as part thereof. The Registration Statement may be inspected at the public reference facilities maintained by the Commission at the addresses set forth in the preceding paragraph. Statements contained herein concerning any document filed as an exhibit are not necessarily complete and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Company hereby incorporates by reference in this Prospectus (i) the Company's Annual Report on Form 10-K for the year ended December 31, 1996 and Quarterly Report on Form 10-Q for the quarter ended September 30, 1997; (ii) the Company's Amendment to its Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, as filed on Form 10-Q/A; (iii) the description of the Common Stock and Warrants for Common Stock contained in the Company's Form 8-A dated September 5, 1997 filed under the Exchange Act, including any amendment or reports filed for the purpose of updating such description; and (iv) the Company's Proxy Statement and Notice of Meeting relating to the Annual Stockholders held on May 29, 1997, each of which has been filed with the Commission pursuant to the requirements of the Exchange Act. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering of the securities offered hereby shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the respective dates of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company hereby undertakes to furnish without charge to each person to whom a copy of this Prospectus has been delivered, upon written or oral request of such person, a copy of any and all documents incorporated herein by reference (not including exhibits to such documents, unless such exhibits are specifically incorporated by reference into such documents). Requests should be directed to the Corporate Secretary of Trans World Airlines, Inc., One City Centre, 515 N. Sixth Street, St. Louis, Missouri 63101, telephone (314) 589- 3285. 4 PROSPECTUS SUMMARY This summary does not purport to be complete and is qualified in its entirety by reference to the detailed information and financial statements appearing elsewhere in this Prospectus or incorporated by reference herein. Terms not defined in this summary are defined elsewhere herein. THE COMPANY TWA is the eighth largest U.S. air carrier (based on revenue passenger miles ("RPMs") for the first nine months of 1997), whose primary business is transporting passengers, cargo and mail. During the first nine months of 1997, the Company carried more than 17.6 million passengers and flew approximately 19.2 billion RPMs. As of September 30, 1997, TWA provided regularly scheduled jet service to 86 cities in the United States, Mexico, Europe, the Middle East, Canada and the Caribbean. As of September 30, 1997, the Company operated a fleet of 186 jet aircraft. TWA's North American operations have a primarily domestic hub in St. Louis at Lambert International Airport ("St. Louis") and a domestic-international hub at New York's John F. Kennedy International Airport ("JFK"). TWA is the predominant carrier at St. Louis, with approximately 365 scheduled daily departures as of September 30, 1997 and approximately a 72% share of airline passenger enplanements in St. Louis for the first nine months of 1997. Given its location in the center of the country, St. Louis is well-suited to function as an omni-directional hub for both north-south and east-west transcontinental traffic. Therefore, TWA believes it can offer more frequencies and connecting opportunities to many travelers in its key Midwestern markets than competing airlines. TWA's international operations are concentrated at JFK, from which TWA currently serves 28 domestic and international cities with approximately 42 daily departures. JFK is both the Company's and the industry's largest international gateway from North America. As of September 30, 1997, the Company offers non-stop flights from JFK to 8 cities in Europe and the Middle East as well as 17 destinations in the U.S. and the Caribbean. As described below, during 1997, the Company has taken steps to refocus and improve the operating and financial performance of its JFK operations. RECENT FINANCIAL AND OPERATING RESULTS For the third quarter of 1997, TWA reported operating income of $63.8 million and pre-tax income of $47.2 million. These results compare to operating income of $26.0 million and pre-tax income of $10.0 million in the third quarter of 1996. In addition, the Company's yield (passenger revenue per RPM) for the third quarter of 1997 increased 3.2% to 11.24c versus the comparable prior year period and passenger revenue per available seat mile ("RASM") increased 5.8% to 8.08c versus the comparable prior year period. The Company's unit costs remained essentially unchanged at 8.29c, despite a 13.7% decrease in capacity for the quarter versus the third quarter of 1996, as measured by total available seat miles ("ASMs"). TWA also has significantly enhanced its operational reliability and schedule integrity since the first quarter of 1997. According to statistics reported to the U.S. Department of Transportation (the "DOT"), TWA ranked first among the 10 largest U.S. scheduled commercial airlines in domestic on-time performance in both the second and third quarters of 1997. This compares to tenth (last) and eighth place finishes, respectively, for the same periods of 1996. TWA has also recorded a significant improvement in its percentage of scheduled flights completed. In the second and third quarters of 1997, TWA completed an average of approximately 99% of scheduled flights, which management believes is among the highest in the industry. In contrast, TWA completed 97.4% of scheduled flights in the second and third quarters of 1996 and 96.2% for 1996 overall. 5 RECENT STRATEGIC INITIATIVES Management believes that certain strategic initiatives undertaken by the Company beginning in late 1996 have contributed to the improved financial and operating results described above. TWA's management began to implement such strategic initiatives in response to a significant deterioration in the Company's operating performance and financial condition during the second half of 1996. This deterioration was primarily caused by (i) an overly aggressive expansion of TWA's capacity and planned flight schedule, particularly during the 1996 summer season, which forced the Company to rely disproportionately on lower-yield feed traffic and bulk ticket sales to fill the increased capacity of its system; (ii) the delayed delivery of four older 747s intended to increase capacity for incremental international operations during the summer of 1996; and (iii) unexpected maintenance delays due to the capacity increase, higher levels of scheduled narrow-body heavy maintenance and increased contract maintenance performed for third parties. These factors caused excessive levels of flight cancellations, poor on-time performance, increased pilot training costs and higher maintenance expenditures and adversely affected the Company's yields and unit costs. In addition, the crash of TWA Flight 800 on July 17, 1996 distracted management's attention from core operating issues and led to lost bookings and revenues. The Company also experienced a 27.6% increase in fuel costs in 1996 versus 1995, primarily due to a 22.3% increase in the average fuel price paid per gallon during the year. The primary focus of the Company's new strategic initiatives is to reestablish TWA's operational reliability and schedule integrity and overall product quality in order to attract higher-yield passengers and improve its financial results. As the initial steps in implementing this strategy, the Company temporarily reduced its flight schedule during the first quarter of 1997 to more closely match aircraft available for active service and worked to reduce the number of aircraft in maintenance backlog by increasing overtime and utilizing maintenance capacity made available by the termination of an unprofitable aircraft maintenance contract with the U.S. government. Other new strategic initiatives being pursued by TWA are: Accelerated Fleet Renewal. In the first quarter of 1997, as part of its efforts to improve near-term operational performance, TWA announced plans to accelerate the retirement of the 14 747s and 11 L-1011s remaining in its fleet at December 31, 1996. As a result, TWA's last L-1011 was retired in September 1997 and its last 747 is scheduled to leave active service in February 1998. Under its fleet renewal plan, the Company has been replacing these older, less reliable and less efficient wide-body aircraft with new or later-model used 757, 767 and MD-80 aircraft. Management believes that these smaller aircraft are more appropriately sized to the routes served, and, by reducing the Company's reliance on lower-yield feed traffic to fill capacity, have resulted in higher load factors and improved yields. Further, these newer, twin-engine, two-pilot aircraft are expected to provide efficiencies in fuel, flight crew and maintenance expenses, while reducing long-term pilot training costs by enabling TWA to have fewer aircraft types in the fleet. TWA also expects to retire eight 727s during 1998. As a result of this fleet restructuring, it is estimated that the Company's mix of narrow-body and wide-body aircraft shifted to approximately 91%/9% as of December 31, 1997 versus approximately 80%/20% as of year-end 1996, and that TWA's average number of seats per aircraft declined to 141 from 161 over the same period. Management estimates that as of December 31, 1997, the average age of its fleet had decreased to slightly under 17 years from 19 years at year-end 1996. The Company believes that this rationalization of fleet size, together with the decrease in international operations described below, will help deseasonalize TWA's business, with the difference between TWA's seasonal average daily peak and trough capacities anticipated to be approximately 4.1% in 1998, versus 26.2% in 1996 and 20.2% in 1997. As a result, the Company expects the seasonal variability of its financial performance will be reduced; however, there can be no assurance that such deseasonalization will occur. Restructuring of JFK Operations. As part of its efforts to position the Company for sustained profitability, TWA restructured its operations at JFK during 1997 by eliminating certain unprofitable international destinations 6 (such as Frankfurt and Athens), as well as certain low-yield domestic feed service into JFK. The Company also consolidated for the near term most of its JFK operations from two terminals into a single terminal in order to reduce operating costs, increase facility utilization and improve passenger service. In addition to enhancing yields and load factors, the substitution of 757s and 767s for 747s and L-1011s on international routes also has increased operating efficiencies at JFK, since these smaller aircraft are better suited to the physical limitations of TWA's terminals. As a result of these changes, TWA's international scheduled capacity (as measured by ASMs) decreased 31.2% in the first nine months of 1997 versus the same period in 1996 and represented 20.0% of total scheduled capacity for the first nine months of 1997 versus 26.1% for the same period in 1996. Productivity Enhancements. The Company has sought to improve its financial performance through productivity enhancements. During 1997, TWA has realized cost efficiencies in maintenance, reflecting the elimination of TWA's maintenance backlog during the first quarter of 1997, as well as the reduced maintenance requirements for the newer aircraft added to TWA's fleet. In addition, as described above, the Company's fleet renewal plan is expected to provide efficiencies in fuel, flight crew and training expenses, while the JFK restructuring has eliminated certain unprofitable routes and reduced certain operating costs. TWA's average number of employees per aircraft has decreased from 131 as of December 31, 1996 to 121 as of September 30, 1997, and to 119 as of December 31, 1997, which is generally consistent with industry standards. Marketing Initiatives. The Company has also begun to introduce a series of marketing initiatives designed, in combination with its enhanced operational reliability and schedule integrity, to attract a greater percentage of higher- yield business passengers. These initiatives include branded service products such as an improved international business class, Trans World One SM ("Trans World One"), expanded first class cabins in the domestic narrow-body fleet (launched with an enhanced service package as Trans World First in January 1998), and a branded short-haul business market service in the first quarter of 1998. The Company has also enhanced its frequent flier program by introducing a Platinum level for its highest mileage customers and, for certain travelers, a system for recognizing dollar amount paid as well as miles flown, and by joining the American Express Membership Miles program, which allows members to earn additional frequent flier miles on TWA. The Company is also in the early phases of a series of facilities upgrades, including a newly opened Ambassadors Club in St. Louis, a renovated club at LaGuardia, a completely refurbished club in its JFK terminal and improved new check-in counters and backwalls. The Company's advertising features the improved on-time and operational performance, new aircraft, and the programs outlined above. Employee Initiatives. Through the SCORE Program (or Safe, Clean, On-time and Reliable), TWA has sought to institutionalize throughout all levels of its organization the importance of running an airline with operational reliability. This program provides certain operating and procedural guidelines for enhancing performance and improving overall product quality. In addition, in 1996 the Company introduced Flight Plan 97, which pays eligible employees a $65 bonus for each month that TWA finishes in the top five in all three performance categories tracked by the DOT (on-time performance, customer complaints and baggage handling) and a total of $100 if TWA also ranks first in at least one of such categories. Based on the Company's performance in September 1997, eligible employees earned their first bonus under this program, a $100 payment for ranking first in on-time performance, fourth in customer complaints and fifth in baggage handling. CHANGES TO MANAGEMENT TEAM On February 12, 1997, the Company's Board of Directors (the "Board of Directors" or the "Board") named Gerald L. Gitner, a member of the Board since 1993, as Chairman and Chief Executive Officer of the Company. Mr. Gitner, who had been named acting Chief Executive Officer in December 1996, replaced Jeffrey H. Erickson, who on October 24, 1996 announced his intention to leave as the Company's President and Chief 7 Executive Officer. On March 27, 1997, the Board confirmed the appointment of William F. Compton, a TWA pilot and a director of the Company since November 1993, as Executive Vice President, Operations. Mr. Compton had been named acting Executive Vice President, Operations in December 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 3, 1997, the Board elected Mr. Compton President and Chief Operating Officer. On December 31, 1997 Roden A. Brandt resigned as Senior Vice President, Planning, but will remain as a consultant to the Company. See "Risk Factors--Risk Factors Related to the Company--Changes to Management Team." LABOR MATTERS On March 6, 1997, the International Association of Machinists and Aerospace Workers (the "IAM") was certified to replace the Independent Federation of Flight Attendants ("IFFA") as the bargaining representative for the Company's flight attendants. Negotiations on a new collective bargaining agreement with the IAM with regard to the flight attendants commenced in July 1997 and are currently ongoing. Negotiations regarding the Company's ground employees represented by the IAM commenced in February 1997 and are also currently ongoing. At the request of the IAM, a mediator was appointed on August 6, 1997 in connection with the negotiation on the collective bargaining agreement covering the ground employees. Negotiations on a new collective bargaining agreement with the Air Line Pilots Association ("ALPA") commenced in June 1997 and are currently ongoing. See "Certain Provisions of the Certificate of Incorporation, the By-laws and Delaware Law--Board of Directors" and "Risk Factors--Risk Factors Related to the Company--'94 Labor Agreements." RECENT DEVELOPMENTS On December 30, 1997, the Company consummated a Rule 144A/Regulation S private placement offering (the "Receivables Securitization Offering") of $100 million aggregate principal amount of 9.80% Airline Receivable Asset Backed Notes due 2001 (the "Receivables Securitization Notes"). Proceeds from the offering were used to repay the Company's remaining debt to Karabu Corporation pursuant to the Karabu Ticket Program Agreement between the Company and Karabu Corporation. See the discussion of the "Icahn Loans" in "Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources" incorporated herein by reference. 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. 8 RISK FACTORS In addition to the other information contained in this Prospectus, the following factors should be considered carefully in evaluating the Company and its business before purchasing any of the securities offered hereby. Certain statements made in this Prospectus relating to plans, conditions, objectives and economic performance go beyond historical information and may provide an indication of future results. To that extent, they are forward- looking statements within the meaning of Section 21E of the Exchange Act, and each of them is therefore subject to risks, uncertainties, and assumptions that could cause actual results to differ from those in the forward-looking statement. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Some of the uncertainties that might adversely impact TWA's future results of operations include, but are not limited to, the "Risk Factors" described below. RISK FACTORS RELATED TO THE COMPANY Liquidity; Substantial Indebtedness; Capital Expenditure Requirements The Company believes that continued improvement in its operating results is necessary for TWA to maintain adequate liquidity. The Company's auditors included in their report dated March 24, 1997 on TWA's Consolidated Financial Statements for the year ended December 31, 1996 an explanatory paragraph to the effect that substantial doubt exists regarding the Company's ability to continue as a going concern due to the Company's recurring losses from operations and limited sources of additional liquidity. See the Company's 1996 consolidated financial statements incorporated by reference in this Prospectus (including the notes thereto, the "1996 Consolidated Financial Statements") and the Company's condensed consolidated financial statements for the nine months ended September 30, 1997 (including the notes thereto, the "1997 Interim Consolidated Financial Statements") incorporated by reference herein, together referred to herein as the "Consolidated Financial Statements." The Company is highly leveraged and has and will continue to have significant debt service obligations. As of September 30, 1997, the Company's ratio of long-term debt and capital leases (including current maturities) to shareholders' equity was 4.0 to 1. After giving effect to this Offering, the application of the net proceeds therefrom and the Rule 144A/Regulation S private placement offerings of $140 million of Senior Secured Notes due 2004 of the Company on December 9, 1997 (the "Senior Notes Offering") and the Receivables Securitization Offering, the ratio of such long-term debt and capital leases (including current maturities) to shareholders' equity would have been approximately 3.32 to 1. TWA's estimated minimum payment obligations under noncancellable operating leases in effect at September 30, 1997 were approximately $330 million for 1998 and approximately $2,339 million for periods thereafter. Over the last several years, the Company's earnings have not been sufficient to cover fixed charges. The Company's earnings were not sufficient to cover fixed charges by $91.5 million and $75.4 million for the nine months ended September 30, 1997 and 1996, respectively, $340.1 million for the year ended December 31, 1996, $40.1 million for the four months ended December 31, 1995, $357.3 million for the eight months ended August 31, 1995, $459.6 million for the year ended December 31, 1994, $92.4 million for the two months ended December 31, 1993, $481.3 million for the ten months ended October 31, 1993, and $457.3 million for the year ended December 31, 1992. See "Selected Consolidated Financial Data," and the Consolidated Financial Statements. The degree to which the Company is leveraged could have important consequences to holders of the securities offered hereby, including the following: (i) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be impaired; (ii) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of principal and interest on the Company's existing indebtedness; (iii) the Company is placed at a relative competitive disadvantage to its less highly leveraged competitors and is more vulnerable to economic downturns; and (iv) such indebtedness contains restrictive and other covenants, which, if not complied with, may result in an event of default which, if not cured or waived, could have a material adverse effect on the Company (including, under certain circumstances, a cross-default of other debt). 9 On September 30, 1997, the Company's total cash and cash equivalents balance was approximately $104.6 million (including amounts held in TWA's international operations and by subsidiaries which, based upon various monetary regulations and other factors, might not be immediately available to the Company). This balance represented a decrease of approximately $77.0 million from the Company's corresponding cash balance at December 31, 1996. This reduction in the Company's cash balance resulted primarily from the repayment of long-term debt and capital lease obligations and from TWA's net losses in the first half of 1997. 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. Substantially all of TWA's strategic assets, including its owned aircraft, have been pledged to secure various issues of outstanding indebtedness of the Company. To the extent that pledged assets are sold, the applicable financing agreements generally require the sale proceeds to be applied to repay the corresponding indebtedness. To the extent that the Company's access to capital is constrained, the Company may not be able to make certain capital expenditures or to continue to implement certain other aspects of its strategic plan, and the Company may therefore be unable to achieve the full benefits expected therefrom. The Company's long-term viability as well as its ability to meet its existing debt and other obligations and future capital commitments depends upon the Company's financial and operating performance, which in turn is subject to, among other things, prevailing economic conditions and to certain other financial, business and other factors beyond the Company's control. 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" incorporated herein by reference. While the Company has not finalized its capital expenditure budget for 1998, the Company believes that its plans will call for substantial capital expenditures during that period. 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. 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 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 have reported record profits, the Company has reported significant net losses. For example, the Company reported a net loss of $227.5 million for the combined 12-month period ended December 31, 1995 (including extraordinary gains related to the '95 Reorganization (as defined below)), while reporting an operating profit of $25.1 million (including $58.0 million of non-cash expense relating to the distribution of stock to employees as part of the '95 Reorganization), which represented the Company's first operating profit since 1989. The Company's reported net loss of $284.8 million for 1996 represented a $57.3 million increase over the 1995 net loss, while the Company reported a $198.5 million operating loss for 1996 (including special charges of $85.9 million), which represented a $223.6 million decline from its operating profit in 1995. For the first nine months of 1997, the Company reported a net loss of $79.7 million, which represented a $53.5 million increase over the $26.2 million net loss for the first nine months of 1996, and a $29.8 million operating loss, which represented a $63.7 million adverse change from the $33.9 million operating profit reported for the first nine months of 1996. 10 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" incorporated herein by reference. 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". 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. 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. 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 11 J. Coleman, Executive Vice President and Chief Financial Officer, 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. On December 3, 1997, the Board elected Mr. Compton President and Chief Operating Officer. On December 31, 1997, Mr. Brandt resigned as Senior Vice President, Planning, but will act as a consultant to the Company. The Company does not believe that such changes have unduly affected its ongoing operations or implementation of the Company's business strategy. '94 Labor Agreements As of September 30, 1997, the Company had approximately 22,540 full-time employees (based upon full-time equivalents which include part-time employees). Of these, approximately 84.6% were represented by ALPA and the IAM. On March 6, 1997, the IAM was certified to replace IFFA as the bargaining representative of the Company's flight attendants. The Company's currently effective collective bargaining agreement with each such union (collectively the " '94 Labor Agreements") contain more favorable work rules than in prior contracts and wage levels which the Company believes to be below many other U.S. airlines. The '94 Labor Agreements are three year agreements which became amendable as of August 31, 1997. Negotiations on a new collective bargaining agreement with the IAM with regard to the flight attendants commenced in July 1997 and are currently ongoing and negotiations regarding the Company's ground employees represented by the IAM commenced in February 1997 and are also currently ongoing. Negotiations on a new collective bargaining agreement with ALPA commenced in June 1997 and are currently ongoing. Under the Railway Labor Act (the "RLA"), workers whose contracts have become amendable are required to continue to work under the "status quo" (i.e., under the terms of employment antedating the amendable date) until the RLA's procedures are exhausted. Under the RLA, the Company and its unions are obligated to continue to bargain until agreement is reached or until a mediator is appointed and concludes that negotiations are deadlocked and mediation efforts have failed. The mediator must then further attempt to induce the parties to agree to arbitrate the dispute. If either party refuses to arbitrate, then the mediator must notify the parties that his efforts have failed and, after a 30-day cooling-off period, a strike or other direct action may be taken by the parties. At the request of the IAM, a mediator was appointed on August 6, 1997 with respect to ground employees represented by the IAM. 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. 12 Age of Fleet; Noise At December 31, 1996, the average age of TWA's operating aircraft fleet was 19.0 years, making TWA's fleet one of the oldest of U.S. air carriers. As a result, TWA has incurred increased overall operating costs due to the higher maintenance, fuel and other operating costs associated with older aircraft. During the first ten months of 1997, TWA acquired 23 new or later-model used aircraft. The Company expects to continue the process of acquiring a number of new and later-model used aircraft and, including aircraft delivered in the fourth quarter of 1997, TWA's composite fleet age was reduced to slightly under 17.0 years at December 31, 1997. As of September 30, 1997, TWA's fleet included 64 aircraft which did not meet the noise reduction requirements under the Airport Noise and Capacity Act of 1990 (the "Noise Act") and must therefore be retired or substantially modified by the end of 1999. Although the Company has plans to meet the Noise Act's noise reduction requirement, there can be no assurance that such plans will be achieved. In addition, in 1990 the Federal Aviation Administration ("FAA") issued several Airworthiness Directives ("ADs") mandating changes to maintenance programs for older aircraft to ensure that the oldest portion of the nation's fleet remains airworthy. Many of the Company's aircraft are currently affected by these aging aircraft ADs. In 1995 and 1996, TWA spent approximately $2.6 million and $3.4 million, respectively, to comply with aging aircraft maintenance requirements and spent approximately $3.1 million on such requirements during the first nine months of 1997. Based on information currently available to TWA and its current fleet plan, TWA estimates that costs associated with complying with these aging aircraft maintenance requirements will aggregate an additional approximately $19.8 million through the year 2001. These cost estimates assume, among other things, that newer aircraft will replace certain of TWA's existing aircraft and that as a result certain aircraft will be retired by the Company before TWA would be required to make certain aging aircraft maintenance expenditures. There can be no assurance that TWA will be able to implement fully its fleet plan or that the cost of complying with aging aircraft maintenance requirements will not be significantly increased. Potential Dilution The Company underwent two financial restructurings during the period between 1992 and 1995, with the first of such restructurings effected in 1993 the ("'93 Reorganization") and the second of such restructurings effected in 1995 (the "'95 Reorganization ") (collectively, the '93 Reorganization and the '95 Reorganization are the "Reorganizations"). Pursuant to the '95 Reorganization, the Company canceled its then outstanding equity securities in exchange for new securities and other consideration and issued a special class of voting preferred stock (the "Employee Preferred Stock") to its union employees and shares of Common Stock to its non-union employees. Also in connection with and as a precondition to the '95 Reorganization, in August and September of 1994, the Company entered into the '94 Labor Agreements. In exchange for the concessions received in the '94 Labor Agreements, the Company, among other things, adopted an employee stock incentive program (the "ESIP") to permit TWA's employees to increase their level of ownership through grants by the Company to its employees of additional shares of Employee Preferred Stock and Common Stock. The first stock grant under the ESIP was to be made on July 15, 1997 in an amount sufficient to increase employee ownership of the combined total number of then outstanding shares of Common Stock and Employee Preferred Stock by 2% if the closing price of the Common Stock exceeded a target price of $11.00 per share during the period from January 1, 1997 to July 15, 1997. Because such target price was not reached, the grant will instead be made on July 15 of the next year up to and including July 15, 2002, if any, that the Common Stock exceeds such target price. In subsequent years through the end of the seven year term of the ESIP, the additional number of shares of Employee Preferred Stock subject to grant under this program would be equivalent to 1.5% in 1998, 1.5% in 1999, 1.0% in 2000, 1.0% in 2001 and 1.0% in 2002 of the combined total number of shares of Common Stock and Employee Preferred Stock outstanding as of the applicable July 15 grant date, with target prices increasing to $12.10 in 1998, $13.31 in 1999, $14.64 in 2000, $16.11 in 2001 and $17.72 in 2002. Each such grant is cumulative and, where the applicable target price is not met in the initial grant year, the applicable grant is carried forward and is subject to grant in future years up to and including July 15, 2002 in the manner described above. If TWA issues additional shares of Common Stock with an aggregate value 13 of more than $20 million to third parties for cash or a reduction in debt at a price equal to or greater than $11.00 per share, the last two scheduled grants under the ESIP are to be aggregated and these shares allocated equally to the remaining installments in the program. In addition, pursuant to the ESIP, employees have the right commencing after July 15, 1997, to purchase over the seven year term of the ESIP additional shares of Employee Preferred Stock in amounts up to an aggregate of 2% of the combined total number of outstanding Common Stock and Employee Preferred Stock at a discount of 20% from the then current market price. The employees' right to purchase additional shares of Employee Preferred Stock is accelerated and becomes immediately exercisable in the event of a merger, sale or consolidation of TWA (where TWA is not the surviving entity) at a price equivalent to or in excess of $17.72 per share of Common Stock at a 20% discount from the merger, sale or consolidation price relating to such a transaction. Should all of the target prices be met or exceeded within the time periods specified and should the entire discount stock purchase option be exercised, the various employee stock trusts would receive a total of 10% of the outstanding stock, with the exact amount issued dependent upon the outstanding shares as of the date of each grant and option exercise. The ESIP also provided that if certain additional shares were distributed following the '95 Effective Date (as defined) in respect of the '95 Reorganization, employees would be entitled to receive an additional number of shares of Common Stock and Employee Preferred Stock (the "Fill-Up Shares") such that the employees retain the same level of ownership as before the additional distribution. Union representatives and the Company agreed that the number of Fill-Up Shares to be issued pursuant to the ESIP was 525,856. In addition, 405,750 additional shares of Employee Preferred Stock and Common Stock were issued to the ESIP (the "Credit Shares") and, to the extent that additional shares are granted to the ESIP, the Company will receive a credit towards the new grant for the Credit Shares. The issuance of additional shares of Common Stock under the ESIP could result in significant future dilution to other holders of the Common Stock. In 1994, the Board adopted the Company's 1994 Key Employee Stock Incentive Plan (the "KESIP") to motivate, attract and retain the services of certain key employees of the Company. As amended, the KESIP provides for the award of incentive and nonqualified stock options for a cumulative total of up to 14% of the aggregate number of shares of Common Stock and Employee Preferred Stock outstanding as of January 1, of each year, subject to certain restrictions. As of September 30, 1997, 69 employees had been granted options to purchase shares of Common Stock at prices ranging from $4.64 to $18.37 per share. All options granted under the KESIP have a five-year life and unless otherwise approved by the Compensation Committee vest at a rate of 34%, 33% and 33% on the first three anniversaries of the award date of such options. In March 1996, the Company issued 3,869,000 shares of the Company's 8% Cumulative Convertible Exchangeable Preferred Stock (the "8% Preferred Stock"), which are convertible at the option of the holder, unless previously redeemed or exchanged, into shares of Common Stock at a conversion price of $20.269 per share (equivalent to a conversion rate of approximately 2.467 shares of Common Stock for each share of 8% Preferred Stock), subject to adjustment under certain circumstances. Based on the current conversion price, upon conversion of all shares of 8% Preferred Stock into shares of Common Stock, an aggregate of 9,544,823 additional shares of Common Stock would be issued. In March 1997, the Company issued 50,000 Units (the "Units") each consisting of (i) one 12% Senior Secured Note due April 1, 2002 (a "12% Note"), in the principal amount of $1,000 of the Company and (ii) one Redeemable Warrant (a "Warrant") to purchase 126.26 shares of Common Stock at an exercise price of approximately $7.92 per share. The Warrants are exercisable commencing on the first anniversary of the date of issuance through their expiration on April 1, 2002, unless previously redeemed by the Company. If all of the Warrants were exercised an aggregate of 6,313,000 additional shares of Common Stock would be issued. 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- 14 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 an equivalent number of rights attendant to it. The Rights are intended to protect TWA's shareholders from certain non-negotiated takeover attempts which present the risk of a change of control on terms which may be less favorable to TWA's stockholders than would be available in a transaction negotiated with and approved by the Board of Directors of the Company. See "Certain Provisions of the Certificate of Incorporation, the By-laws and Delaware Law" and "Description of Capital Stock--Rights Plan." Certain Potential Future Earnings Charges There are a number of uncertainties relating to agreements with employees of the Company, the resolution of which could result in significant non-cash charges to TWA's future operating results. Shares granted or purchased at a discount under the ESIP will generally result in a charge equal to the fair market value of shares granted plus the discount for shares purchased at the time when such shares are earned. If the ESIP's target prices for the Common Stock are realized, the minimum aggregate charge for the years 1997 to 2002 would be approximately $58 million based upon such target prices and the number of shares of Common Stock and Employee Preferred Stock outstanding at December 31, 1996. The charge for any year, however, could be substantially higher if the then market price of the Common Stock exceeds certain target prices. 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 15 value of the Company was determined by the Company, with the assistance of its financial advisors, to be approximately $270.0 million based, in part, on assumptions as to future results of operations. The carrying value of the Company's assets does not reflect historical cost but rather reflects current values determined by the Company as of the August 23, 1995 effective date (the "'95 Effective Date") of the '95 Reorganization (including values for intangible assets such as routes, gates and slots of approximately $458.4 million). The difference between (i) the equity valuation of the Company plus the estimated fair market value of the Company's liabilities and (ii) the estimated fair market value of its identifiable assets was allocated to "reorganization value in excess of amounts allocable to identifiable assets" in the amount of approximately $839.1 million. In future periods, these intangible assets will be evaluated for recoverability based upon estimated future cash flows. If expectations are not substantially achieved, charges to future operations for impairment of these assets might be required and such charges could be material. Due to the significant adjustments relating to the '95 Reorganization and the adoption of fresh start reporting, the pre- reorganization consolidated financial statements are not comparable to the post-reorganization consolidated financial statements. A vertical black line is shown in the Consolidated Financial Statements and Selected Consolidated Financial Data presented herein to separate TWA's post-reorganization Consolidated Financial Statements from its pre-'95 Reorganization consolidated financial statements since they have not been prepared on a consistent basis of accounting. In the fourth quarter of 1996, the Company reported a special charge of $26.7 million relating to the write-down of the carrying value of TWA's JFK- Athens route authority, reflecting the Company's decision to terminate service on such route after April 18, 1997. RISK FACTORS RELATED TO THE INDUSTRY Competition The airline industry operates in an intensely competitive environment. TWA competes with one or more major airlines on most of its routes (including on all routes between major cities) and with various forms of surface transportation. The airline industry is also cyclical due to, among other things, a close relationship of yields and traffic to general U.S. and worldwide economic conditions. Small fluctuations in RASM and cost per available seat mile ("CASM") can have a significant impact on the Company's financial results. Airline profit levels are highly sensitive to, and during recent years have been adversely affected by, among other things, changes in fuel costs, fare levels and passenger demand. Vigorous price competition exists, and TWA and its competitors have frequently offered sharply reduced discount fares in many markets. Airlines, including TWA, use discount fares and other promotions to stimulate traffic during normally slack travel periods, to generate cash flow and to increase relative market share in selected markets. TWA has often elected to initiate or match discount or promotional fares in certain markets in order to compete vigorously in those discounted markets or to stimulate traffic. Passenger demand and fare levels have also been affected adversely by, among other factors, the state of the economy and international events. The airline industry has consolidated in recent years as a result of mergers and liquidations, and further consolidation may occur in the future. This consolidation has, among other things, enabled certain of the Company's major competitors to expand their international operations and increase their domestic market presence. In addition, certain of the Company's competitors have in recent years established alliances with one or more large foreign carriers, allowing those competitors to strengthen their overall operations by, among other things, transporting passengers connecting with or otherwise traveling on the alliance carriers. Although the Company has established a code share arrangement with one foreign carrier and has filed an application with the DOT to establish an alliance with another foreign carrier, it does not have an alliance with a large foreign carrier. The emergence and growth of low cost, low fare carriers in domestic markets represents an intense competitive challenge for the Company, which has higher operating costs than many of such low fare carriers and fewer financial resources than many of its major competitors. In many cases, such low cost carriers have initiated or triggered price discounting. In part as a result of the industry consolidation referred to above, aircraft, 16 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 14.5% for the first nine months of 1997), significant increases in fuel costs would materially and adversely affect the Company's operating results. Fuel prices continue to be susceptible to, among other factors, political events and market factors beyond the Company's control, and the Company cannot predict near or longer- term fuel prices. In the event of a fuel supply shortage resulting from a disruption of oil imports or otherwise, higher fuel prices or curtailment of scheduled service could result. During 1996, the Company's average per gallon cost of fuel increased approximately 22.3% versus 1995, from approximately 57.0c per gallon to approximately 70.0c per gallon. During the first nine months of 1997, the Company's average per gallon cost of fuel decreased approximately 2.1%, from approximately 67.9c per gallon to approximately 66.5c per gallon, over the same period in the prior year. A one cent change in the cost per gallon of fuel (based on consumption during the first nine months of 1997) impacts operating expense by approximately $620,000 per month. Increases in fuel prices may have a greater proportionate and more immediate impact on TWA than many of its competitors because of the composition of its fleet and because the Company does not presently maintain substantial reserves of fuel required for its operations or otherwise hedge the cost of anticipated purchases of fuel. 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 17 ability of airlines to contest such increases has been restricted by federal legislation, DOT resolutions and judicial decisions. In addition, laws and regulations have also been considered from time to time that would prohibit or restrict the ownership and/or transfer of airline routes or takeoff and landing slots. Also, the award of international routes to U.S. carriers (and their retention) is regulated by treaties and related agreements between the United States and foreign governments which are amended from time to time. The Company cannot predict what laws and regulations will be adopted or what changes to international air transportation treaties will be effected, if any, or how they will affect TWA. Management believes that the Company benefitted from the expiration on December 31, 1995 of the aviation trust fund tax (the "Ticket Tax"), which imposed certain taxes including a 10% air passenger tax on tickets for domestic flights, a 6.25% air cargo tax and a $6 per person international departure tax. The Ticket Tax was reinstated on August 27, 1996 and expired again on December 31, 1996. At the end of February 1997, the Ticket Tax was reinstated effective March 7, 1997 through September 30, 1997. Congress recently passed tax legislation reimposing and significantly modifying the Ticket Tax. The legislation includes the imposition of new excise tax and significant fee tax formulas over a multiple year period, an increase in the international departure tax, the imposition of a new arrivals tax, and the extension of the Ticket Tax to cover items such as the sale of frequent flier miles. Management believes that the reimposition and modification of the Ticket Tax 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. RISK FACTORS RELATING TO THE OFFERING Absence of Public Trading Market for Preferred Stock; Restrictions on Resale Prior to the Original Offering, there was no trading market for the Preferred Stock or the Debentures, and there can be no assurance that a trading market will develop or, if one does develop, of its liquidity or whether it will be maintained. The Preferred Stock, the Debentures and the Common Stock issuable upon conversion of the Preferred Stock and the Debentures have been designated as eligible for trading in the PORTAL market. The Initial Purchasers have made a market in the Preferred Stock and have informed the Company that they presently intend to make a market in the Debentures, if issued; however, they are not obligated to do so and any such market making activity may be terminated at any time without notice. In addition, such market making activity will be subject to the limits of the Securities Act and the Exchange Act. The Original Offering of Preferred Stock (or the Debentures, if issued) and the underlying shares of Common Stock issuable upon conversion thereof were not previously registered under the Securities Act. Accordingly, the Preferred Stock (or the Debentures, if issued), and the Common Stock issuable upon conversion thereof may only be resold, pledged or transferred in accordance with the conditions set forth herein, and only (a) to the Company, (b) pursuant to the registration statement of which this Prospectus forms a part, once it is declared effective under the Securities Act, or another registration statement that has been declared effective under the Securities Act, (c) to a person the transferor 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, (d) pursuant to offers and sales to non-U.S. persons that occur outside the United States within the meaning of 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 or (f) pursuant to another available exemption from the registration requirements of the Securities Act. The Company is required to keep the Registration Statement of which this Prospectus forms a part effective until the earlier of (i) the sale of all securities covered by the Registration Statement and (ii) the expiration of two years after the date of original issuance of the Preferred Stock or, if the period applicable under Rule 144 under the Securities Act or any successor provision for such securities is shortened, such shorter period. The Company will be required to pay Liquidated Damages to holders of the Preferred Stock, the Debentures or the 18 underlying Common Stock, as applicable, under circumstances where the Registration Statement is not filed or declared effective or otherwise does not remain effective as herein provided. See "Registration Rights Agreement." USE OF PROCEEDS The Selling Holders (as defined herein) will receive all of the net proceeds from any sale of the Preferred Stock, the Debentures issuable upon exchange of the Preferred Stock and the shares of Common Stock issuable upon conversion of the Preferred Stock or Debentures, and, accordingly, the Company will receive none of the proceeds from the sales thereof. 19 SELECTED CONSOLIDATED FINANCIAL DATA The selected financial data presented below relate to the year ended December 31, 1992, the ten months ended October 31, 1993, the two months ended December 31, 1993, the year ended December 31, 1994, the eight months ended August 31, 1995, the four months ended December 31, 1995, the year ended December 31, 1996, the nine months ended September 30, 1996 and 1997 and the three months ended September 30, 1996 and 1997. This data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements. The consolidated financial data for periods in the year ended December 31, 1992, the ten months ended October 31, 1993, the two months ended December 31, 1993, the year ended December 31, 1994, the eight months ended August 31, 1995, the four months ended December 31, 1995 and the year ended December 31, 1996 were derived from the audited consolidated financial statements of the Company. Certain amounts have been reclassified to conform with presentations adopted in 1997. See "Risk Factors--Risk Factors Related to the Company--Liquidity; Substantial Indebtedness; Capital Expenditure Requirements" for a description of the auditor's report issued in connection with the 1996 Consolidated Financial Statements. During the period from 1992 through 1995, TWA underwent two separate Chapter 11 reorganizations, the first in 1992-93 and the second in 1995. In connection with the '95 Reorganization, TWA has applied fresh start reporting in accordance with SOP 90-7, which has resulted in the creation of a new reporting entity for accounting purposes and the Company's assets and liabilities being adjusted to reflect fair values on the '95 Effective Date. For accounting purposes, the '95 Effective Date is deemed to be September 1, 1995. Because of the application of fresh start reporting, the financial statements for periods after the '95 Reorganization are not comparable in all respects to the financial statements for periods prior to the reorganization. Similarly, the Consolidated Financial Statements for the periods prior to the '93 Reorganization are not consistent with periods subsequent to the '93 Reorganization. Accordingly, a vertical black line separates these periods. Preferred stock dividend requirements and earnings per share of the predecessor companies have not been presented as the amounts are not meaningful. 20
PRIOR PREDECESSOR COMPANY PREDECESSOR COMPANY REORGANIZED COMPANY ------------------------ ------------------------------------ ---------------------------------------------- EIGHT TEN MONTHS TWO MONTHS MONTHS FOUR MONTHS NINE MONTHS ENDED YEAR ENDED ENDED ENDED YEAR ENDED ENDED ENDED YEAR ENDED SEPTEMBER 30 DECEMBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, AUGUST 31, DECEMBER 31, DECEMBER 31, ------------------ 1992 1993 1993 1994 1995 1995 1996 1996 1997 ------------ ----------- ------------ ------------ ---------- ------------ ------------ -------- -------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS) STATEMENT OF OPERATIONS DATA: Operating revenues....... $3,618.7 $2,633.9 $520.8 $3,407.7 $2,218.4 $1,098.5 $3,554.4 $2,751.1 $2,515.1 Operating income (loss) (1)..... (420.4) (225.7) (58.3) (279.5) 14.6 10.4 (198.5) 33.9 (29.8) Income (loss) before income taxes and extraordinary items (2)...... (314.3) (362.6) (88.1) (432.9) (338.3) (32.3) (274.6) (18.3) (68.3) Provision (credit) for income taxes... 3.4 1.3 (0.2) 0.9 (0.1) 1.3 0.4 0.5 0.5 Income (loss) before extraordinary items.......... (317.7) (363.9) (87.9) (433.8) (338.2) (33.6) (275.0) (18.8) (68.8) Extraordinary items (3)...... -- 1,075.6 -- (2.0) 140.9 3.5 (9.8) (7.4) (10.9) Net income (loss)......... (317.7) 711.7 (87.9) (435.8) (197.3) (30.1) (284.8) (26.2) (79.7) Preferred stock dividend requirements (4)............ 2.4 15.0 11.6 4.8 36.7 32.7 11.6 Income (loss) applicable to common shares.. (90.3) (450.8) (208.9) (34.9) (321.5) (58.9) (91.3) Weighted average shares outstanding.... 33.3 44.2 43.2 52.0 Per share amounts (5): Income (loss) before extraordinary items and special dividend requirement.... (1.15) (6.60) (0.73) (1.54) Net Income (loss)......... (1.05) (7.27) (1.36) (1.75) Ratio of earnings to combined fixed charges and preferred stock dividends (6).. -- -- -- -- -- -- -- -- -- ---------------- THREE MONTHS ENDED SEPTEMBER 30 ---------------- 1996 1997 -------- ------ STATEMENT OF OPERATIONS DATA: Operating revenues....... $1,002.9 $908.4 Operating income (loss) (1)..... 26.0 63.8 Income (loss) before income taxes and extraordinary items (2)...... 10.0 47.2 Provision (credit) for income taxes... 16.9 33.9 Income (loss) before extraordinary items.......... (6.9) 13.3 Extraordinary items (3)...... (7.4) (7.0) Net income (loss)......... (14.3) 6.3 Preferred stock dividend requirements (4)............ 3.9 3.9 Income (loss) applicable to common shares.. (18.2) 2.4 Weighted average shares outstanding.... 45.1 56.1 Per share amounts (5): Income (loss) before extraordinary items and special dividend requirement.... (0.24) 0.17 Net Income (loss)......... (.40) .04 Ratio of earnings to combined fixed charges and preferred stock dividends (6).. -- 1.09
PRIOR PREDECESSOR COMPANY PREDECESSOR COMPANY REORGANIZED COMPANY ----------- ------------------- -------------------------------- DECEMBER 31, DECEMBER 31 --------------------------------- ------------------ SEPTEMBER 30 1992 1993 1994 1995 1996 1997 ----------- --------- ---------- -------- -------- ------------ (IN MILLIONS) BALANCE SHEET DATA: Cash and cash equivalents (7)....... $ 67.9 $ 187.7 $ 138.5 $ 304.3 $ 181.6 $ 104.6 Current assets......... 602.0 728.3 603.8 737.3 625.7 593.3 Net working capital deficiency............ (316.2) (106.7) (1,238.2) (81.9) (336.4) (425.9) Flight equipment, net.. 827.7 660.8 508.6 455.4 472.5 558.2 Total property and equipment, net........ 1,114.3 886.1 693.0 600.1 614.2 678.5 Intangible assets, net. -- 1,024.8 921.7 1,276.0 1,184.8 1,134.7 Total assets........... 2,158.1 2,958.9 2,512.4 2,868.2 2,681.9 2,676.6 Current maturities of long-term debt and capital leases (8).... 327.3 108.3 1,149.7 110.4 134.9 104.6 Liabilities subject to Chapter 11 reorganization proceedings (9)....... 2,026.9 -- -- -- -- -- Long-term debt, less current maturities (8)................... -- 1,053.6 -- 764.0 608.5 593.8 Long-term obligations under capital leases, less current maturities............ -- 376.6 339.9 259.6 220.8 189.6 Shareholders' equity (deficiency) (10)..... (1,149.7) 18.4 (417.5) 302.9 238.1 219.8
- ------- (1) Includes special charges of $138.8 million in 1994, $1.7 million in the eight months ended August 31, 1995 and $85.9 million in 1996. For a discussion of these and other non-recurring items, see Note 16 to the 1996 Consolidated Financial Statements. (2) The 1992 results include non-recurring gains of $254.6 million from the disposition of assets. The ten months ended October 31, 1993 includes a charge of $342.4 million related to the settlement of pension obligations and income of $268.1 million related to reorganization items. The eight months ended August 31, 1995 includes charges of $242.2 million related to reorganization items. (3) The extraordinary item in 1993 represents the gain on discharge of indebtedness pursuant to the consummation of the '93 Reorganization. The extraordinary item in 1994 represents the charge for a prepayment premium related to the sale and leaseback of four McDonnell Douglas MD-80 aircraft. The extraordinary item in the eight months ended August 31, 1995 represents the gain on the discharge of indebtedness pursuant to the consummation of the '95 Reorganization, while the extraordinary item in the four months ended December 31, 1995 was the result of the settlement of a debt of a subsidiary. The extraordinary items in 1996 and 1997 result from the early extinguishment of certain debt. 21 (4) On March 22, 1996, the Company called for redemption of all of its outstanding 12% Preferred Stock. The excess of the early redemption price over the carrying value of the 12% Preferred Stock is reflected as a $20.0 million "special dividend requirement" in 1996. (5) No effect has been given to stock options, warrants or potential issuances of additional Employee Preferred Stock as the impact would have been anti-dilutive. (6) For purposes of determining the ratio of earnings to combined fixed charges and preferred stock dividends, "earnings" consist of earnings before income taxes, extraordinary items and fixed charges (excluding capitalized interest), "fixed charges" consist of interest (including capitalized interest) on all debt and that portion of rental expense that management believes to be representative of interest and "preferred stock dividends" consist of preferred stock dividend requirements divided by a fraction equal to one less the effective income tax rate for the period. Earnings were not sufficient to cover combined fixed charges and preferred stock dividends as follows (in millions): for the year ended December 31, 1992, $457.3; for the ten months ended October 31, 1993, $481.3; for the two months ended December 31, 1993, $92.4; for the year ended December 31, 1994, $459.6; for the eight months ended August 31, 1995, $357.3; for the four months ended December 31, 1995, $40.1; for the year ended December 31, 1996, $340.1; for the three months ended September 30, 1996, $14.9; and for the nine months ended September 30, 1996 and 1997, $75.4 and $91.5, respectively. (7) Includes cash and cash equivalents held in its international operations and by its subsidiaries which, based upon foreign monetary regulations and other factors, might not be immediately available to the Company. (8) Long-term debt in 1994 was reclassified to current maturities as a result of certain alleged defaults and payment defaults. See Note 7 to the 1995 Consolidated Financial Statements. (9) For periods after January 31, 1992 and before the effective date of the '93 Reorganization, certain prepetition liabilities, which were subject to compromise pursuant to the '93 Reorganization, were classified as liabilities subject to Chapter 11 reorganization proceedings, and the accrual of interest was discontinued on prepetition debt that was unsecured or estimated to be undersecured. (10) No dividends were paid on the Company's outstanding common stock during the periods presented above. SELLING HOLDERS The Preferred Stock was issued and sold in December 1997 pursuant to the Original Offering in transactions exempt from the registration requirements of the Securities Act to persons reasonably believed by the Initial Purchasers to be "qualified institutional buyers" (as defined by Rule 144A) or in transactions complying with the provisions of Regulation S. The Preferred Stock, along with the Debentures issuable upon exchange of the Preferred Stock and the shares of Common Stock issuable upon conversion of the Preferred Stock or the Debentures, may be offered and sold from time to time by the Selling Holders pursuant to this Prospectus. The Registration Statement of which this Prospectus is a part has been filed with the SEC pursuant to the Registration Rights Agreement. The Registration Statement has been filed pursuant to Rule 415 under the Securities Act to afford the holders of the securities offered hereby the opportunity to sell such securities in a public transaction rather than pursuant to an exemption from the registration and prospectus delivery requirements of the Securities Act. In order for a Selling Holder to avail himself of that opportunity, such holder must notify the Company in writing of his intention to sell securities and request the Company to file a supplement to this Prospectus or an amendment to the Registration Statement, if required, identifying such holder as a Selling Holder and disclosing such other information concerning the Selling Holder and the securities to be sold as may then be required by the Securities Act and the rules of the Commission. No offer or sale pursuant to this Prospectus may be made by any holder until such a request has been made and until any such supplement has been filed or any such amendment has become effective. The holders of securities who have made such a request and as to which any such required supplement or amendment has been filed or become effective are referred to herein as "Selling Holders." As of the date of this Prospectus, no holder of securities has made such a request and, accordingly, no Selling Holders are named herein. The Company will from time to time supplement or amend this Prospectus to reflect the required information concerning any Selling Holder. 22 DESCRIPTION OF PREFERRED STOCK The following description of certain provisions of the Certificate of Designations, Preferences and Rights Relating to the Preferred Stock (the "Certificate of Designations") is intended as a summary only and is qualified in its entirety by reference to the Certificate of Designations, including the definitions in that document of certain terms. Whenever particular articles, sections or defined terms of the Certificate of Designations or the Registration Rights Agreement are referred to herein, it is intended that those articles, sections or defined terms are to be incorporated by reference into this Prospectus. GENERAL The outstanding shares of Preferred Stock have been duly and validly issued, fully paid and nonassessable and the holders thereof will have no preemptive rights in connection therewith. The Preferred Stock is not subject to any sinking fund or other obligation of the Company to redeem or retire such stock. Unless converted, redeemed or exchanged, the Preferred Stock will remain outstanding indefinitely. Any share of Preferred Stock converted, redeemed, exchanged or otherwise acquired by the Company will be retired and canceled and will upon cancellation be restored to the status of authorized but unissued preferred stock, subject to reissuance by the Board of Directors as Preferred Stock or as shares of preferred stock of any one or more other series. The Preferred Stock ranks on a parity with the 8% Preferred Stock as to dividends and amounts payable upon any liquidation, dissolution or winding up of the Company ("Liquidation"). The Preferred Stock ranks senior to the Common Stock, the Series A Preferred Stock, if issued, and the Employee Preferred Stock, and on a parity with all other preferred stock and any other class or series of stock of the Company, the terms of which expressly provide that it ranks on a parity with the Preferred Stock, with respect to the payment of dividends and amounts payable upon any Liquidation of the Company. No class or series of stock may be created that is senior to the Preferred Stock with respect to the payment of dividends and amounts payable upon any Liquidation of the Company without the approval of the holders of at least a majority of shares of the Preferred Stock then outstanding. DIVIDENDS Holders of the Preferred Stock are entitled to receive, when, as and if declared by the Board of Directors out of the funds of the Company legally available therefor, a cash dividend at the annual rate of 9 1/4% (equivalent to $4.625 per share per annum). Dividends and Liquidated Damages, if any, with respect to the Preferred Stock will be payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year, commencing March 15, 1998 (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). Dividends on the Preferred Stock will be cumulative and will accrue without interest from the date of original issuance. Dividends and Liquidated Damages, if any, will be payable to the holders of record as they appear on the stock books of the transfer agent for the Company on such record dates, which shall be not more than 30 days nor less than 10 days preceding the payment dates, as shall be fixed by the Board of Directors, provided that holders of shares of Preferred Stock called for redemption on a redemption date falling between a dividend payment record date and the dividend payment date shall, in lieu of receiving such dividend payment and Liquidated Damages, if any, on the dividend payment date fixed therefor, receive such dividend payment together with all other accrued and unpaid dividends and Liquidated Damages, if any, on the date fixed for redemption (unless such holders convert such shares in accordance with the Certificate of Designations, in which case such holders will receive such payment on the corresponding dividend payment date). See "--Conversion Rights" below. Dividends payable on the Preferred Stock for the initial dividend period and dividends payable for any period shorter or longer than a full dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. If dividends are not paid in full upon the Preferred Stock and any other preferred stock ranking on a parity as to dividends with the Preferred Stock, all dividends declared upon shares of Preferred Stock and such other preferred stock ranking on a parity as to dividends with the Preferred Stock will be declared pro rata so that in 23 all cases the amount of dividends declared per share on the 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 Preferred Stock and such other preferred stock bear to each other. Except as set forth above, unless full cumulative dividends on the 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 to the Preferred Stock and rights to acquire the foregoing) 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 Preferred Stock as to dividends and liquidation preference nor may any Common Stock or any other stock of the Company ranking junior to or on a parity with the Preferred Stock as to dividends and liquidation preference be redeemed, purchased, or otherwise acquired for any consideration by the Company (except for repurchases from employees under employee benefit plans in effect on the date of this Prospectus and by conversion into or exchange for stock of the Company ranking junior to the Preferred Stock as to dividends and liquidation preference). Under Delaware law, the Company may declare and pay dividends or make other distributions on its capital stock only out of surplus, as defined in the DGCL or, in the case there is no surplus, out of its net profits for the fiscal year in which the dividend or distribution is declared and/or the prior fiscal year. No dividend or distribution may be declared, paid or made if the Company is or would be rendered insolvent by virtue of such dividend or distribution, or if such declaration, payment or distribution would contravene the Certificate of Incorporation. CONVERSION RIGHTS Each share of 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 Preferred Stock), subject to adjustment in certain circumstances. The right to convert Preferred Stock called for redemption will expire at the close of business on the second business day prior to the redemption date (the "Conversion Termination Date"). For information as to notices of redemption, see "--Optional Redemption by the Company." Whenever the Company issues shares of Common Stock upon conversion of 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. See "Description of Capital Stock--Rights Plan." Holders of shares of Preferred Stock at the close of business on a dividend payment record date shall be entitled to receive the dividends and Liquidated Damages, if any, payable on such shares on the corresponding dividend payment date notwithstanding the conversion thereof following the close of business on such dividend payment record date and prior to the close of business on such dividend payment date. However, shares of Preferred Stock surrendered for conversion during the period between the close of business on any dividend payment record date and the close of business on the corresponding dividend payment date (except shares of Preferred Stock called for redemption or exchange on a redemption date or exchange date or with a Conversion Termination Date during such period) must be accompanied by payment of an amount equal to the dividend payment and Liquidated Damages, if any, to be received on such dividend payment date with respect to such shares of Preferred Stock presented for conversion; provided, however, that no such payment need be made if, at the time of conversion, dividends payable on the shares of Preferred Stock outstanding shall be in arrears for more than 30 days beyond the previous dividend payment date. Except as provided above, the Company shall make no payment or allowance for unpaid dividends, whether or not in arrears, on converted shares or for dividends on the shares of Common Stock issued upon such conversion. 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 (as defined in the Certificate of Designations) on the last trading day before the conversion date. 24 The conversion price is subject to adjustment upon the occurrence of certain events, including (i) the issuance of shares of Common Stock as a dividend or distribution on the Common Stock, (ii) the subdivision or combination of the outstanding Common Stock, (iii) the issuance to all or substantially all holders of Common Stock of warrants, options or other rights to subscribe for or purchase Common Stock (or securities convertible into Common Stock) at a price per share less than the then Average Current Market Price (as defined in the Certificate of Designations), (iv) the distribution to all or substantially all holders of Common Stock of shares of capital stock of the Company (other than shares of Series A Preferred Stock upon exercise of a Right), evidences of indebtedness, or other non-cash assets (including securities of any company other than the Company), (v) the distribution to all or substantially all holders of Common Stock of warrants, options or other rights to subscribe for its securities (other than those referred to in (iii) above) and (vi) the distribution to all or substantially all holders of Common Stock of cash in an aggregate amount that (together with all other cash distributions to all or substantially all holders of Common Stock made within the preceding 12 months not triggering a conversion price adjustment) exceeds an amount equal to 20% of the Average Current Market Price on the business day immediately preceding the day on which the Company declares such distribution multiplied by the number of shares of Common Stock outstanding on such date (excluding shares held in treasury of the Company). Issuances of options and securities convertible into Common Stock are deemed to be issuances of the underlying Common Stock for purposes of adjustments to the conversion price. Whenever the conversion price is adjusted, the Company will promptly mail to holders of Preferred Stock a notice of adjustment briefly stating the facts requiring the adjustment and the manner of computing it. No adjustment of the conversion price will be required to be made in any case until cumulative adjustments amount to a change in the conversion price of 1% or more, but any such adjustment that would otherwise be required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under the Certificate of Designations will be made either to the nearest cent or the nearest 1/100 of a share. Subject to the applicable right of the holders of shares of Preferred Stock upon a Change in Control, if the Company reclassifies or changes its outstanding Common Stock, or consolidates with or merges into or sells or conveys all or substantially all of the assets of the Company as an entirety to any person, or is a party to a merger or share exchange that reclassifies or changes its outstanding Common Stock, shares of Preferred Stock will become convertible into the kind and amount of shares of stock and other securities and property (including cash) that the holders of shares of Preferred Stock would have owned immediately after the transaction if the holders had converted such shares of Preferred Stock into Common Stock immediately before the effective date of the transaction. If in connection with any such reclassification, consolidation, merger, sale, transfer, or share exchange each holder of shares of Common Stock is entitled to elect to receive either securities, cash or other assets upon completion of such transaction, the Company will provide or cause to be provided to each holder of Preferred Stock the right to elect to receive the securities, cash or other assets into which the Preferred Stock held by such holder will be convertible after completion of any such transaction on the same terms and subject to the same conditions applicable to holders of the Common Stock (including, without limitation, notice of the right to elect, limitations on the period in which such election will be made and the effect of failing to exercise the election). The above will similarly apply to successive reclassifications, consolidations, mergers, sales, transfers or share exchanges. The Company will reserve and at all times keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of the Preferred Stock, such number of shares of its duly authorized Common Stock as will from time to time be sufficient to effect the conversion of all outstanding 9 1/4% Preferred Stock. OPTIONAL REDEMPTION BY THE COMPANY The Preferred Stock may not be redeemed prior to December 15, 2000. On and after such date, shares of Preferred Stock may be redeemed at the option of the Company, in whole or in part (in any integral number of shares), upon not less than 30 nor more than 60 days' prior notice to each holder of record of the shares to be redeemed, by first-class mail at the redemption prices set forth below during the twelve-month periods beginning 25 on December 15 of the years shown below, plus in each case an amount equal to accrued and unpaid dividends, if any, whether or not earned or declared, and Liquidated Damages (as defined), if any, to the redemption date.
REDEMPTION PRICE YEAR PER SHARE ---- ---------------- 2000.................................. $53.24 2001.................................. 52.78 2002.................................. 52.31 2003.................................. 51.85 2004.................................. 51.39 2005.................................. 50.93 2006.................................. 50.46 2007 and thereafter................... 50.00
If fewer than all of the shares of Preferred Stock are to be redeemed, the shares to be redeemed shall be selected by lot or pro rata or by any other equitable manner determined by the Board of Directors in its sole discretion. In the event that the Company has failed to pay accrued and unpaid dividends on, and Liquidated Damages, if any, with respect to, the Preferred Stock, it may not redeem any of the then outstanding shares of the Preferred Stock until all such accrued and unpaid dividends and Liquidated Damages (including accrued and unpaid dividends, if any, whether or not earned or declared, and Liquidated Damages, if any, from the most recent dividend payment date to and including the redemption date) have been paid in full. On and after the date fixed for redemption, provided that the redemption price (including any accrued and unpaid dividends and Liquidated Damages, if any, to and including the date fixed for redemption) has been duly paid or provided for, dividends shall cease to accrue on the Preferred Stock called for redemption, such shares shall no longer be deemed to be outstanding and all rights of the holders of such shares as stockholders of the Company shall cease, except the right to receive the monies payable upon such redemption, without interest thereon, upon surrender of the certificates evidencing such shares. SPECIAL CONVERSION RIGHTS UPON A CHANGE IN CONTROL The Preferred Stock has a special conversion right that becomes effective upon the occurrence of certain types of significant transactions affecting corporate control or ownership of the Company or the market for the Common Stock. The purpose of the special conversion right is to provide, as applicable, partial loss protection to holders of the Preferred Stock upon the occurrence of a Change in Control at a time when the Market Value (as defined below) of the Common Stock is less than the then prevailing conversion price. In such situations, the special conversion right would, for a limited period, reduce the then prevailing conversion price to the Market Value of the Common Stock, except that the conversion price will not be reduced to less than a minimum conversion price of $4.67 per share of Common Stock (which is 66 2/3% of the closing price of the Common Stock as of November 25, 1997, the date of the Offering Memorandum relating to the Original Offering, and which is subject to adjustment as described below). Consequently, to the extent that the Market Value of the Common Stock is less than the minimum conversion price, a holder will not be fully protected from loss upon exercise of the special conversion right. Under the Certificate of Designations, a "Change in Control" means the occurrence of any of the following events: (i) any person (including any entity or group deemed to be a "person" under Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) is or becomes the direct or indirect beneficial owner (as determined in accordance with Rule 13d-3 under the Exchange Act) of shares of the Company's capital stock representing greater than 50% of the total voting power of all shares of capital stock of the Company entitled to vote in the election of directors under ordinary circumstances or to elect a majority of the Board of Directors of the Company, (ii) the Company sells, transfers or otherwise disposes of all or substantially all of the assets of the Company, (iii) when, during any period of 12 consecutive months after the date of original issuance of the Preferred Stock, individuals who at the beginning of any such 12-month period constituted the Board of Directors of the Company (together 26 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 who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company 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 of the Company, 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. As used herein, "Market Value" of a share of the Common Stock will be the average of the Closing Prices (as defined) of the Common Stock for the five trading days ending on the last trading day preceding the date of the Change in Control. As used herein, "Special Conversion Price" will mean the higher of the Market Value of the Common Stock or $4.67 per share (which amount will, each time the conversion price is adjusted, be adjusted so that the ratio of such amount to the conversion price, after giving effect to such adjustment, shall always be the same as the ratio of $4.67 to the initial conversion price without giving effect to any such adjustment). If a Change in Control occurs, a holder exercising a special conversion right will receive Common Stock or such other securities, property or cash as may be issuable upon conversion as provided in the Certificate of Designations; provided, however, the Company or its successor may, at its option, elect to provide the holder with cash equal to the Market Value of the number of shares of Common Stock into which the holder's 9 1/4% Preferred Stock is convertible at the Special Conversion Price. Preferred Stock that is not converted pursuant to a special conversion right will continue to be convertible pursuant to the general conversion rights described under the caption "--Conversion Rights" above. LIQUIDATION RIGHTS In the event of any Liquidation of the Company, and after provision is made for any preferential amounts to which the holders of any preferred stock ranking senior to the Preferred Stock as to distributions of assets upon Liquidation may be entitled, holders of Preferred Stock will be entitled to receive from the Company's assets available for distribution to stockholders a liquidation preference in the amount of $50.00 per share, plus all accrued and unpaid dividends, whether or not declared, and Liquidated Damages, if any, with respect thereto, to the date of Liquidation. Holders of Preferred Stock will be entitled to receive such amount before any distribution is made on the Common Stock, Employee Preferred Stock, Series A Preferred Stock, if issued, or any other series or class of stock hereinafter issued that ranks junior as to distribution upon Liquidation to the 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 Preferred Stock as to distributions upon Liquidation. If the Company's assets are insufficient to make the required payment to holders of Preferred Stock and to the holders of the 8% Preferred Stock and all other series of then outstanding preferred stock which rank on a parity as to distribution upon Liquidation with the Preferred Stock, the Company's assets so available shall be distributed on a pro rata basis among the holders of the respective series of the parity preferred in proportion to the amount payable if the assets had been sufficient. The Preferred Stock ranks on parity as to distribution upon liquidation to the 8% Preferred Stock. 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 of the Company for these purposes. 27 VOTING RIGHTS Except as indicated below or otherwise required by law, holders of Preferred Stock will have no voting rights. If at any time the equivalent of six quarterly dividends payable on the Preferred Stock are accrued and unpaid (whether or not consecutive and whether or not earned or declared), the holders of all outstanding shares of Preferred Stock, 8% Preferred Stock and any other stock ranking on a parity as to dividends with the shares of 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 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. In addition, without the vote or consent of the holders of at least a majority of shares of the Preferred Stock then outstanding, the Company may not (a) create or issue or increase the authorized number of shares of any class or series of stock ranking senior to the Preferred Stock either as to dividends or upon Liquidation, or any security convertible into or exercisable or exchangeable for such stock, (b) amend, alter or repeal any of the provisions of the Certificate of Designations or any other provision of the Certificate of Incorporation so as to affect adversely any right, preference, privilege or voting power of the Preferred Stock or the holders thereof, including, without limitation, the right of the holders of the Preferred Stock to receive Debentures upon the exercise of the option of the Company to exchange the Preferred Stock for Debentures as described below under "-- Exchange Provisions" or (c) authorize any reclassification of the Preferred Stock by merger or otherwise; provided, however, that any increase in the amount of authorized shares of such series or of any other series of preferred stock, in each case ranking on a parity with or junior to the Preferred Stock as to dividends and the distribution of assets upon Liquidation, will not be deemed to affect adversely such rights, preferences or voting powers. EXCHANGE PROVISIONS The Preferred Stock may be exchanged, in whole but not in part, at the option of the Company, for Debentures on any dividend payment date beginning on December 15, 1999 at the rate of $50.00 principal amount of Debentures for each share of Preferred Stock outstanding at the time of exchange, provided that all accrued and unpaid dividends on, and Liquidated Damages, if any, with respect to, the Preferred Stock through the date of exchange have been paid or set aside for payment and certain other conditions are met. See "Description of Debentures." The Debentures will be issuable in denominations of $1,000 and integral multiples thereof. If the exchange results in an amount of Debentures that is not an integral multiple of $1,000, the amount in excess of the closest integral multiple of $1,000 will be paid in cash by the Company. The Company will mail written notice of its intention to exchange to each holder of record of the Preferred Stock not less than 30 nor more than 60 days prior to the date fixed for exchange. Upon the date fixed for exchange of the Preferred Stock for Debentures (the "Exchange Date"), the rights of holders of Preferred Stock as stockholders of the Company shall cease (except the right to receive accrued and unpaid dividends and Liquidated Damages, if any, to the Exchange Date) and their shares of Preferred Stock no longer will be deemed outstanding and will represent only the right to receive the Debentures and any accrued dividends on, and any Liquidated Damages with respect to, the Preferred Stock. If full cumulative dividends on, and Liquidated Damages, if any, with respect to, the Preferred Stock through the Exchange Date have not been paid in full, or if funds have not been set aside to provide for payment in full of such dividends and Liquidated Damages, if any, the Company may not exercise its option to exchange the Preferred Stock for the Debentures. The exchange of the Preferred Stock for the Debentures will be a taxable event and, therefore, may result in a tax liability for the holder exchanging such stock without any correlative cash payment to such holder. See "Certain Federal Income Tax Considerations-- Exchange for Debentures." 28 In the event that the Company elects to exchange the Preferred Stock for the Debentures, the Company will endeavor to comply with all federal and state securities laws regulating the offer and delivery of the Debentures upon exchange of the Preferred Stock, including compliance with the Trust Indenture Act of 1939 (the "Trust Indenture Act"). REGISTRATION RIGHTS AGREEMENT At the initial closing of the sale (the "Initial Closing") of the Preferred Stock to the Initial Purchasers, the Company and the Initial Purchasers entered into the Registration Rights Agreement providing for the registration of resales of the Transfer Restricted Securities (as defined herein). See "Registration Rights Agreement." TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING AGENT American Stock Transfer & Trust Company acts as transfer agent and registrar for the Common Stock and as transfer agent, registrar and dividend disbursing agent for the Preferred Stock (the "Transfer Agent"). 29 DESCRIPTION OF DEBENTURES If the Company elects to exchange the Preferred Stock for the Debentures, the Company will issue the Debentures under an indenture (the "Indenture") to be entered into between the Company and a trustee selected by the Company reasonably satisfactory to the Initial Purchasers (together with any successor trustee, the "Trustee"), at a rate of $50.00 principal amount of Debentures for each share of Preferred Stock so exchanged. The terms of the Debentures include those set forth in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act as in effect on the date of the Indenture. The Debentures are subject to all such terms. Copies of the proposed form of the Indenture can be obtained from the Initial Purchasers, upon request. The following description of certain provisions of the Indenture and the Debentures is intended as a summary only and is qualified in its entirety by reference to the Indenture and the Debentures, including the definitions in those documents of certain terms. Whenever particular articles, sections or defined terms of the Debentures, the Indenture or the Registration Rights Agreement are referred to, it is intended that those articles, sections or defined terms are to be incorporated by reference into this Prospectus. GENERAL The Debentures will be unsecured, subordinated obligations of the Company, will be limited to an aggregate principal amount equal to the aggregate liquidation preference of the Preferred Stock and will mature on December 15, 2007. The Debentures will bear interest at the same annual rate as the annual rate shown on the cover of the Prospectus for the dividends payable on the Preferred Stock, from the date of issuance, or from the most recent interest payment date to which interest has been paid or provided for, payable semiannually in arrears on June 15 and December 15 of each year, commencing with the first of such dates to occur after the Exchange Date, to the person in whose name the Debenture is registered at the close of business on the preceding June 1 and December 1, as the case may be. Interest and Liquidated Damages, if any, will be payable to the holders of record as they appear on the register of the Company kept by the Registrar on such record dates, provided that holders of Debentures called for redemption on a redemption date falling between an interest payment record date and the interest payment date shall, in lieu of receiving such interest and Liquidated Damages, if any, on the interest payment date fixed therefor, receive such interest payment together with all other accrued and unpaid interest and Liquidated Damages, if any, on the date fixed for redemption (unless such holders convert such Debentures in accordance with the Indenture, in which case such holders will receive such payment on the corresponding interest payment date). Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Debentures will not be subject to any sinking fund. Principal of and premium, if any, and interest on, and Liquidated Damages, if any, with respect to, the Debentures will be payable, and the transfer of the Debentures will be registrable, at the office or agency of the Company maintained for such purposes. In addition, payment of interest and Liquidated Damages, if any, may, at the option of the Company, be made by check mailed to the address of the person entitled thereto as it appears in the register of the holders of Debentures. The Debentures will be issued only in fully registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. No service charge will be made for any registration of transfer or exchange of the Debentures, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection with any such transaction. The Indenture does not contain any restriction on the payment of dividends or the repurchase of securities of the Company (except in the case of an event of default under the Indenture) or any financial covenants. The covenants and provisions contained in the Debentures and the Indenture would not necessarily afford the holders of the Debentures protection in the event of a highly leveraged transaction involving the Company. SUBORDINATION The payment of principal of and premium, if any, and interest on, and Liquidated Damages, if any, with respect to, the Debentures will, to the extent set forth in the Indenture, be subordinated and subject in right of payment to the prior payment in full of all Senior Indebtedness of the Company (as defined below), whether 30 outstanding at the date of the Indenture or later incurred. In the event of any default in the payment of the principal of, or interest on, any Senior Indebtedness or any default permitting the acceleration of Senior Indebtedness where notice of such default has been given to the Company, no payment with respect to the payment of principal of and premium, if any, and interest on, and Liquidated Damages, if any, with respect to, the Debentures (including repurchases of the Debentures at the option of the holder) may be made by the Company unless and until such default has been cured or waived; provided that nothing in the above-described provision will prevent the making of any payment in respect of the Debentures for a period of more than 89 days after the date such written notice of default is given unless the maturity of the Senior Indebtedness has been accelerated, in which case no payment on the Debentures may be made until such acceleration has been waived or such Senior Indebtedness has been paid in full. Upon any payment or distribution of the Company's assets to creditors upon any dissolution, winding up, liquidation, reorganization, bankruptcy, insolvency, receivership or other proceedings relating to the Company, whether voluntary or involuntary, the holders of Senior Indebtedness will first be entitled to receive payment in full of all amounts due thereon before the holders of the Debentures will be entitled to receive any payment upon the principal of, premium, if any, and interest on, and Liquidated Damages, if any, with respect to, the Debentures. By reason of such subordination, in the event of the insolvency of the Company, holders of Debentures may recover less ratably than holders of Senior Indebtedness and other creditors of the Company. "Senior Indebtedness" is defined in the Indenture as the principal of, premium, if any, and interest on (a) any and all other indebtedness and obligations of the Company (including indebtedness of others guaranteed by the Company) other than the Debentures, whether or not contingent and whether outstanding on the date of the Indenture or thereafter created, incurred or assumed, which (i) is for money borrowed; (ii) is evidenced by any bond, note, debenture or similar instrument; (iii) represents the unpaid balance on the purchase price of any property, business, or asset of any kind; (iv) is an obligation of the Company as lessee under any and all leases of property, equipment or other assets required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles; (v) is a reimbursement obligation of the Company with respect to letters of credit; (vi) is an obligation of the Company with respect to interest swap obligations and foreign exchange agreements; or (vii) is an obligation of others secured by a lien to which any of the properties or assets (including, without limitation, leasehold interests and any other tangible or intangible property rights) of the Company are subject, whether or not the obligations secured thereby shall have been assumed by the Company or shall otherwise be the Company's legal liability, and (b) any deferrals, amendments, renewals, extensions, modifications and refundings of any indebtedness or obligations of the types referred to above; provided that Senior Indebtedness shall not include (i) the Debentures; (ii) any indebtedness or obligation of the Company which, by its terms or the terms of the instrument creating or evidencing it, is both subordinated to any other indebtedness or obligations of the Company and is not superior in right of payment to the Debentures (including debentures issued in exchange for the 8% Preferred Stock as in accordance with its terms); (iii) any indebtedness or obligation of the Company to any of its subsidiaries; and (iv) any indebtedness or obligation which is both incurred by the Company in connection with the purchase of assets, materials or services in the ordinary course of business and constitutes an unsecured trade payable. As of September 30, 1997, the amount of the Company's Senior Indebtedness aggregated approximately $965.1 million and the amount of the trade payables and other indebtedness of the Company's subsidiaries was immaterial in amount. The Debentures will be effectively subordinated to all rights of third party creditors of the Company's subsidiaries. The Company and its subsidiaries expect from time to time to incur additional indebtedness, including, but not limited to, Senior Indebtedness. The Indenture will not prohibit or limit the incurrence of such additional indebtedness. CONVERSION RIGHTS The Debentures may be converted in denominations of $1,000 or integral multiples thereof at any time prior to maturity at the option of the holder into fully paid, nonassessable shares of Common Stock at a conversion price equal to the initial conversion price with respect to the Preferred Stock set forth on the cover page of this 31 Prospectus, as subsequently adjusted. The right to convert Debentures called for redemption will expire at the close of business on the second business day prior to the redemption date (the "Conversion Termination Date") (unless the Company shall default in making the redemption payment when due, in which case the conversion right shall terminate at the close of business on the date such default is cured and such Debenture is redeemed). In the case of redemption at the option of the holder as a result of a Change in Control, such right will terminate upon receipt by the Company of a written notice of the exercise of such option (unless the Company shall default in making the repurchase payment when due, in which case the conversion right shall terminate at the close of business on the date such default is cured and such Debenture is repurchased). For information as to notices of redemption, see "--Optional Redemption by the Company." Whenever the Company issues shares of Common Stock upon conversion of the Debentures, 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. See "Description of Capital Stock--Rights Plan." Holders of Debentures at the close of business on an interest payment record date shall be entitled to receive the interest and Liquidated Damages, if any, payable on the corresponding interest payment date notwithstanding the conversion thereof following the close of business on such interest payment record date and prior to the close of business on such interest payment date. However, Debentures surrendered for conversion during the period between the close of business on any interest payment record date and the close of business on the corresponding interest payment date (except Debentures called for redemption on a redemption date or with a Conversion Termination Date during such period) must be accompanied by payment of an amount equal to the interest payment and Liquidated Damages, if any, to be received on such interest payment date with respect to such Debentures presented for conversion. Except as provided above, the Company shall make no payment or allowance for unpaid interest on converted Debentures or for dividends on the shares of Common Stock issued upon such conversion. 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 (as defined in the Indenture) on the last trading day before the conversion date. The conversion price is subject to adjustment upon the occurrence of certain events, including (i) the issuance of shares of Common Stock as a dividend or distribution on the Common Stock, (ii) the subdivision or combination of the outstanding Common Stock, (iii) the issuance to all or substantially all holders of Common Stock of warrants, options or other rights to subscribe for or purchase Common Stock (or securities convertible into or exchangeable for Common Stock) at a price per share less than the then Average Current Market Price, (iv) the distribution to all or substantially all holders of Common Stock of shares of capital stock of the Company (other than Common Stock and shares of Series A Preferred Stock upon exercise of Rights), evidences of indebtedness, or other non-cash assets (including securities of any company other than the Company), (v) the distribution to all or substantially all holders of Common Stock warrants, options or other rights to subscribe for its securities (other than those referred to in clause (iii) above) and (vi) the distribution to all or substantially all holders of Common Stock of cash in an aggregate amount that (together with all other cash distributions to all or substantially all holders of Common Stock made within the preceding 12 months not triggering a conversion price adjustment) exceeds an amount equal to 20% of the Average Current Market Price on the business day immediately preceding the day on which the Company declares such distribution multiplied by the number of shares of Common Stock outstanding on such date (excluding shares held in the treasury of the Company). Issuances of options and securities convertible into Common Stock are deemed to be issuances of the underlying Common Stock for purposes of adjustments to the conversion price. Whenever the conversion price is adjusted, the Company will promptly mail to holders of the Debentures a notice of adjustment briefly stating the facts requiring the adjustment and the manner of computing it. No adjustment of the conversion price will be required to be made in any case until cumulative adjustments amount to a change in the conversion price of 1% or more, but any such adjustment that would otherwise be required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under the Indenture will be made either to the nearest cent or the nearest 1/100 of a share. 32 Subject to the applicable right of the holders of the Debentures upon a Change in Control, and subject to the provisions of the Indenture described below under "--Merger, Sale or Consolidation," if the Company reclassifies or changes its outstanding Common Stock, or consolidates with or merges into or sells or conveys all or substantially all of the assets of the Company as an entirety to any person, or is a party to a merger or share exchange that reclassifies or changes its outstanding Common Stock, the Debentures will become convertible into the kind and amount of shares of stock and other securities and property (including cash) that the holders of the Debentures would have owned immediately after the transaction if the holders had converted the Debentures into Common Stock immediately before the effective date of the transaction. If in connection with any such reclassification, consolidation, merger, sale, transfer, or share exchange each holder of shares of Common Stock is entitled to elect to receive either securities, cash or other assets upon completion of such transaction, the Company will provide or cause to be provided to each holder of the Debentures the right to elect to receive the securities, cash or other assets into which the Debentures held by such holder will be convertible after completion of any such transaction on the same terms and subject to the same conditions applicable to holders of the Common Stock (including, without limitation, notice of the right to elect, limitations on the period in which such election will be made and the effect of failing to exercise the election). The above will similarly apply to successive reclassifications, consolidations, mergers, sales, transfers or share exchanges. The Company will reserve and at all times keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of the Debentures, such number of shares of its duly authorized Common Stock as will from time to time be sufficient to effect the conversion of all outstanding Debentures. OPTIONAL REDEMPTION BY THE COMPANY The Debentures may not be redeemed prior to December 15, 2000. On or after December 15, 2000, the Debentures may be redeemed at the option of the Company, in whole or in part (in any integral multiple of $1,000), upon not less than 30 and no more than 60 days' prior notice to each holder of the Debentures to be redeemed, by first-class mail, at the redemption prices (expressed as a percentage of principal amount) set forth below during the twelve-month periods beginning on December 15 of the years shown below, plus in each case an amount equal to accrued and unpaid interest and Liquidated Damages, if any, with respect to the Debentures to and including the redemption date.
REDEMPTION PRICE YEAR PER DEBENTURE ---- ---------------- 2000........................ 106.48% 2001........................ 105.55% 2002........................ 104.63% 2003........................ 103.70% 2004........................ 102.78% 2005........................ 101.85% 2006........................ 100.93%
If less than all of the Debentures are to be redeemed, the Debentures to be redeemed shall be selected by lot or pro rata or by any other equitable manner determined by the Trustee in its sole discretion. On or after the redemption date, interest will cease to accrue on the Debentures or portions thereof called for redemption. PURCHASE OF DEBENTURES AT THE OPTION OF HOLDERS UPON A CHANGE IN CONTROL If at any time there occurs a Change in Control of the Company, each holder of Debentures shall have the right upon receipt of a Repurchase Right Notice (as defined in the Indenture), at such holder's option, to require the Company to repurchase all of such holder's Debentures, or a portion thereof which is $1,000 or any integral multiple thereof, on the date (the "Repurchase Date") that is no later than 45 days after the date of the Repurchase Right Notice at a repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the Repurchase Date and Liquidated Damages, if any, with respect to the Debentures. 33 On or before the 30th day following any Change in Control, the Company, or, at the request of the Company, the Trustee, shall mail the Repurchase Right Notice to each holder of record of the Debentures and the Trustee stating (i) that a Change in Control has occurred and that such holder has the right to require the Company to repurchase such holder's Debentures, (ii) the Repurchase Date, (iii) the date by which the right to cause repurchase must be exercised, (iv) the price at which such repurchase is to be made, if the right to cause repurchase is exercised and (v) a description of the procedure which such holder must follow to exercise a right to cause repurchase. The Company shall deliver a copy of the Repurchase Right Notice to the Trustee. The Company shall also place such notice in a financial newspaper of general circulation in New York City. No failure of the Company to give the foregoing notice shall limit any such holder's right to exercise a repurchase right. To exercise the repurchase right, on or before the 30th day after the date of the Repurchase Right Notice, holders of Debentures must deliver written notice to the Company (or an agent designated by the Company for such purposes) of the holder's exercise of such right, together with the Debentures with respect to which the right is being exercised, duly endorsed for transfer. Such written notice shall be irrevocable except with respect to conversions permitted prior to the Repurchase Date. The definition of "Change in Control" in the Indenture will be identical to the definition of such term in the Certificate of Designations. See "Description of Preferred Stock--Special Conversion Rights Upon a Change in Control." The right to require the repurchase of Debentures shall not continue after a discharge of the Company from its obligations under the Debentures and the Indenture in accordance therewith. See "--Satisfaction and Discharge of the Indenture." Repurchase of the Debentures may, under certain circumstances, constitute a default or event of default under Senior Indebtedness then outstanding and, in such instances, repurchase of the Debentures would be prohibited unless and until such default has been cured or waived. See "-- Subordination." The failure to repurchase the Debentures in such instance would constitute an Event of Default. See "--Events of Default." If the Repurchase Date is between a regular record date for the payment of interest and the next succeeding interest payment date, any Debenture to be repurchased must be accompanied by payment of an amount equal to the interest and Liquidated Damages, if any, payable on such succeeding interest payment date on the principal amount to be repurchased, and the interest on the principal amount of the Debenture being repurchased, and Liquidated Damages, if any, with respect thereto, will be paid on such next succeeding interest payment date to the registered holder of such Debenture on the immediately preceding record date. A Debenture repurchased on an interest payment date need not be accompanied by any such payment, and the interest on the principal amount of the Debenture being repurchased and Liquidated Damages, if any, with respect thereto, will be paid on such interest payment date to the registered holder of such Debenture on the corresponding record date. Future indebtedness of the Company may contain prohibitions on the occurrence of certain events that would constitute a Change in Control or require such indebtedness to be purchased upon a Change in Control. Moreover, the exercise by the holders of their right to require the Company to repurchase the Debentures 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 Debentures following the occurrence of a Change in Control may be limited by the Company's then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required purchases. The provisions under the Indenture relative to the Company's obligation to make an offer to repurchase the Debentures 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 Debentures. If any repurchase pursuant to the foregoing provisions constitutes an "issuer tender offer" as defined in Rule 13e-4 under the Exchange Act, the Company will comply with the requirements of Rule 13e-4, Rule 14e-1 and any other tender offer rules under the Exchange Act which then may be applicable, including the filing of an 34 Issuer Tender Offer Statement on Schedule 13E-4 with the Commission and the furnishing of certain information contained therein to the Debenture holders. One of the events which constitutes a Change in Control under the Indenture is the disposition of "all or substantially all" of the Company's assets. This term has not been interpreted under New York law (the law governing the Indenture) to represent a specific quantitative test. As a consequence, in the event the holders of the Debentures elect to require the Company to repurchase the Debentures 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 Debentures. The Change in Control purchase feature of the Debentures 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 management's knowledge of any specific effort to obtain control of the Company by means of a merger, tender offer, solicitation or otherwise, or part of a plan by management to adopt a series of anti-takeover provisions. MERGER, SALE OR CONSOLIDATION Without limitation of the provisions of the Indenture described above regarding a Change in Control, the Company may merge, consolidate or transfer all or substantially all of its properties and assets as an entirety and the Company may permit any person to consolidate with or merge into the Company or transfer all or substantially all of its properties and assets as an entirety to the Company; provided that, among other things, (a) the successor person is the Company or another corporation organized and existing under the laws of the United States, any state thereof or the District of Columbia that assumes the Company's obligations on the Debentures and under the Indenture and (b) immediately before and immediately after giving effect to such transaction, no Event of Default shall have occurred and be continuing. EVENTS OF DEFAULT The following shall constitute Events of Default with respect to the Debentures: (i) failure to pay the principal of, premium, if any, on, and Liquidated Damages, if any, with respect to, any Debenture when such amounts become due and payable at maturity, upon acceleration or otherwise, whether or not such payment is prohibited by the subordination provisions of the Indenture; (ii) failure to pay interest on the Debentures when due, whether or not such payment is prohibited by the subordination provisions of the Indenture, and such failure continues for a 30-day period; (iii) a default in the observance or performance of any other covenant or agreement of the Company in the Debentures or the Indenture that continues for the period and after the notice specified below; (iv) an event of default shall have occurred and be continuing under any other evidence of indebtedness of the Company or any of its subsidiaries, whether such indebtedness now exists or is created hereafter, which event of default results in the acceleration of such indebtedness which, together with any such other indebtedness so accelerated, aggregates more than $15 million and such acceleration is not rescinded or indebtedness is not paid or discharged for the period and after the notice specified below; (v) any final judgment or judgments for payment of money in excess of $15 million in the aggregate shall be rendered against the Company or a subsidiary and shall remain unstayed, unsatisfied or undischarged for the period and after the notice specified below; and (vi) certain events of bankruptcy, insolvency or reorganization. The Company is required to deliver to the Trustee within 120 days after the end of each fiscal year of the Company an officer's certificate stating whether or not the signatories know of any default by the Company under the Indenture and the Debentures and, if any default exists, describing such default. A default under clause (iii), (iv) or (v) above is not an Event of Default until the Trustee or the holders of at least 25% in principal amount of the then outstanding Debentures notify the Company of the default and the Company does not cure the default within 60 days with respect to clauses (iii) or (v), and within 30 days with 35 respect to clause (iv), 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 Debentures request the Trustee to give such notice on their behalf, the Trustee shall do so. In case an Event of Default (other than an Event of Default resulting from bankruptcy, insolvency or reorganization) shall have occurred and be continuing, the Trustee, by notice to the Company, or the holders of 25% or more of the principal amount of the Debentures then outstanding, by notice to the Company and the Trustee, may declare the principal amount of the Debentures, plus accrued interest and Liquidated Damages, if any, to be immediately due and payable. In case an Event of Default resulting from certain events of bankruptcy, insolvency or reorganization shall occur, such amounts shall be due and payable without any declaration or any act on the part of the Trustee or the holders of the Debentures. 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 Debentures then outstanding upon conditions provided in the Indenture, except a default in the payment of principal, or interest on, or Liquidated Damages, if any, with respect to, any Debenture or in respect of a covenant or provision of the Indenture which cannot be modified or amended without the consent of the holder of each Debenture. Except to enforce the right to receive payment when due of principal, premium, if any, interest, and Liquidated Damages, if any, no holder of a Debenture may institute any proceeding with respect to the Indenture 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 Debentures 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 Debentures 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 Debentures 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 Debenture 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 Debentures (or, prior to the issuance or the Debentures, with the consent of the holders of not less than a majority of the number of then outstanding shares of Preferred Stock); provided, however, that no such modification or amendment may, without the consent of all of the holders of the Debentures then outstanding (or, prior to the issuance of the Debentures, without the consent of all of the holders of the then outstanding shares of Preferred Stock), (i) extend the fixed maturity of any Debenture, reduce the rate or extend the time of payment of interest on, or Liquidated Damages, if any, with respect to, any Debenture, reduce the principal amount, or premium, if any, on, or Liquidated Damages, if any, with respect to, any Debenture, alter the redemption or mandatory repurchase provisions or adversely affect the repurchase rights with respect to any Debenture, impair the right of a holder to institute suit for payment thereof, change the currency in which the Debentures are payable or impair the right to convert the Debentures into stock, securities or other property or assets (including cash) subject to the terms set forth in the Indenture, (ii) except as permitted under the Indenture, increase the conversion price or otherwise modify or affect in any manner adverse to the holders of the Debentures the conversion provisions of the Indenture or (iii) reduce the percentage of Debentures (or the number of shares of Preferred Stock), the consent of the holders of which is required for any modification or waiver. The Indenture may not be amended to alter the subordination of any outstanding Debentures without consent of each holder of Senior Indebtedness then outstanding that would be adversely affected thereby. Without the consent of any holders of the Debentures, the Company and the Trustee may amend or supplement the Debentures or the Indenture to cure any ambiguity, defect or inconsistency, to provide for uncertificated Debentures in addition to or in place of certificated Debentures, to provide for the assumption of the Company's obligations to holders of 36 the Debentures in the case of a merger or consolidation or transfer of all or substantially all of the Company's assets, or to make any change that does not materially adversely affect the rights of any holder of the Debentures. The holders of a majority in aggregate principal amount of outstanding Debentures may waive any past default under the Indenture, except a default in the payment of principal, premium, if any, interest or Liquidated Damages, if any, or default with respect to certain covenants under the Indenture. The consent of the holders of the Debentures 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 Debentures a notice briefly describing such amendment. However, the failure to give such notice to all holders of the Debentures, or any defect therein, will not impair or affect the validity of the amendment. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS No past, present or future director, officer, employee, agent, manager, stockholder or other affiliate, as such, of the Company shall have any liability for any obligations of the Company under the Debentures 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 Debentures by accepting a Debenture waives and releases all such liability. SATISFACTION AND DISCHARGE OF THE INDENTURE The Indenture will provide that the Company may terminate its obligations under the Indenture at any time by delivering all outstanding Debentures to the Trustee for cancellation and paying all sums required to be paid pursuant to the terms of the Indenture. In addition, the Company will be permitted to terminate all of its obligations under the Indenture by irrevocably depositing with the Trustee money or U.S. government obligations sufficient to pay principal of and interest on and Liquidated Damages, if any, with respect to the Debentures to maturity or redemption and all other sums payable pursuant to the terms of the Indenture, after complying with certain other procedures set forth in the Indenture. TRANSFER AND EXCHANGE A holder may transfer or exchange the Debentures 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 Company is not required to transfer or exchange any Debenture selected for redemption. Also, the Company is not required to transfer or exchange any Debenture for a period of 15 days before a selection of Debentures to be redeemed. The registered holder of a Debenture may be treated as the owner of it for all purposes. DELIVERY AND FORM The Debentures to be issued upon exchange of the Preferred Stock as set forth herein will be issued in registered form. Transfers of Debentures must be made in accordance with the terms of the Indenture. 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 Trust Indenture Act, the Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest, as described in the Trust Indenture Act, it must eliminate such conflict or resign. REGISTRATION RIGHTS AGREEMENT At the Initial Closing, the Company and the Initial Purchasers entered into the Registration Rights Agreement providing for the registration of the resales of Transfer Restricted Securities. See "Registration Rights Agreement." 37 REGISTRATION RIGHTS AGREEMENT Pursuant to the Registration Rights Agreement between the Company and the Initial Purchasers, the Company was required to file and did file with the Commission, within 60 days after the date of original issuance of the Preferred Stock, the Registration Statement to register the resales of Transfer Restricted Securities by the holders thereof who satisfy certain conditions relating to the provision of information in connection with the Registration Statement. The Company is obligated to use its reasonable best efforts to cause the Registration Statement to become effective within 150 days from the date of original issuance of the Preferred Stock and to keep such Registration Statement effective until the earlier of (i) the sale of all securities covered by the Registration Statement and (ii) the expiration of two years after the date of original issuance of the Preferred Stock or, if the period applicable under Rule 144(k) under the Securities Act, or any successor provision for such securities is shortened, such shorter period. For purposes of the foregoing, "Transfer Restricted Securities" means each share of Preferred Stock, each Debenture, or each underlying share of Common Stock, as applicable, until the date on which such share of Preferred Stock, Debenture or underlying share of Common Stock, as applicable, has been effectively registered under the Securities Act and disposed of in accordance with the Registration Statement, the date on which such share of Preferred Stock, Debenture or underlying share of Common Stock, as applicable, is distributed to the public pursuant to Rule 144 or the date on which such share of Preferred Stock, Debenture or underlying share of Common Stock, as applicable, may be sold or transferred pursuant to Rule 144(k) (or any similar provisions then in force). If the Registration Statement (i) has not been declared effective by the Commission within 150 days after December 2, 1997, or (ii) is filed and declared effective but shall thereafter cease to be effective (without being succeeded immediately by an additional Registration Statement filed and declared effective for any reason) for a period of time which shall exceed 90 days in the aggregate during any calendar year (each such event referred to in clauses (i) through (iii), a "Registration Default"), the Company will pay liquidated damages (the "Liquidated Damages") to each holder of Transfer Restricted Securities, during the first 90-day period immediately following the occurrence of such Registration Default in an amount equal to $0.0025 per week per share of Preferred Stock (subject to adjustment in the event of stock splits, stock recombinations, stock dividends and the like), $0.05 per week per $1,000 principal amount of Debentures and $0.01 per week per share (subject to adjustment in the event of stock splits, stock recombinations, stock dividends and the like) of Common Stock constituting Transfer Restricted Securities held by such holder. The amount of the Liquidated Damages will increase by an additional $0.0025 per week per share of Preferred Stock (subject to adjustment as set forth above), $0.05 per week per $1,000 principal amount of Debentures or $0.01 per week per share (subject to adjustment as set forth above) of Common Stock constituting Transfer Restricted Securities for each subsequent 90-day period until the Registration Statement is filed, declared effective, or the Registration Statement again becomes effective, as the case may be, up to a maximum amount of Liquidated Damages with respect to any Registration Default of $0.0125 per week per share of Preferred Stock (subject to adjustment as set forth above), $0.25 per week per $1,000 principal amount of Debentures or $0.05 per week per share (subject to adjustment as set forth above) of Common Stock constituting Transfer Restricted Securities. All accrued Liquidated Damages shall be paid to holders of Transfer Restricted Securities by wire transfer of immediately available funds or by Federal funds check by the Company on each dividend payment date, interest payment date, Repurchase Date (as defined in the Indenture), redemption date under the Indenture or Redemption Date (as defined in the Certificate of Designations), as applicable. If all of the outstanding shares of Preferred Stock or all of the outstanding principal amount of the Debentures have been converted, then the Liquidated Damages payment date will be the dividend payment date that would have been applicable had such Preferred Stock not been converted (unless all of the shares of Preferred Stock have been exchanged for Debentures, in which case the Liquidated Damages payment date will be the interest payment date that would have been applicable had such Debentures not been converted). Following the cure of a Registration Default, Liquidated Damages will cease to accrue with respect to such Registration Default. Liquidated Damages, to the extent payable, must be paid on the applicable dividend payment date regardless of whether or not a dividend on the Preferred Stock is paid on such date. 38 Holders of the Preferred Stock, Debentures and Common Stock will be required to make certain representations to the Company (as described in the Registration Rights Agreement) and will be required to deliver information to be used in connection with the Registration Statement and to provide comments on the Registration Statement within the time periods set forth in the Registration Rights Agreement in order to have their Preferred Stock, Debentures and Common Stock included in the Registration Statement and benefit from the provisions regarding Liquidated Damages set forth in the preceding paragraph. The Company has agreed to use its reasonable best efforts to file on a timely basis all such reports required to be filed under the Exchange Act as, and endeavor in good faith to take such other actions as, are reasonably necessary to enable any beneficial owner of Preferred Stock, Debentures or shares of Common Stock issuable upon conversion thereof to sell Transfer Restricted Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144, as such rule may be amended from time to time, (ii) Rule 144A, as such rule may be amended from time to time, or (iii) any similar rules or regulations hereafter adopted by the Commission. 39 DESCRIPTION OF CAPITAL STOCK Pursuant to TWA's Certificate of Incorporation, the Company has the authority to issue 287.5 million shares of capital stock, consisting of 150 million shares of Common Stock, and 137.5 million additional shares of preferred stock. The Certificate of Incorporation authorizes the Board of Directors to establish one or more series of preferred stock and to establish such relative voting, dividend, redemption, liquidation, conversion and other powers, preferences, rights, qualifications, limitations and restrictions as the Board of Directors may determine without further approval of the stockholders of the Company. The issuance of preferred stock by the Board of Directors could, among other things, adversely affect the voting power of the holders of Common Stock and, under certain circumstances, make it more difficult for a person or group to gain control of the Company. See "Certain Provisions of the Certificate of Incorporation, the By-laws and Delaware Law." The issuance of any series of preferred stock, and the relative powers, preferences, rights, qualifications, limitations and restrictions of such series, if and when established, will depend upon, among other things, the future capital needs of the Company, the then existing market conditions and other factors that, in the judgment of the Board of Directors, might warrant the issuance of preferred stock. At the date of this Prospectus, there are no plans, agreements or understandings relative to the issuance of any additional series of preferred stock other than the Preferred Stock and 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 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 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 Preferred Stock and, if issued, upon conversion of the Debentures, will be, upon issuance, fully paid and nonassessable. As of December 31, 1997, 51,392,950 shares of Common Stock were issued and outstanding and were held by approximately 20,155 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"). 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 40 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 (including shares issued upon conversion of the Preferred Stock or the Debentures) 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 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). 41 "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 will be junior to the 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 Preferred Stock and 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. 42 Liquidation Preference and Other Rights Subject to the issuance by the Company of preferred stock with senior rights (including the Preferred Stock and 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 Corporation 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 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, 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% (equivalent to $4.00 per share per annum), when, as and if declared by the Board of Directors out of funds legally 43 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 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 in respect of distributions of assets upon Liquidation. Neither a consolidation or merger of the Company with another 44 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 Convertible Subordinated Debentures due 2006 (the "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 nonassessable shares of Common Stock and may be redeemed on and after March 15, 1999 at the option of the Company. 45 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 "Description of Capital Stock--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 (as defined herein), 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 46 of the total number of directors that the Corporation would have if there were no vacancies, and (iii) the Board of Directors after receipt by the Company of a written request executed by the holders of at least 35% of the outstanding Voting Stock of the Company, provided, however, that no separate special meeting will be required to be convened if the Board of Directors calls an annual or special meeting to be held no later than ninety (90) calendar days after receiving the request for a meeting and the purposes of such annual or special meeting of stockholders called by the Board of Directors include the purposes specified in the request. Business permitted to be conducted at a special meeting of stockholders is limited to the business (x) specified in the notice of meeting given by or at the direction of the chairman of the meeting or a majority of the entire Board of Directors or (y) otherwise properly brought before the meeting by the chairman of the meeting or at the direction of a majority of the entire Board of Directors. Moreover, the chairman of the annual or special meeting of the stockholders will determine whether any business sought to be brought before the meeting is properly brought. Pursuant to the Certificate of Incorporation, the By-laws establish an advance notice procedure with regard to the nomination, other than by or at the direction of the Board of Directors, of candidates for election as directors and with regard to business to be brought before an annual meeting of stockholders of the Company. AMENDMENT OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS The Certificate of Incorporation contains provisions requiring the affirmative vote of the holders of at least 80% of the Voting Stock, voting together as a single class, to amend certain provisions of the Certificate of Incorporation, primarily those related to anti-takeover provisions. In addition, the Certificate of Incorporation requires the affirmative vote of at least three-fourths of its issued and outstanding Voting Stock, voting as a single class and not as separate classes, to amend the By-laws by stockholder action. "Voting Stock" means the outstanding shares of all classes and series of capital stock of the Company entitled to vote generally in the election of directors of the Company and does not include any class or series of preferred stock of the Company unless the certificate of designations, preferences and rights for such class or series specifically states that such class or series shall be deemed "Voting Stock" for purposes of the Certificate of Incorporation. Employee Preferred Stock has been deemed Voting Stock and the Preferred Stock and 8% Preferred Stock are not Voting Stock. See "Description of Capital Stock." BLOCKING COALITION Pursuant to the '94 Labor Agreements and in connection with the '95 Reorganization, the Company amended the By-laws to provide that certain actions (as set forth in the next paragraph) may not be approved by the Board of Directors if votes are cast against such actions by directors sufficient to constitute a "Blocking Coalition." A Blocking Coalition is defined as the negative votes of (i) a total of the four directors elected by the holders of the Employee Preferred Stock plus (ii) the negative votes of any two of the Company's other directors. Actions subject to disapproval by the Blocking Coalition include: (a) any sale, transfer or disposition, in a single or series of transactions, of at least 20% of the Company's assets, except for transactions in the ordinary course of business including aircraft transactions as part of a fleet management plan; (b) any merger of the Company into or with, or consolidation of the Company with any other entity; (c) any business combination within the meaning of Section 203 of the DGCL; (d) any dissolution or liquidation of the Company; (e) any filing of a petition for bankruptcy, reorganization or receivership under any state or federal bankruptcy, reorganization or insolvency law; (f) any repurchase, retirement or redemption of the Company's capital stock or other equity securities prior to their scheduled maturity or expiration, except for redemptions out of the proceeds of any substantially concurrent offering of comparable or junior securities and mandatory redemptions of any redeemable preferred stock of the Company; (g) any acquisition of assets, not related to the Company's current business as an air carrier, in a single transaction or a series of related transactions exceeding $50 million adjusted annually by the consumer price index; or (h) any sale of the Company's capital stock or securities convertible into capital stock of the Company to any person if (i) at the time of issuance or (ii) assuming conversion of all 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. 47 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, 48 the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding certain shares) or (c) on or subsequent to such date, the business combination is approved by the board of directors of the corporation and by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. Except as specified therein, an interested stockholder is defined to include any person that is the owner of 15% or more of the outstanding voting stock of the corporation, or is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation, at any time within three years immediately prior to the relevant date, and the affiliates and associates of such person. Under certain circumstances, Section 203 of the DGCL makes it more difficult for an "interested stockholder" to effect various business combinations with a corporation for a three-year period, although the stockholders may, by adopting an amendment to the corporation's certificate of incorporation or by-laws, elect not to be governed by this section, effective twelve months after adoption. The Certificate of Incorporation and the By-laws do not exclude TWA from the restrictions imposed under Section 203 of the DGCL, but do provide that a business combination within the meaning of Section 203 of the DGCL (i) may be approved without the approval of at least 66 2/3% of the Voting Stock if the business combination is approved by at least 80% of the directors then in office and (ii) may not be approved if votes are cast against the action by the Blocking Coalition. It is anticipated that the provisions of Section 203 of the DGCL and the provisions of the Certificate of Incorporation may encourage companies interested in acquiring TWA to negotiate in advance with the Board of Directors of TWA since the stockholder approval requirement would be avoided if 80% of the directors then in office approve either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder. 49 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS PROSPECTIVE PURCHASERS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF ACQUIRING, HOLDING OR DISPOSING OF THE PREFERRED STOCK OR DEBENTURES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AND THE CONSEQUENCES UNDER FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS. PLAN OF DISTRIBUTION The Company will not receive any of the proceeds from the sale of any Preferred Stock, Debentures or shares of Common Stock issuable upon conversion of the Preferred Stock or the Debentures pursuant to this Prospectus, all of which will be sold by Selling Holders. Such securities as offered hereby may be sold from time to time to purchasers directly by the Selling Holders; alternatively, the Selling Holders may from time to time offer such securities to and through underwriters, broker/dealers or agents, who may receive compensation in the form of underwriting discounts, concessions or commissions from the Selling Holders or the purchasers of such securities for whom they may act as agents. The Selling Holders and any underwriters, broker/dealers or agents that participate in the distribution of such securities may be deemed to be "underwriters" within the meaning of the Securities Act and any profit on the sale of such securities by them and any discounts, commissions or other compensation received by any such underwriter, broker/dealer or agent may be deemed to be underwriting discounts and commissions under the Securities Act. The Preferred Stock, the Debentures and the shares of Common Stock issuable upon conversion of such Preferred Stock or Debentures offered hereby may be sold from time to time in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale or at negotiated prices. The sale of the such securities may be effected in transactions (which may involve crosses or block transactions) (i) on any national securities exchange or quotation service on which the such securities may be listed or quoted at the time of sale, (ii) in the over-the- counter market, (iii) in transactions otherwise than on such exchanges or in the over-the-counter market, or (iv) through the writing of options. At the time a particular offering of such securities is made, a Prospectus Supplement, if required, will be distributed which will set forth the aggregate amount and type of securities being offered and the terms of the offering, including the name or names of any underwriters, broker/dealers or agents, any discounts, commissions and other terms constituting compensation from the Selling Holders and any discounts, commissions or concessions allowed or reallowed or paid to broker/dealers. To comply with the securities laws of certain jurisdictions, if applicable, the Preferred Stock, the Debentures and the shares of Common Stock issuable upon conversion of such Preferred Stock or Debentures will be offered or sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain jurisdictions, such securities may not be offered or sold unless they have been registered or qualified for sale in such jurisdictions or any exemption from registration or qualification is available and is complied with. Pursuant to the Registration Rights Agreement, all expenses of the registration of Preferred Stock, the Debentures and the shares of Common Stock issuable upon conversion of such Preferred Stock or Debentures will be paid by the Company, including, without limitation, SEC filing fees and expenses of compliance with state securities or "blue sky" laws; provided, however, that the Selling Holders will pay all underwriting discounts and selling commissions, if any. The Company will indemnify the Selling Holders against certain civil liabilities, including certain liabilities under the Securities Act, or will be entitled to contribution in connection therewith. 50 LEGAL MATTERS The validity of the Preferred Stock offered hereby was passed upon for the Company by Davis Polk & Wardwell of New York, New York. EXPERTS The consolidated financial statements of the Company of December 31, 1995 and 1996 and for each of the periods in the three year period ended December 31, 1996 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 upon their authority as experts in accounting and auditing. The report of KPMG Peat Marwick LLP contains an explanatory paragraph indicating that the Company's recurring losses from operations and its limited sources of additional liquidity raise substantial doubt about the Company's ability to continue as a going concern. In addition, their report refers to the application of fresh start reporting in connection with the '95 Reorganization. 51 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. --------------- TABLE OF CONTENTS
PAGE ---- Available Information..................................................... 3 Incorporation of Certain Documents by Reference........................... 4 Prospectus Summary........................................................ 5 Risk Factors.............................................................. 9 Use of Proceeds........................................................... 19 Selected Consolidated Financial Data...................................... 20 Selling Holders........................................................... 22 Description of Preferred Stock............................................ 23 Description of Debentures................................................. 30 Registration Rights Agreement............................................. 38 Description of Capital Stock.............................................. 40 Certain Provisions of the Certificate of Incorporation, the By-laws and Delaware Law............................................................. 46 Certain Federal Income Tax Considerations................................. 50 Plan of Distribution ..................................................... 58 Legal Matters ............................................................ 59 Experts................................................................... 59
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TRANS WORLD AIRLINES, INC. 1,725,000 SHARES OF 9 1/4% CUMULATIVE CONVERTIBLE EXCHANGEABLE PREFERRED STOCK (PAR VALUE $.01 PER SHARE) $86,250,000 PRINCIPAL AMOUNT OF 9 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2007 10,917,525 SHARES OF COMMON STOCK ------------------ PROSPECTUS ------------------ JANUARY , 1998 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II. INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION SEC registration fee............................................ $ 25,444 -------- Accounting fees................................................. 12,500* -------- Legal fees...................................................... 100,000* -------- Miscellaneous................................................... 50,000* -------- TOTAL.......................................................... $187,944 ========
- -------- * Estimated ITEM 15. 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. II-1 The Company shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, employee benefit plan trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Company would have the power to indemnify such person against such liability under the provisions of Article Eleventh or otherwise. If the DGCL is amended to further expand the indemnification permitted to directors, officers, employees or agents of the Company, then the Company shall indemnify such persons to the fullest extent permitted by the DGCL, as so amended. The obligations of the Company to indemnify any person serving as one of its directors, officers or employees as of or following the Company's '93 Reorganization, by reason of such person's past or future service in such a capacity, or as a director, officer or employee of another corporation, partnership or other legal entity, to the extent provided in Article Eleventh or in similar constituent documents or by statutory law or written agreement of or with the Company, shall be deemed and treated as executory contracts assumed by the Company pursuant to the Company's '93 Reorganization. Accordingly, such indemnification obligations survive and were unaffected by the entry of the order confirming the Company's '93 Reorganization. The obligations of the Company to indemnify any person who, as of the '93 Reorganization, was no longer serving as one of its directors, officers or employees, which indemnity obligation arose by reason of such person's prior service in any such capacity, or as a director, officer or employee of another corporation, partnership or other legal entity, to the extent provided in the certificate of incorporation, by-laws or other constituent documents or by statutory law or written agreement of or with TWA were terminated and discharged pursuant to Section 502(e) of the United States Bankruptcy Code or otherwise, as of the date the '93 Reorganization was confirmed. Nothing contained in the Second Amended and Restated Certificate of Incorporation of the Company shall be deemed to reinstate any obligation of the Corporation to indemnify any person or entity, which was otherwise released under or in connection with the Comprehensive Settlement Agreement entered into pursuant to the '93 Reorganization. ITEM 16. 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) *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)
II-2 *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, Registration No. 333-04977) *4.15 --Indenture dated as of March 31, 1997 between TWA and First Security Bank, National Association relating to TWA's 12% Senior Secured Notes due 2002 (Exhibit 4.15 to Registrant's Registration Statement on Form S-4, No. 333-26645) *4.16 --Form of 12% Senior Secured Note due 2002 (contained in Indenture filed as Exhibit 4.15) *4.17 --Registration Rights Agreement dated as of March 31, 1997 between the Company and the Initial Purchaser relating to the 12% Senior Secured Notes due 2002 and the warrants to purchase 126.26 shares of TWA Common Stock (Exhibit 4.17 to Registrant's Registration Statement on Form S-4, No. 333-26645) *4.18 --Warrant Agreement dated as of March 31, 1997 between the Company and American Stock Transfer & Trust Company, as Warrant Agent, relating to warrants to purchase 126.26 shares of TWA Common Stock (Exhibit 4.18 to Registrant's Registration Statement on Form S-4, No. 333-26645) 4.19 --Form of Indenture relating to TWA's 9 1/4% Convertible Subordinated Debentures due 2007 4.20 --Registration Rights Agreement dated as of December 2, 1997 between the Company and the Initial Purchases 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(1) 4.22 --Form of 11 1/2% Senior Secured Note due 2004 (contained in Indenture filed as Exhibit 4.21) 4.23 --Registration Rights Agreement dated as of December 9, 1997 among the Company and Lazard Freres & Co. LLC and PaineWebber Incorporated, as initial purchasers, relating to TWA's 11 1/2% Senior Secured Notes due 2004(1) 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(1) 5 --Opinion of Davis Polk & Wardell, Counsel of the Registrant, regarding the validity of the securities being registered
II-3 12 --Statement of Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends 23.1 --Consent of KPMG Peat Marwick LLP 23.2 --Consent of Davis Polk & Wardwell (included in Exhibit 5 hereto) 24 --Powers of Attorney *27 --Financial Data Schedule (included in the Company's 12/31/96 10-K)
- -------- * Incorporated by reference (1) Incorporated herein by reference to the exhibit of the same number in the Registrant's Registration Statement on Form S-4, Registration Number 333- filed on January 21, 1998. II-4 REPORTS ON FORM 8-K NONE ITEM 17. UNDERTAKINGS A. Undertaking Pursuant to Rule 415 The Company hereby undertakes: (1) To file, during any period in which offers of 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; (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; (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(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant 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, 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. Undertaking Regarding Filings Incorporating Subsequent Exchange Act Documents by Reference The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of its Annual Report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act); 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. Undertaking in Respect of Indemnification Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions referred to in Item 15 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 Securities 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 whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-5 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-3 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF ST. LOUIS, STATE OF MISSOURI, ON JANUARY 22, 1998. TRANS WORLD AIRLINES, INC. /s/ Michael J. Palumbo By__________________________________ MICHAEL J. PALUMBO SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT ON FORM S-3 HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURES TITLE DATE /s/ Gerald L. Gitner Chairman, Chief January 22, 1998 - ------------------------------------- Executive Officer GERALD L. GITNER and Director (Principal Executive Officer) /s/ Michael J. Palumbo Senior Vice January 22, 1998 - ------------------------------------- President and Chief MICHAEL J. PALUMBO Financial Officer (Principal Financial Officer and Principal Accounting Officer) * Director January 22, 1998 - ------------------------------------- WILLIAM F. COMPTON * Director January 22, 1998 - ------------------------------------- JOHN W. BACHMANN * Director January 22, 1998 - ------------------------------------- EUGENE P. CONESE * Director January 22, 1998 - ------------------------------------- WILLIAM M. HOFFMAN * Director January 22, 1998 - ------------------------------------- THOMAS H. JACOBSEN * Director January 22, 1998 - ------------------------------------- MYRON KAPLAN * Director January 22, 1998 - ------------------------------------- 1998 DAVID M. KENNEDY II-6 SIGNATURES TITLE DATE Director January , 1998 - ------------------------------------- MERRILL A. MCPEAK * Director January 22, 1998 - ------------------------------------- THOMAS F. MEAGHER * Director January 22, 1998 - ------------------------------------- WILLIAM O'DRISCOLL * Director January 22, 1998 - ------------------------------------- G. JOSEPH REDDINGTON * Director January 22, 1998 - ------------------------------------- BLANCHE M. TOUHILL * Director January 22, 1998 - ------------------------------------- STEPHEN M. TUMBLIN * By: /s/ Richard P. Magurno -------------------------------------- RICHARD P. MAGURNO, AS ATTORNEY-IN-FACT II-7 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ------- ----------- *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) *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, Registration No. 333-04977) *4.15 --Indenture dated as of March 31, 1997 between TWA and First Security Bank, National Association relating to TWA's 12% Senior Secured Notes due 2002 (Exhibit 4.15 to Registrant's Registration Statement on Form S-4, No. 333-26645)
EXHIBIT NO. DESCRIPTION - ------- ----------- *4.16 --Form of 12% Senior Secured Note due 2002 (contained in Indenture filed as Exhibit 4.15) *4.17 --Registration Rights Agreement dated as of March 31, 1997 between the Company and the Initial Purchaser relating to the 12% Senior Secured Notes due 2002 and the warrants to purchase 126.26 shares of TWA Common Stock (Exhibit 4.17 to Registrant's Registration Statement on Form S-4, No. 333-26645) *4.18 --Warrant Agreement dated as of March 31, 1997 between the Company and American Stock Transfer & Trust Company, as Warrant Agent, relating to warrants to purchase 126.26 shares of TWA Common Stock (Exhibit 4.18 to Registrant's Registration Statement on Form S-4, No. 333-26645) 4.19 --Form of Indenture relating to TWA's 9 1/4% Convertible Subordinated Debentures due 2007 4.20 --Registration Rights Agreement dated as of December 2, 1997 between the Company and the Initial Purchases 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(1) 4.22 --Form of 11 1/2% Senior Secured Note due 2004 (contained in Indenture filed as Exhibit 4.21) 4.23 --Registration Rights Agreement dated as of December 9, 1997 among the Company and Lazard Freres & Co. LLC and PaineWebber Incorporated, as initial purchasers, relating to TWA's 11 1/2% Senior Secured Notes due 2004(1) 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(1) 5 --Opinion of Davis Polk & Wardell, Counsel of the Registrant, regarding the validity of the securities being registered 12 --Statement of Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends 23.1 --Consent of KPMG Peat Marwick LLP 23.2 --Consent of Davis Polk & Wardwell (included in Exhibit 5 hereto) 24 --Powers of Attorney *27 --Financial Data Schedule (included in the Company's 12/31/96 10-K)
- -------- * Incorporated by reference (1) Incorporated herein by reference to the exhibit of the same number in the Registrant's Registration Statement on Form S-4, Registration Number 333- filed on January 21, 1998. EX-4.19 2 INDENTURE EXHIBIT 4.19 - -------------------------------------------------------------------------------- TRANS WORLD AIRLINES, INC. AND [a trustee selected by the Company reasonably satisfactory to Lazard Freres & Co. LLC and PaineWebber Incorporated] as Trustee _______________________ Indenture Dated as of [effective date of exchange] _______________________ $__________ 9 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2007 - -------------------------------------------------------------------------------- CROSS-REFERENCE TABLE
TIA Indenture Section Section - ------- ---------- 310(a)(1).................................. 7.10 (a)(2)................................... 7.10 (a)(3)................................... N.A. (a)(4)................................... N.A. (b)...................................... 7.08; 7.10; 7.12; 12.02 (c)...................................... N.A. 311(a)..................................... 7.11 (b)...................................... 7.11 (c)...................................... N.A. 312(a)..................................... 2.05 (b)...................................... 12.03 (c)...................................... 12.03 313(a)..................................... 7.06 (b)(1)................................... N.A. (b)(2)................................... N.A. (c)...................................... 7.06; 12.02 (d)...................................... 7.06 314(a)..................................... 4.03; 12.02 (b)...................................... N.A. (c)(1)................................... 12.04 (c)(2)................................... 12.04 (c)(3)................................... N.A. (d)...................................... N.A. (e)...................................... 12.05 (f)...................................... N.A. 315(a)..................................... 7.01(b) (b)...................................... 7.05; 12.02 (c)...................................... 7.01(a) (d)...................................... 7.01(c) (e)...................................... 6.11 316(a)(last sentence)...................... 2.09 (a)(l)(A)................................ 6.06 (a)(l)(B)................................ 6.05 (a)(2)................................... N.A. (b)...................................... 6.08 (c)...................................... N.A. 317(a)(01)................................. 6.03 (a)(2)................................... 6.09 (b)...................................... 2.04 318(a)..................................... 12.01
- --------------- N.A. means Not Applicable. This cross-reference table does not constitute a part of the Indenture. TABLE OF CONTENTS ----------------- Section Page - ------- ---- ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions.......................................... 1 SECTION 1.02. Other Definitions.................................... 4 SECTION 1.03. Incorporation by Reference of Trust Indenture Act.... 5 SECTION 1.04. Rules of Construction................................ 5 ARTICLE 2 THE SECURITIES SECTION 2.01. Form and Dating...................................... 6 SECTION 2.02. Execution and Authentication......................... 6 SECTION 2.03. Registrar, Paying Agent and Conversion Agent......... 7 SECTION 2.04. Paying Agent to Hold Money in Trust.................. 7 SECTION 2.05. Securityholder Lists................................. 8 SECTION 2.06. Transfer and Exchange................................ 8 SECTION 2.07. Replacement Securities............................... 9 SECTION 2.08. Outstanding Securities............................... 9 SECTION 2.09. Securities Held by the Company or an Affiliate....... 10 SECTION 2.10. Temporary Securities................................. 10 SECTION 2.11. Cancellation......................................... 10 SECTION 2.12. Defaulted Interest................................... 10 ARTICLE 3 REDEMPTION SECTION 3.01. Redemption; Notices to Trustee and DTC............... 11 SECTION 3.02. Selection of Securities to Be Redeemed............... 11 SECTION 3.03. Notice of Redemption................................. 11 SECTION 3.04. Effect of Notice of Redemption....................... 12 SECTION 3.05. Deposit of Redemption Price.......................... 12 SECTION 3.06. Securities Redeemed in Part.......................... 13 ARTICLE 4 COVENANTS SECTION 4.01. Payment of Securities................................ 13 SECTION 4.02. Maintenance of Office or Agency...................... 13 SECTION 4.03. SEC Reports.......................................... 14 SECTION 4.04. Compliance Certificate............................... 14 SECTION 4.05. Stay, Extension and Usury Laws....................... 14 SECTION 4.06. Corporate Existence.................................. 14 SECTION 4.07. Notice of Default.................................... 15 SECTION 4.08. Change in Control.................................... 15 SECTION 4.09. Maintenance of Properties............................ 18 SECTION 4.10. Payment of Taxes and Other Claims.................... 18 SECTION 4.11. Restrictions on Becoming an Investment Company....... 19 SECTION 4.12. Limitation on Dividends and Acquisition of Common Stock...................................... 19 ARTICLE 5 SUCCESSORS SECTION 5.01. When Company May Merge, etc.......................... 19 SECTION 5.02. Successor Substituted................................ 20 ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01. Events of Default.................................... 20 SECTION 6.02. Acceleration......................................... 22 SECTION 6.03. Collection of Indebtedness and Suits for Enforcement by Trustee............................... 22 SECTION 6.04. Other Remedies....................................... 23 SECTION 6.05. Waiver of Past Defaults.............................. 23 SECTION 6.06. Control by Majority.................................. 23 SECTION 6.07. Limitation on Suits.................................. 23 SECTION 6.08. Rights of Holders to Receive Payment................. 24 SECTION 6.09. Trustee May File Proofs of Claim..................... 24 SECTION 6.10. Priorities........................................... 24 SECTION 6.11. Undertaking for Costs................................ 25 ARTICLE 7 TRUSTEE SECTION 7.01. Duties of Trustee.................................... 25 SECTION 7.02. Rights of Trustee.................................... 26 SECTION 7.03. Individual Rights of Trustee......................... 26 SECTION 7.04. Trustee's Disclaimer................................. 27 SECTION 7.05. Notice of Defaults................................... 27 SECTION 7.06. Reports by Trustee to Holders........................ 27 SECTION 7.07. Compensations and Indemnity.......................... 27 SECTION 7.08. Replacement of Trustee............................... 28 SECTION 7.09. Successor Trustee by Merger, etc..................... 29 SECTION 7.10. Eligibility; Disqualification........................ 29 SECTION 7.11. Preferential Collection of Claims Against Company.... 29 SECTION 7.12. Conflicting Interests................................ 29 ARTICLE 8 DISCHARGE OF INDENTURE SECTION 8.01. Termination of Company's Obligations................. 29 SECTION 8.02. Application of Trust Money........................... 30 (ii) SECTION 8.03. Repayment to Company................................. 31 SECTION 8.04. Reinstatement........................................ 31 ARTICLE 9 AMENDMENTS SECTION 9.01. Without Consent of Holders........................... 31 SECTION 9.02. With Consent of Holders.............................. 32 SECTION 9.03. Compliance with Trust Indenture Act.................. 33 SECTION 9.04. Revocation and Effect of Consents.................... 33 SECTION 9.05. Notation on or Exchange of Securities................ 33 SECTION 9.06. Trustee Protected.................................... 34 ARTICLE 10 CONVERSION SECTION 10.01. Conversion Privilege................................. 34 SECTION 10.02. Conversion Procedure................................. 35 SECTION 10.03. Fractional Shares.................................... 36 SECTION 10.04. Taxes on Conversion.................................. 36 SECTION 10.05. Company to Provide Stock............................. 36 SECTION 10.06. Adjustment of Conversion Price....................... 37 SECTION 10.07. No Adjustment........................................ 39 SECTION 10.08. Equivalent Adjustments............................... 40 SECTION 10.09. Adjustment for Tax Purposes.......................... 40 SECTION 10.10. Notice of Adjustment................................. 40 SECTION 10.11. Notice of Certain Transactions....................... 40 SECTION 10.12. Effect of Reclassification, Consolidation, Merger or Sale on Conversion Privilege......................... 41 SECTION 10.13. Trustee's Disclaimer................................. 42 SECTION 10.14. Voluntary Reduction.................................. 42 ARTICLE 11 SUBORDINATION SECTION 11.01. Agreement to Subordinate............................. 42 SECTION 11.02. Certain Definitions.................................. 43 SECTION 11.03. Liquidation; Dissolution; Bankruptcy................. 43 SECTION 11.04. Company Not to Make Payments with Respect to Securities in Certain Circumstances.................. 44 SECTION 11.05. Acceleration of Securities........................... 44 SECTION 11.06. When Distribution Must be Paid Over.................. 45 SECTION 11.07. Notice by Company.................................... 45 SECTION 11.08. Subrogation.......................................... 45 SECTION 11.09. Subordination May Not be Impaired by Company......... 45 SECTION 11.10. Distribution or Notice to Representative............. 46 SECTION 11.11. Rights of Trustee and Paying Agent................... 46 SECTION 11.12. Officers'Certificate................................. 46 (iii) SECTION 11.13. Obligation of Company Unconditional.................. 47 ARTICLE 12 MISCELLANEOUS SECTION 12.01. Trust Indenture Act Controls......................... 47 SECTION 12.02. Notices.............................................. 47 SECTION 12.03. Communication by Holders with Other Holders.......... 48 SECTION 12.04. Certificate and Opinion as to Conditions Precedent... 48 SECTION 12.05. Statements Required in Certificate or Opinion........ 49 SECTION 12.06. Rules by Trustee and Agents.......................... 49 SECTION 12.07. Legal Holidays....................................... 49 SECTION 12.08. No Recourse Against Others........................... 50 SECTION 12.09. Duplicate Originals.................................. 50 SECTION 12.10. Governing Law........................................ 50 SECTION 12.11. No Adverse Interpretation of Other Agreements........ 50 SECTION 12.12. Successors........................................... 50 SECTION 12.13. Separability......................................... 50 SECTION 12.14. Table of Contents, Headings, etc..................... 50 SIGNATURES EXHIBIT A - FORM OF SECURITY EXHIBIT B - FORM OF LEGEND FOR GLOBAL SECURITIES (iv) INDENTURE dated as of [effective date of exchange], between TRANS WORLD AIRLINES, INC., a Delaware corporation (the "Company"), and [a trustee selected by the Company reasonably satisfactory to Lazard Freres & Co. LLC and PaineWebber Incorporated] 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 9 1/4% Convertible Subordinated Debentures due 2007 (the "Securities"). ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions. ----------- "Affiliate" means any person directly or indirectly controlling or --------- controlled by or under direct or indirect common control with the Company. For this purpose, "control" shall mean the power to direct the management and policies of a person through the ownership of securities, by contract or otherwise; provided, however, that beneficial ownership of 10% or more of the -------- ------- voting securities of a person shall constitute a rebuttable presumption of control. "Agent" means any Registrar, Paying Agent, Conversion Agent or co- ----- Registrar. "Board of Directors" means the Board of Directors of the Company or ------------------ any committee of the Board authorized to act for it hereunder. "Board Resolution" means a copy of a resolution certified by the ---------------- Corporate Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Closing Price" for each day shall be the last reported sales price, ------------- regular way or, in case no such reported sale takes place on such date, the average of the reported closing bid and asked prices, regular way, in either case on the American Stock Exchange or, if the Common Stock is not listed or admitted to trading on the American Stock Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, the closing sales price, regular way, of the Common Stock as quoted by National Association of Securities Dealers Automated Quotation System ("NASDAQ") or, in case no reported sales takes place, the average of the closing bid and asked prices, regular way, as quoted by NASDAQ or any comparable system or, if the Common Stock is not quoted on NASDAQ or any comparable system, the closing sales price, regular way, or, in case no reported sale takes place, the average of the closing bid and asked prices, regular way, as furnished by any two members of the National 2 Association of Securities Dealers, Inc. selected from time to time by the Company for that purpose. "Common Stock" includes any stock of any class of the Company which ------------ has no preference in respect of 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. However, subject to the provisions of Section 10.12, shares issuable upon conversion of the Securities shall include only shares of the class designated as Common Stock of the Company at the date of this instrument or shares of any class or classes resulting from any reclassification or reclassifications thereof (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation) and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which are not subject to redemption by the Company, provided that if at any time there shall be more -------- than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "Company" means the party named as such above and any other obligor ------- until a successor replaces it pursuant to the applicable provision hereof and thereafter means such successor. "Company Request" or "Company Order" means a written request or order --------------- ------------- signed in the name of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Corporate Secretary or an Assistant Secretary, and delivered to the Trustee. "Conversion Termination Date" means the second business day --------------------------- immediately preceding the redemption date for a Security. "Corporate Trust Office of the Trustee" shall be at the address of the ------------------------------------- Trustee specified in Section 12.02 or such other address as the Trustee may give notice of to the Company. "Default" means any event which is, or after notice or passage of time ------- or both would be, an Event of Default. "Depositary" means, with respect to Securities issuable in whole or in ---------- part in the form of one or more Global Securities, a clearing agency registered under the Exchange Act that is designated to act as Depositary for such Securities. "DTC" means The Depository Trust Company. --- "Eligible Institution" means a commercial banking institution that has -------------------- combined capital and surplus of not less than $500 million or its equivalent in foreign currency and whose 3 debt is rated at the highest rating obtainable from Standard & Poor's Corporation ("S&P") or Moody's Investor Services, Inc. ("Moody's") at the time as of which any investment or rollover herein is made. "Employee Preferred Stock" means the ALPA Preferred Stock, par value ------------------------ $.01 per share, the IFFA Preferred Stock, par value $.01 per share and the IAM Preferred Stock, par value $.01 per share, of the Company. "GAAP" means generally accepted accounting principles set forth in the ---- opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, which are in effect on the date of the Indenture. "Global Security" means a Security that evidences all or part of the --------------- Securities of any series and bears the legend set forth in Exhibit B. "Governmental Securities" means direct obligations of, or obligations ----------------------- guaranteed by, the United States of America, for the payment of which the full faith and credit of the United States is pledged. "Holder" or "Securityholders" means a person in whose name a Security ------ --------------- is registered on the Registrar's books. "Indenture" means this Indenture as amended from time to time. --------- "Liquidated Damages" means the liquidated damages payable pursuant to ------------------ the Registration Rights Agreement. "Maturity," when used with respect to any Security, means the date on -------- which the principal of such Security or Liquidated Damages, if any, with respect thereto, or an installment of principal or Liquidated Damages, if any, becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption, occurrence of any Repurchase Date or otherwise. "Officers" means the Chief Executive Officer, the President, the Chief -------- Operating Officer, any Vice President, the Treasurer or the Corporate Secretary of the Company. "Officers' Certificate" means a certificate signed by two Officers or --------------------- by an Officer and an Assistant Treasurer or an Assistant Secretary of the Company. "Opinion of Counsel" means a written opinion from legal counsel who ------------------ may be an employee of or counsel for the Company or other counsel reasonably acceptable to the Trustee. "person" means any individual, corporation, partnership, joint ------ venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof. 4 "9 1/4% Preferred Stock" means the 9 1/4% Cumulative Convertible ---------------------- Exchangeable Preferred Stock of the Company. "principal" of a debt security (including, without limitation, any --------- Security) means the principal of the security plus the premium, if any, on the security. "Registration Rights Agreement" means the Registration Rights ----------------------------- Agreement dated December 2, 1997 among the Company, Lazard Freres & Co. LLC and PaineWebber Incorporated, as it may be amended from time to time. "SEC" means the Securities and Exchange Commission. --- "Securities" means the Securities described above issued under this ---------- Indenture. "Stated Maturity," when used with respect to any Security or any --------------- installment of principal thereof, interest thereon or Liquidated Damages, if any, with respect thereto, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal, interest or Liquidated Damages, if any, is due and payable. "subsidiary" means (i) a corporation a majority of whose capital stock ---------- with voting power, under ordinary circumstances, to elect directors is at the time, directly or indirectly, owned by the Company, by one or more subsidiaries of the Company or by the Company and one or more subsidiaries thereof or (ii) any other person (other than a corporation) in which the Company, one or more subsidiaries thereof or the Company and one or more subsidiaries thereof, directly or indirectly, at the date of determination thereof have at least majority ownership interest. "TIA" means the Trust Indenture Act of 1939, as amended (15 U.S. Code --- (S)(S) 77aaa-77bbbb) as in effect on the date of this Indenture, except as provided in Section 9.03. "Trading Day" means, with respect to any security, each Monday, ----------- Tuesday, Wednesday, Thursday and Friday, other than any day on which securities are not generally traded on the exchange or market in which such security is traded. "Trustee" means the party named as such in this Indenture until a ------- successor replaces it and thereafter means the successor. "Trust Officer" means any officer of the Trustee assigned by the ------------- Trustee to administer its corporate trust matters. SECTION 1.02. Other Definitions. ----------------- Term Defined in Section - ------ ------------------ "Average Current Market Price".................................. 10.06 "business day".................................................. 12.07 "Change in Control"............................................. 4.08 5 "Conversion Agent".............................................. 2.03 "Conversion Date"............................................... 10.02 "Conversion Price".............................................. 4.08(i) "Determination Date"............................................ 10.06(d) "Event of Default".............................................. 6.01 "Exchange Act".................................................. 4.03 "Legal Holiday"................................................. 12.07 "Paying Agent".................................................. 2.03 "Registrar"..................................................... 2.03 "Representative"................................................ 11.02 "Repurchase Date"............................................... 4.08 "Repurchase Price".............................................. 4.08 "Repurchase Right".............................................. 4.08 "Repurchase Right Notice"....................................... 4.08 "Senior Indebtedness"........................................... 11.02 "Series A Preferred Stock"...................................... 10.06(c) "Triggering Distribution"....................................... 10.06(d) "U.S. Government Obligations"................................... 8.01 SECTION 1.03. Incorporation by Reference of Trust Indenture Act. ------------------------------------------------- Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Securities. "indenture securityholder" means a Securityholder. "indenture to be qualified" means this Indenture. "Indenture Trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. SECTION 1.04. Rules of Construction. --------------------- Unless the context otherwise requires: (1) a term has the meaning assigned to it; 6 (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP in effect on the date hereof; (3) "or" is not exclusive; (4) words in the singular include the plural and in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other Subdivision. ARTICLE 2 THE SECURITIES SECTION 2.01. Form and Dating. --------------- The Securities and the Trustee's certificate of authentication shall be substantially in the form set forth in Exhibit A (with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture), which Exhibit A is incorporated in and forms a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Security shall be dated the date of its authentication. The definitive Securities shall be printed, lithographed or engraved or produced by any combination of these methods on steel engraved borders or may be produced in any other manner permitted by the rules of any securities exchange on which the Securities may be listed, all as determined by the officers executing such Securities, as evidenced by their execution thereof. SECTION 2.02. Execution and Authentication. ---------------------------- Two Officers shall sign the Securities for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Securities. If an Officer whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall nevertheless be valid. A Security shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate Securities for original issue in the aggregate principal amount of up to [insert aggregate liquidation preference for outstanding shares of 7 9 1/4% Preferred Stock at date of exchange], upon a written order of the Company signed by two Officers or by an Officer and an Assistant Treasurer or Assistant Secretary of the Company. Each order shall specify the amount of Securities to be authenticated and the date on which the original issue of Securities is to be authenticated. The aggregate principal amount of Securities outstanding at any time may not exceed the amount of Securities issued pursuant to this paragraph except as provided in Section 2.07. 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 or an Affiliate. The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 and any integral multiple thereof. SECTION 2.03. Registrar, Paying Agent and Conversion Agent. --------------------------------------------- The Company shall maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be presented for registration of transfer or for exchange ("Registrar"), an office or agency where Securities may be presented for payment ("Paying Agent") and an office or agency where Securities may be presented for conversion ("Conversion Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may appoint or change one or more co-registrars, one or more additional paying agents and one or more additional conversion agents without notice and may act in any such capacity on its own behalf. The term "Paying Agent" includes any additional paying agent; the term "Conversion Agent" includes any additional conversion agent. The Company shall 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 Agent not a party to this Indenture. If the Company fails to maintain a Registrar, Paying Agent or Conversion Agent, the Trustee shall act as such. The Company initially appoints the Trustee as Paying Agent, Registrar and Conversion Agent. SECTION 2.04. Paying Agent to Hold Money in Trust. ----------------------------------- Each Paying Agent shall hold in trust for the benefit of the Securityholders or the Trustee all moneys held by such Paying Agent for the payment of principal of, interest on or Liquidated Damages, if any, with respect to, the Securities, and shall notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, such Paying Agent shall have no further liability for the money. If the 8 Company acts as Paying Agent, it shall segregate and hold as a separate trust fund all money held by it as Paying Agent. SECTION 2.05. 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 2.06. Transfer and Exchange. --------------------- Where 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 if the requirements of Section 8- 401(1) of the New York Uniform Commercial Code are met. To permit registrations of transfer and exchanges, the Trustee shall authenticate Securities at the Registrar's request. The Company or the Trustee, as the case may be, shall not be required (a) to issue, authenticate, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of the Securities selected for redemption under Section 3.02 and ending at the close of business on the day of such mailing, or (b) to register the transfer of or exchange any Security so selected for redemption, in whole or in part, except the unredeemed portion of Securities being redeemed in part. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require a Holder to, among other things, furnish appropriate endorsements and transfer documents and pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer, registration of transfer or exchange of Securities, other than exchanges pursuant to Section 2.10, 3.06, 9.05 or 10.02 not involving any transfer. The provisions of clauses (1), (2), (3) and (4) below shall apply only to Global Securities: (1) Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary designated for such Global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. (2) Notwithstanding any other provision in this Indenture, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any person other than the Depositary for such Global Security or a nominee thereof unless (A) such Depositary (i) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or (ii) has ceased to be a clearing agency registered under the Exchange Act or (B) there shall have occurred and be continuing an Event of Default with respect to such Global Security. 9 (3) Subject to clause (2) above, any exchange of a Global Security for other Securities may be made in whole or in part, and all Securities issued in exchange for a Global Security or any portion thereof shall be registered in such names as the Depositary for such Global Security shall direct. (4) Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security or any portion thereof, whether pursuant to this Section, Section 2.07, 2.10, 3.06 or 9.05 or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Security, unless such Security is registered in the name of a person other than the Depositary for such Global Security or a nominee thereof. SECTION 2.07. Replacement Securities. ----------------------- If the Holder of a Security claims that the Security has been mutilated, lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security if the requirements of Section 8-405 of the New York Uniform Commercial Code are met and, in the case of a mutilated Security, such mutilated Security is surrendered to the Trustee. If required by the Trustee or the Company, an indemnity bond must be sufficient in the judgment of both to protect the Company, the Trustee, or any Agent from any loss which any of them may suffer if a Security is replaced. The Company or the Trustee may charge for its expenses in replacing a Security. In case any such mutilated, destroyed or wrongfully taken Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security when due. Every replacement Security is an additional obligation of the Company. SECTION 2.08. Outstanding Securities. ---------------------- Securities outstanding at any time are all the Securities authenticated by the Trustee except for those converted, those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. A Security does not cease to be outstanding because the Company or one of its subsidiaries or Affiliates holds the Security. If a Security is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee receives proof satisfactory to it, or a court holds, that the replaced Security is held by a bona fide purchaser. ---- ---- If the Paying Agent (other than the Company) holds on a redemption date, repurchase date or maturity date money sufficient to pay Securities payable on that date, then on and after that date, such Securities shall be deemed to be no longer outstanding and interest on them shall cease to accrue. 10 SECTION 2.09. Securities Held by the Company or an Affiliate. ---------------------------------------------- In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or a subsidiary or an Affiliate shall be disregarded, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which the Trustee actually knows are so owned shall be so disregarded. SECTION 2.10. Temporary Securities. -------------------- Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Securities in exchange for temporary Securities. SECTION 2.11. Cancellation. ------------ The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar, Paying Agent and Conversion Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange, payment or conversion. The Trustee shall cancel all Securities surrendered for registration of transfer, exchange, payment, conversion or cancellation and may destroy canceled Securities and deliver a certificate of any such destruction to the Company. The Company may not issue new Securities to replace Securities that it has paid or delivered to the Trustee for cancellation or that any Securityholder has converted pursuant to Article 10. SECTION 2.12. Defaulted Interest. ------------------ If and to the extent the Company defaults in a payment of interest on the Securities, it shall pay the defaulted interest in any lawful manner plus, to the extent not prohibited by applicable statute or case law, interest payable on the defaulted interest. It may pay the defaulted interest to the persons who are Securityholders on a subsequent special record date. The Company shall fix such record date and payment date. At least 15 days before the record date, the Company shall mail to Securityholders a notice that states the record date, payment date and amount of interest to be paid. ARTICLE 3 REDEMPTION SECTION 3.01. Redemption; Notices to Trustee and DTC. -------------------------------------- If the Company wants to redeem Securities pursuant to paragraph 5 of the Securities, it shall notify the Trustee at least 15 days prior to the date on which the notice of 11 redemption is mailed to each Holder (unless a shorter notice period shall be satisfactory to the Trustee) of the redemption date and the principal amount of Securities to be redeemed. If the Company wants to redeem Securities pursuant to paragraph 5 of the Securities and DTC is a Securityholder, the Company shall notify DTC at least 30 days prior to the redemption date if the operational arrangements of DTC in effect at the time of any such redemption require such notice period. SECTION 3.02. Selection of Securities to Be Redeemed. -------------------------------------- If less than all the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed on either a pro rata basis or by lot or such other method as the Trustee shall deem fair and equitable, but in any event, in such manner as complies with applicable legal and stock exchange requirements. 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 3.03. Notice of Redemption. --------------------- At least 30 days but not more than 60 days before a redemption date, the Company shall mail by first-class mail a notice of redemption to each Holder whose Securities are to be redeemed. The notice shall identify the Securities and the principal amount thereof to be redeemed and shall state: (1) the redemption date; (2) the redemption price (including the amount of accrued and unpaid interest and Liquidated Damages, if any, to be paid on the Securities called for redemption); (3) the then Conversion Price; (4) the name and address of the Paying Agent; (5) that the right to convert Securities called for redemption shall terminate at the close of business on the second business day before the redemption date; (6) that Holders who want to convert Securities must satisfy the requirements in paragraph 8 of the Securities; (7) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; 12 (8) that interest on Securities called for redemption ceases to accrue on and after the redemption date; and (9) the CUSIP number 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 3.04. 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 Liquidated Damages, if any, to the redemption date. SECTION 3.05. 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 Liquidated Damages, if any, with respect to, all Securities to be redeemed on that date. The Paying Agent shall return to the Company, as soon as practicable, any money not required for that purpose because of conversion of Securities. SECTION 3.06. 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. If any Security selected for partial redemption is converted in part, the converted portion of such Security shall be deemed (so far as may be) to be the portion selected for redemption. ARTICLE 4 COVENANTS SECTION 4.01. Payment of Securities. --------------------- The Company shall pay the principal of, interest on and Liquidated Damages, if any, with respect to, the Securities on the dates and in the manner provided in the Securities and Registration Rights Agreement. Principal, interest and Liquidated Damages, if any, shall be considered paid on the date due if the Paying Agent holds on that date money sufficient to pay all principal, interest and Liquidated Damages, if any, then due. 13 SECTION 4.02. Maintenance of Office or Agency. ------------------------------- The Company will 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 conversion and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. 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 of the Trustee. 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. The Company hereby designates the Corporate Trust Office of the Trustee in the Borough of Manhattan, the City of New York, an agency of the Company in accordance with Section 2.03. SECTION 4.03. SEC Reports. ----------- The Company shall file with the Trustee within 30 days 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 Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act "). The Company also shall comply with the other provisions of TIA (S) 314(a). So long as the Securities remain outstanding, the Company shall cause its annual reports to shareholders and any other financial reports furnished by it to shareholders generally to be mailed to the Holders at their addresses appearing in the register of Securities maintained by the Registrar. SECTION 4.04. Compliance Certificate. ---------------------- The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company an Officers' Certificate stating whether or not the signatories know of any Default by the Company in performing any of its obligations under this Indenture or the Securities. If they do know of any such Default, the certificate shall describe the Default and its status. One of the officers signing such certificate shall be the principal executive, principal financial or principal accounting officer of the Company. 14 SECTION 4.05. Stay, Extension and Usury Laws. ------------------------------ The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 4.06. Corporate Existence. ------------------- Subject to Article 5, the Company will 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 subsidiary in accordance with the respective organizational documents of each subsidiary and the rights (charter and statutory), licenses and franchises to the Company and its subsidiaries; provided, however, that the Company shall not be required to preserve any such - -------- ------- right, license or franchise, or the corporate existence of any subsidiary, if in the judgment of the Board of Directors, (i) such preservation or existence is not material to the conduct of business of the Company and (ii) the loss of such right, license or franchise or the dissolution of such subsidiary does not have a material adverse impact on the Holders. SECTION 4.07. Notice of Default. ----------------- In the event that any Default under Section 6.01 hereof shall occur, the Company will give prompt written notice of such Default to the Trustee. SECTION 4.08. Change in Control. ----------------- (a) In the event that there shall occur a Change in Control (as defined below) each Holder shall have the right (the "Repurchase Right") upon receipt of a Repurchase Right Notice (as defined below), at such Holder's option, to require the Company to repurchase any Security of such Holder or any portion of the principal amount thereof which is $1,000 or an integral multiple of $1,000, on the date (the "Repurchase Date") specified by the Company in its Repurchase Right Notice, which date shall not be later than 45 days after the date of the Repurchase Right Notice, or, if such 45th day is a Legal Holiday, the next subsequent day which is not a Legal Holiday, unless otherwise required by applicable law, at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to and including the Repurchase Date (the "Repurchase Price"). The right to require the repurchase of Securities shall not continue after a discharge of the Company from its obligations with respect to the Securities in accordance with Article 8. (b) Within 30 days after the occurrence of a Change in Control, the Company, or, at the request of the Company and at the Company's expense, the Trustee, shall give notice of the occurrence of the Change in Control and of the Repurchase Right set forth herein (the 15 "Repurchase Right Notice") by first-class mail, postage prepaid, to each Holder at such Holder's address appearing in the registry books of the Company kept by the Registrar. The Company shall deliver a copy of the Repurchase Right Notice to the Trustee. The Company shall also place such notice in a financial newspaper of general circulation in New York City. No failure of the Company to give the foregoing notice shall limit any such Holder's right to exercise a Repurchase Right. Any such notice shall state that a Change in Control has occurred and that such Holder has the right to require the Company to repurchase such Holder's Securities and shall contain all instructions and materials necessary to enable such Holders to deliver Securities pursuant to the Repurchase Right including, without limitation, the following: (1) the Repurchase Date; (2) the date by which the Repurchase Right must be exercised; (3) the Repurchase Price; (4) that Securities are to be surrendered for payment of the Repurchase Price; (5) that the exercise of the Repurchase Right is irrevocable, unless the Company shall default in making the repurchase payment when due, in which case Holders who elect to exercise the Repurchase Right will retain the right to convert Securities submitted for repurchase until the close of business on the date such default is cured and such Security is repurchased; and (6) the then existing Conversion Price for conversion of Securities, the date on which the right to convert the principal of the Securities to be repurchased will terminate and the place or places where such Securities may be surrendered for conversion. (c) To exercise a Repurchase Right, a Holder shall deliver to the Company (if it is acting as its own Paying Agent) or to a Paying Agent designated by the Company for such purpose in the notice referred to above on or before the 30th day after the date of the Repurchase Right Notice, or, if such day is a Legal Holiday, the next subsequent day which is not a Legal Holiday, (i) written notice (which notice shall be deemed to be delivered when received) of the Holder's exercise of such right, which notice shall set forth the name of the Holder, the principal amount of Securities (or portions thereof) to be repurchased, a statement that an election to exercise the Repurchase Right is being made thereby and (ii) the Securities with respect to which the Repurchase Right is being exercised, duly endorsed for transfer to the Company, and the Holder of such Securities shall be entitled to receive from the Company (if it is acting as its own Paying Agent) or such Paying Agent a nontransferable receipt of deposit evidencing such deposit. Such written notice shall be irrevocable, except as provided in Section 4.08(b) above. If the Repurchase Date is between a regular record date for the payment of interest and the next succeeding interest payment date, any Security to be repurchased must be accompanied by funds equal to the interest payable on such succeeding interest payment date on the principal amount to be repurchased and Liquidated Damages, if any, and the interest on the principal amount of the Security being repurchased and Liquidated Damages, if any with respect thereto, will be paid on such next succeeding interest payment date to the registered holder of such Security on the 16 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 Liquidated Damages, if any, with respect thereto, will be paid on such interest payment date to the registered holder of such Security on the immediately preceding record date. (d) In the event a Repurchase Right shall be exercised in accordance with the terms hereof, the Company shall pay or cause to be paid the applicable Repurchase Price with respect to the Securities as to which the Repurchase Right shall have been exercised to the Holder on the Repurchase Date. (e) Prior to a Repurchase Date, the Company shall deposit with the Trustee or with a Paying Agent (or if the Company is acting as its own Paying Agent, segregate and hold in trust in accordance with Section 2.04) an amount of money sufficient to pay the Repurchase Price payable in respect of all of the Securities which are to be repurchased on that date. If any Security submitted for repurchase is converted prior to the repurchase thereof, any money deposited with the Trustee or with the Paying Agent or so segregated and held in trust for the redemption of such Security shall be paid to the Company upon its request, or, if then held by the Company, shall be discharged from such trust. (f) Both the notice of the Company and the notice of the Holder having been given as specified in this Section 4.08, the Securities so to be repurchased shall, on the Repurchase Date become due and payable at the Repurchase Price applicable thereto and from and after such date (unless the Company shall default in the payment of the Repurchase Price) such Securities shall cease to bear interest. Upon surrender of any such Security for repurchase in accordance with said notice, such Security shall be paid by the Company at the Repurchase Price. If any Security shall not be paid upon surrender thereof for repurchase, the principal shall, until paid, bear interest from the Repurchase Date at the rate borne by such Security. (g) Any Security which is to be submitted for repurchase only in part shall be delivered pursuant to this Section 4.08 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing) and the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Security without any service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, of the same tenor and in aggregate principal amount equal to and in exchange for the portion of the principal of such Security not submitted for repurchase. (h) If any repurchase pursuant to the foregoing provisions constitutes an "issuer tender offer" as defined in Rule 13e-4 under the Exchange Act, the Company will comply with the requirements of Rule 13e-4, Rule 14e-1 and any other tender offer rules under the Exchange Act which then may be applicable, including the filing of an Issuer Tender Offer Statement on Schedule 13E-4 with the SEC and the furnishing of certain information contained therein to the Holders. 17 (i) As used in this Section 4.08: A "Change in Control" means the occurrence of any of the following events: (i) any person (including any entity or group deemed to be a "person" under Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) is or becomes the direct or indirect beneficial owner (as determined in accordance with Rule 13d-3 under the Exchange Act) of shares of the Company's capital stock representing greater than 50% of the total voting power of all shares of capital stock of the Company entitled to vote in the election of directors of the Company 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 the assets of the Company, (iii) when, during any period of 12 consecutive months after the date of original issuance of the 9 1/4% Preferred Stock, 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 who were either directors at the beginning of such period or whose election or nomination for election was previously so approved), cease for any reason to constitute a majority of the Board of Directors 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. "Conversion Price" shall be deemed to equal the conversion price of ---------------- the 9 1/4% Preferred Stock per share of Common Stock immediately prior to the issuance of the Securities specified in the form of Security attached hereto, as such Conversion Price may be adjusted from time to time pursuant to Section 10.06 hereof. SECTION 4.09. Maintenance of Properties. ------------------------- The Company will cause all properties used or useful in the conduct of its business or the business of any subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will 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; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any subsidiary and not disadvantageous in any material respect to the Holders. 18 SECTION 4.10. Payment of Taxes and Other Claims. --------------------------------- The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon the Company or any subsidiary or upon the income, profits or property of the Company or any subsidiary, and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any subsidiary; provided, -------- however, that the Company shall not be required to pay or discharge or cause to - ------- be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 4.11. 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 4.12. 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) or 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, an Event of Default shall have occurred and be continuing or a Default that with notice or lapse of time or both would constitute an Event of Default shall have occurred and be continuing. ARTICLE 5 SUCCESSORS SECTION 5.01. When Company May Merge, etc. ---------------------------- The Company shall not consolidate with or merge into, or directly or indirectly transfer or lease all or substantially all of its assets to, any person and the Company shall not permit any person to consolidate with or merge into the Company or transfer all or substantially all of its properties and assets to the Company unless: (1) the person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale or conveyance shall have been made, is a 19 person organized and existing under the laws of the United States, any State thereof or the District of Columbia; (2) the person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale or conveyance shall have been made, assumes by supplemental indenture all the obligations of the Company under the Securities and this Indenture, including, without limitation, the provision of conversion rights in accordance with Section 10.12; (3) immediately before and immediately after giving effect to such transaction no Default or Event of Default shall have occurred and be continuing; and (4) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. The Company shall deliver to the Trustee prior to the consummation of the proposed transaction an Officers' Certificate to the foregoing effect and an Opinion of Counsel stating that the proposed transaction and such supplemental indenture comply with this Indenture. SECTION 5.02. Successor Substituted. --------------------- Upon any consolidation or merger or transfer or lease of all or substantially all of the assets of the Company in accordance with Section 5.01, the successor person formed by such consolidation or into which the Company is merged or to which such transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, and shall assume every duty and obligation of, the Company under this Indenture with the same effect as if such successor corporation had been named as the Company herein. When the successor corporation assumes all obligations of the Company hereunder, all obligations of the predecessor corporation shall terminate. ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01. Events of Default. ----------------- An "Event of Default" occurs if: (1) the Company defaults in the payment of interest on any Security when the same becomes due and payable and the default continues for a period of 30 days, whether or not such payment shall be prohibited by the provisions of Article 11 hereof; 20 (2) the Company defaults in the payment of the principal of or Liquidated Damages, if any, with respect to, any Security when the same becomes due and payable at Maturity, whether or not such payment shall be prohibited by the provisions of Article 11 hereof: (3) the Company fails to comply with any of its other agreements in the Securities or this Indenture and the default continues for the period and after the notice specified below; (4) an event of default shall have occurred and be continuing under any mortgage, indenture, instrument or other evidence of indebtedness under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company or any subsidiary, whether such indebtedness now exists or is created hereafter, which event of default results in the acceleration of such indebtedness prior to its express maturity and such acceleration is not rescinded or indebtedness is not paid or discharged for the period and after the notice specified below and the principal amount of such indebtedness, together with the principal amount of any other such indebtedness the maturity of which has been accelerated, aggregates $15 million or more; (5) a final judgment or judgments for the payment of money in excess of $15 million in the aggregate are rendered against the Company or a subsidiary and such judgment or judgments remain unstayed, unsatisfied or undischarged for the period and after the notice specified below; (6) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (7) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other 21 similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action. A default under clause (3), (4) or (5) is not an Event of Default until the Trustee or the Holders of at least 25% in principal amount of the Securities notify the Company of the default and the Company does not cure the default within 60 days with respect to clauses (3) or (5), and within 30 days with respect to clause (4), 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% in principal amount of the outstanding Securities request the Trustee to give such notice on their behalf, the Trustee shall do so. The Trustee shall not be deemed to have notice of any Default hereunder unless it shall have actual knowledge of such Default or it shall have received written notice thereof making specific reference to such Default as a Default. SECTION 6.02. Acceleration. ------------ If an Event of Default (other than an Event of Default specified in Section 6.01(6) or (7)) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the Securities by notice to the Company and the Trustee, may declare the principal of and accrued interest on and Liquidated Damages, if any, with respect to all the Securities to be immediately due and payable. Upon such declaration such principal, interest and Liquidated Damages, if any, shall be due and payable immediately. If an Event of Default specified in Section 6.01(6) or (7) occurs, all unpaid principal and accrued interest on and Liquidated Damages, if any, with respect to the Securities then 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. The Holders of a majority in principal amount of the Securities by notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal, interest or Liquidated Damages, if any, that has become due solely because of the acceleration. SECTION 6.03. Collection of Indebtedness and Suits for Enforcement by ------------------------------------------------------- Trustee. ------- The Company covenants that if (1) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of or Liquidated Damages, if any, with respect to, any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal, any 22 Liquidated Damages and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and Liquidated Damages and on any overdue interest, at the rate or rates prescribed therefor in such Securities, and, in addition thereto, 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. If an Event of Default with respect to Securities occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the holders of Securities by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 6.04. Other Remedies. -------------- Notwithstanding any other provision of this Indenture, 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 and Liquidated Damages, if any, with respect to, the Securities or to enforce the performance of any provision of the Securities or 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. All remedies are cumulative. SECTION 6.05. Waiver of Past Defaults. ----------------------- Subject to Sections 6.08 and 9.02, the Holders of a majority in principal amount of the Securities by notice to the Trustee may waive an existing Default and its consequences. When a Default is waived, it is cured and ceases. SECTION 6.06. Control by Majority. ------------------- The Holders of a majority in principal amount of the Securities 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. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, is unduly prejudicial to the rights of other Securityholders or 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. 23 SECTION 6.07. Limitation on Suits. ------------------- Except as provided in Section 6.08, a Securityholder may pursue a remedy with respect to this Indenture or the Securities only if: (1) the Holder gives to the Trustee written notice of a continuing Event of Default; (2) the Holders of at least 25% in principal amount of the Securities make a written request to the Trustee to institute proceedings in respect of such Event of Default; (3) such Holder or Holders offer to the Trustee reasonable indemnity against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (5) during such 60-day period the Holders of a majority in principal amount of the Securities do not give the Trustee a direction inconsistent with the request. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder. SECTION 6.08. 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 or Liquidated Damages, if any, with respect to, such Security, on or after the respective due dates expressed in such Security or Registration Rights Agreement, 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 such Holder. SECTION 6.09. 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, any predecessor Trustee and the Securityholders allowed in any judicial proceedings relative to the Company, its creditors or its property. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder of the Securities 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 Holder of the Securities in any such proceeding. 24 SECTION 6.10. Priorities. ---------- If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 7.07; ----- Second: to holders of Senior Indebtedness to the extent required by ------ Article 11; Third: to Securityholders for amounts due and unpaid on the Securities ----- for principal, interest and Liquidated Damages, if any, ratably, without preference or priority of any kind, according to the amounts due and payable on or with respect to, the Securities for principal, interest and Liquidated Damages, if any, respectively; and Fourth: to the Company or as otherwise required by applicable law or a ------ court of competent jurisdiction. The Trustee may fix a record date and payment date for any payment by it to Securityholders pursuant to this Section. SECTION 6.11. Undertaking for Costs. --------------------- 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, a court in its discretion may require the filing by any party litigant in the suit other than the Trustee 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 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.08 or a suit by Holders of more than 10% in principal amount of the Securities. ARTICLE 7 TRUSTEE SECTION 7.01. 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: (1) The Trustee need perform only those duties that are specifically set forth in this Indenture and no others. 25 (2) 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: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.01. (2) 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. (3) 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 6.06. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01. (e) The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. SECTION 7.02. 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 and/or an Opinion of Counsel. 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 act through agents and shall not be responsible for the misconduct or negligence of any agent 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 believes to be authorized or within its rights or powers. 26 SECTION 7.03. 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 the Company or an Affiliate thereof with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. The Trustee, however, must comply with Sections 7.10 and 7.11. SECTION 7.04. 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 other than its certificate of authentication. SECTION 7.05. Notice of Defaults. ------------------ If a Default occurs and is continuing and if it is actually known to the Trustee or the Trustee has received written notice thereof, the Trustee shall mail to each Securityholder a notice of the Default within 90 days after it occurs. Except in the case of a Default in payment of principal of or interest on or Liquidated Damages, if any, with respect to, any Security, the Trustee may withhold the notice if and so long as it in good faith determines that withholding the notice is in the interests of Securityholders. SECTION 7.06. Reports by Trustee to Holders. ----------------------------- If required by TIA (S) 313(a), within 60 days after each May 1 beginning with May 1, 1998, the Trustee shall mail to each Securityholder as required by TIA (S) 313(c) a brief report dated as of such date that complies with TIA (S) 313(a). The Trustee also shall comply with TIA (S) 313(b). A copy of each report at the time of its mailing to Securityholders shall be filed by the Trustee with the SEC and each stock exchange, if any, on which the Securities are listed. The Company shall notify the Trustee when the Securities are listed on or delisted from any stock exchange. SECTION 7.07. Compensations and Indemnity. --------------------------- The Company shall pay to the Trustee from time to time such compensation for its services as shall be agreed upon in writing. 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 out-of-pocket expenses incurred by it. Such expenses shall include the reasonable compensation and out-of-pocket expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee against any loss or liability (including the fees and expenses of counsel) incurred by it in connection with the administration of this trust 27 and the performance of its duties hereunder. The Company need not pay for any settlement made without its consent. The Trustee shall notify the Company promptly of any claim for which it may seek indemnification. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee through the Trustee's negligence or bad faith. To secure the Company's payment obligations in this Section, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on or Liquidated Damages, if any, with respect to, particular Securities. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(6) or (7) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any bankruptcy law. SECTION 7.08. Replacement of Trustee. ---------------------- A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign by so notifying the Company. The Holders of a majority in principal amount of the Securities may remove the Trustee by so notifying the Trustee and the Company and may appoint a successor Trustee with the Company's consent. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged a bankrupt or an insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the Securities 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 may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. 28 A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon 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. The successor Trustee shall mail a notice of its succession to Securityholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.07. SECTION 7.09. Successor Trustee by Merger, etc. --------------------------------- If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to another corporation, the successor corporation without any further act shall be the successor Trustee. SECTION 7.10. Eligibility; Disqualification. ----------------------------- This Indenture shall always have a Trustee who satisfies the requirements of TIA (S) 310(a)(1). The Trustee shall always have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA (S) 310(b). SECTION 7.11. Preferential Collection of Claims Against Company. ------------------------------------------------- The Trustee shall comply with TIA (S) 311(a), excluding any creditor relationship listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be subject to TIA (S) 311(a) to the extent indicated. SECTION 7.12. Conflicting Interests. --------------------- If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. ARTICLE 8 DISCHARGE OF INDENTURE SECTION 8.01. Termination of Company's Obligations'. ------------------------------------ The Company may terminate all of its obligations under this Indenture if all sums required to be paid hereunder have been paid and all Securities previously authenticated and delivered (other than mutilated, destroyed, lost or stolen Securities which have been replaced or paid) have been delivered to the Trustee for cancellation or if: 29 (1) the Securities mature within one year or all of them are to be called for redemption within one year under arrangements satisfactory to the Trustee for giving the notice of redemption; (2) the Company irrevocably deposits in trust with the Trustee money or U.S. Government Obligations sufficient to pay principal of, interest on and Liquidated Damages, if any, with respect to, the Securities to maturity or redemption, as the case may be. Immediately after making the deposit, the Company shall give notice of such event to the Securityholders; (3) the Company has paid or caused to be paid all sums then payable by the Company to the Trustee hereunder as of the date of such deposit; and (4) the Company has delivered to the Trustee an Officers' Certificate stating that all conditions precedent provided for herein relating to the satisfaction and discharge of this Indenture have been complied with. The Company may make the deposit only during the one-year period and only if Article 11 permits it. However, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.10, 2.11, 4.01, 4.02, 7.07, 7.08, 8.02, 8.03 and 8.04, and in Article 10 shall survive until the Securities are no longer outstanding. Thereafter the Company's obligations in Sections 7.07 and 8.03 shall survive. After a deposit pursuant to this Section 8.01, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under the Securities and this Indenture except for those surviving obligations specified above. In order to have money available on a payment date to pay principal, interest on or Liquidated Damages, if any, with respect to, the Securities, the U.S. Government Obligations shall be payable as to principal or interest on or before such payment date in such amounts as will provide the necessary money. "U.S. Government Obligations" means direct non-callable obligations --------------------------- of, or non-callable obligations guaranteed by, the United States of America for the payment of which the full faith and credit of the United States of America is pledged. SECTION 8.02. Application of Trust Money. -------------------------- The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 8.01. 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 Liquidated Damages, if any, with respect to, the Securities. Money and securities so held in trust are not subject to the subordination provisions of Article 11. 30 SECTION 8.03. Repayment to Company. -------------------- The Trustee and the Paying Agent shall promptly pay to the Company upon request any excess money or securities held by them at any time. 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 Liquidated Damages, if any, that remains unclaimed for three years; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may, at the expense of the Company, cause to be published once in a newspaper of general circulation in the City of New York or cause to be mailed to each Holder notice stating that such money remains and that, after a date specified therein, which shall not be less than 30 days from the date of such publication or mailing, any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Securityholders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person. SECTION 8.04. Reinstatement. ------------- If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 8.01 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 Section 8.01 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 8.01; provided, however, -------- ------- that if the Company has made any payment of principal of, or interest on, or Liquidated Damages, if any, with respect to, 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 from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE 9 AMENDMENTS SECTION 9.01. Without Consent of Holders. -------------------------- The Company, with the consent of the Trustee, may amend or supplement this Indenture or the Securities without notice to or the consent of any Securityholder: (1) to cure any ambiguity, omission, defect or inconsistency; (2) to comply with Sections 5.01 and 10.12; (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; or 31 (4) to make any change that does not materially adversely affect the rights of any Securityholder. SECTION 9.02. With Consent of Holders. ----------------------- The Company, with the consent of the Trustee, may amend or supplement this Indenture or the Securities without notice to any Securityholder but with the written consent of the Holders of at least a majority in principal amount of the Securities then outstanding. Subject to Section 6.08, the Holders of a majority in principal amount of the Securities then outstanding may waive compliance by the Company with any provision of this Indenture or the Securities without notice to any Securityholder. However, without the consent of each Securityholder affected, an amendment, supplement or waiver, including a waiver pursuant to Section 6.05, may not: (1) reduce the percentage of Securities whose Holders must consent to an amendment, supplement or waiver; (2) reduce the rate of or extend the time for payment of interest on or Liquidated Damages, if any, with respect to, any Security; (3) reduce the principal amount of, or Liquidated Damages, if any, with respect to, or extend the Stated Maturity of any Security (including, without limitation, the optional redemption provisions); (4) change the place of payment where, or the coin or currency in which, any Security or interest thereon is payable; (5) waive a default in the payment of principal of, interest on or Liquidated Damages, if any, with respect to, any Security; (6) reduce any amount payable on redemption at the option of the Company or upon exercise of the Repurchase Right thereof or otherwise change the redemption or Repurchase Right provisions or adversely affect any repurchase rights, or impair the right of a Holder to institute suit for the enforcement of any such payment on any Security when due; (7) make any change in Section 6.05, Section 6.08 or Section 9.02; or (8) impair the right to convert any Security into stock, securities or other property or assets (including cash), subject to the terms set forth in this Indenture, or except as permitted under this Indenture, increase the Conversion Price or otherwise modify or affect in any manner adverse to the Holders the conversion provisions hereof. Promptly after an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing the amendment. However, the failure to 32 give such notice to all Holders, or any defect therein, will not impair or affect the validity of the amendment. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment or supplement, but it shall be sufficient if such consent approves the substance thereof. The Indenture may not be amended to alter the subordination of any outstanding Securities without consent of each holder of Senior Indebtedness then outstanding that would be adversely affected thereby. SECTION 9.03. Compliance with Trust Indenture Act. ----------------------------------- Every amendment to this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 9.04. Revocation and Effect of Consents. --------------------------------- Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder is a continuing consent by such 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 if the Trustee receives the notice of revocation before the date the amendment, supplement or waiver becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Securityholder. After an amendment, supplement or waiver becomes effective with respect to the Securities, it shall bind every Securityholder unless it makes a change described in any of clauses (1) through (8) of Section 9.02. In that case the amendment, supplement or waiver shall bind each Holder who has consented to it and, provided that notice of such amendment, supplement or waiver is reflected on a Security that evidences the same debt as the consenting Holder's Security, every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security. SECTION 9.05. Notation on or Exchange of Securities. ------------------------------------- If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder 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. 33 SECTION 9.06. Trustee Protected. ----------------- The Trustee need not sign any amendment, supplement or waiver authorized pursuant to this Article that adversely affects the Trustee's rights. The Trustee shall be entitled to receive and rely upon an Opinion of Counsel and an Officers' Certificate that any supplemental indenture complies with the Indenture. ARTICLE 10 CONVERSION SECTION 10.01. Conversion Privilege. -------------------- A Holder of a Security may convert such Security into Common Stock at any time prior to maturity, at the Conversion Price then in effect; provided, -------- however, that, if such Security is called for redemption pursuant to Article 3, - ------- such conversion right shall terminate at the close of business on the Conversion Termination Date (unless the Company shall default in making the redemption payment when due, in which case the conversion right shall terminate at the close of business on the date such default is cured and such Security is redeemed); provided, further, that, if the Holder of a Security presents such -------- ------- Security for redemption prior to the close of business on the Conversion Termination Date, the right of conversion shall terminate upon presentation of the Security to the Trustee (unless the Company shall default in making the redemption payment when due, in which case the conversion right shall terminate at the close of business on the date such default is cured and such Security is redeemed). The number of shares of Common Stock issuable upon conversion of a Security shall be determined by dividing the principal amount of the Security or portion thereof surrendered for conversion by the Conversion Price in effect on the Conversion Date. The initial Conversion Price is set forth in paragraph 8 of the Securities and is subject to adjustment as provided in this Article 10. A Holder may convert a portion of a Security equal to $1,000 or any integral multiple thereof. Provisions of this Indenture that apply to conversion of all of a Security also apply to conversion of a portion of a Security. In the case of redemption at the option of the Holder as a result of a Change in Control, such conversion right will terminate upon receipt by the Company of a written notice of the exercise of such option (unless the Company shall default in making the repurchase payment when due, in which case the conversion right shall terminate at the close of business on the date such default is cured and such Security is repurchased). A Holder of Securities is not entitled to any rights of a holder of Common Stock until such Holder has converted his or her Securities to Common Stock, and only to the extent such Securities are deemed to have been converted into Common Stock pursuant to this Article 10. 34 SECTION 10.02. Conversion Procedure. -------------------- To convert a Security, a Holder must (a) complete and manually sign the conversion notice on the back of the Security and deliver such notice to the Conversion Agent, (b) surrender the Security to the Conversion Agent, (c) furnish appropriate endorsements and transfer documents if required by the Registrar or the Conversion Agent, and (d) pay any transfer or similar tax, if required. The date on which the Holder satisfies all of the above requirements is the "Conversion Date." As soon as practicable after the Conversion Date, the Company shall deliver to the Holder through the Conversion Agent a certificate for the number of whole shares of Common Stock issuable upon the conversion and cash in lieu of any fractional shares pursuant to Section 10.03. The person in whose name the certificate is registered shall be deemed to be a shareholder of record on the Conversion Date; provided, however, that no -------- ------- surrender of a Security on any date when the stock transfer books of the Company shall be closed shall be effective to constitute the person or persons entitled to receive the shares of Common Stock upon such conversion as the record holder or holders of such shares of Common Stock on such date, but such surrender shall be effective to constitute the person or persons entitled to receive such shares of Common Stock as the record holder or holders thereof for all purposes at the close of business on the next succeeding day on which such stock transfer books are open; provided, further, that such conversion shall be at the Conversion -------- ------- Price in effect on the Conversion Date as if the stock transfer books of the Company had not been closed. Upon conversion of a Security, such person shall no longer be a Holder of such Security. No payment or adjustment will be made for dividends or distributions on shares of Common Stock issued upon conversion of a Security. No payment or adjustment will be made for accrued interest on or Liquidated Damages, if any, with respect to, a converted Security. If any Holder surrenders a Security for conversion after the close of business on the record date for the payment of an installment of interest and before the close of business on the related interest payment date, then, notwithstanding such conversion, the interest and Liquidated Damages, if any, payable on or with respect to, such interest payment date shall be paid to the Holder of such Security on such record date. In such event, such Security (except Securities called for redemption on a redemption date or with a Conversion Termination Date during such period), when surrendered for conversion, must be accompanied by delivery of a check or draft payable to the Conversion Agent in an amount equal to the interest and Liquidated Damages, if any, payable on such interest payment date on the portion so converted. If such payment does not accompany such Security, the Security shall not be converted. If the Company defaults in the payment of interest and Liquidated Damages, if any, payable on the interest payment date, the Conversion Agent shall repay such funds to the Holder. If a Holder converts more than one Security at the same time, the number of shares of Common Stock issuable upon the conversion shall be based on the aggregate principal amount of Securities converted. 35 Upon surrender of a Security that is converted in part, the Company shall execute, and the Trustee shall authenticate and deliver to the Holder, a new Security equal in principal amount to the unconverted portion of the Security surrendered. SECTION 10.03. Fractional Shares. ----------------- The Company will not issue fractional shares of Common Stock upon conversion of Securities. In lieu thereof, the Company will pay an amount in cash based upon the Closing Price of the Common Stock on the Trading Day immediately prior to the date of conversion. SECTION 10.04. Taxes on Conversion. ------------------- If a Holder converts a Security, the Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon such conversion. However, the Holder shall pay any such tax which is due because the Holder requests the shares to be issued in a name other than the Holder's name. The Conversion Agent may refuse to deliver the certificate representing the Common Stock being issued in a name other than the Holder's name until the Conversion Agent receives a sum sufficient to pay any tax which will be due because the shares are to be issued in a name other than the Holder's name. Nothing herein shall preclude any tax withholding required by law or regulation. SECTION 10.05. Company to Provide Stock. ------------------------ The Company shall, prior to issuance of any Securities hereunder, and from time to time as it may be necessary, reserve, out of its authorized but unissued Common Stock, a sufficient number of shares of Common Stock to permit the conversion of all outstanding Securities into shares of Common Stock. All shares of Common Stock delivered upon conversion of the Securities shall be newly issued shares or treasury shares, shall be duly authorized, validly issued, fully paid and nonassessable and shall be free from preemptive rights and free of any lien or adverse claim. The Company will endeavor promptly to comply with all federal and state securities laws regulating the offer and delivery of shares of Common Stock upon conversion of Securities, if any, and will list or cause to have quoted such shares of Common Stock on each national securities exchange or in the over-the-counter market or such other market on which the Common Stock is then listed or quoted. SECTION 10.06. Adjustment of Conversion Price. ------------------------------ The Conversion Price as stated in paragraph 8 of the Securities shall be adjusted from time to time by the Company as follows: (a) In case the Company shall (i) pay a dividend in shares of Common Stock to all holders of Common Stock, (ii) make a distribution in shares of Common Stock to all holders of Common Stock, (iii) subdivide its outstanding Common Stock into a greater number 36 of shares, or (iv) combine its outstanding Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior thereto shall be adjusted so that the holder of any Security thereafter surrendered for conversion shall receive that number of shares of Common Stock which would have been received upon consummation of such event by a holder of the number of shares of Common Stock into which such Security might have been converted immediately prior to such event. An adjustment made pursuant to this subsection (a) shall become effective immediately after the record date in the case of a dividend in shares or distribution and shall become effective immediately after the effective date in the case of subdivision or combination. (b) In case the Company shall issue warrants, options or other rights to all or substantially all holders of its Common Stock entitling them (for a period commencing no earlier than the record date described below and expiring not more than 60 days after such record date) to subscribe for or purchase shares of Common Stock (or securities convertible into or exchangeable for Common Stock) at a price per share less than the Average Current Market Price per share (as defined in subsection (e) of this Section 10.06) of Common Stock at the record date for the determination of stockholders entitled to receive such warrants, options or other rights, the Conversion Price in effect immediately prior thereto shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to such record date by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on such record date, plus the number of shares which the aggregate offering price of the total number of shares of Common Stock so offered (or the aggregate Conversion Price of the convertible or exchangeable securities so offered) would purchase at such Average Current Market Price, and of which the denominator shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock offered (or into which the convertible or exchangeable securities so offered are convertible or exchangeable for). Such adjustment shall be made successively whenever any such warrants, options or other rights are issued, and shall become effective immediately after such record date. If at the end of the period during which such warrants, options or other rights are exercisable, not all warrants, options or other rights shall have been exercised, the adjusted Conversion Price shall be immediately readjusted to what it would have been based upon the number of additional shares of Common Stock actually issued (or the number of shares of Common Stock issuable upon conversion of convertible securities or exchange of exchangeable securities actually issued). The Company shall not issue any warrants, options or other rights in respect of shares of Common Stock held in the treasury of the Company. (c) In case the Company shall distribute to all or substantially all holders of its Common Stock (i) any shares of capital stock of the Company (other than shares of the Company's Series A Participating Cumulative Preferred Stock ("Series A Preferred Stock") upon exercise of the rights of holders of Common Stock and Employee Preferred Stock to purchase one one-hundredth of a share of Series A Preferred Stock), (ii) evidences of indebtedness, (iii) other non-cash assets (including securities of any company other than the Company), or (iv) warrants, options or other rights to subscribe for or purchase any of its securities (excluding those referred to in subsection (b) of this Section 10.06), then in each such case the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion 37 Price in effect immediately prior to the date of such distribution by a fraction of which the numerator shall be the Average Current Market Price per share of Common Stock on the record date mentioned below less the fair market value on such record date (as determined by the Board of Directors, whose determination shall be conclusive evidence of such fair market value) of the portion of the capital stock or assets or evidences of indebtedness so distributed or of such warrants, options or other rights applicable to one share of Common Stock (determined on the basis of the number of shares of Common Stock outstanding on the record date), and of which the denominator shall be the Average Current Market Price per share of the Common Stock on such record date. Such adjustment shall become effective immediately after the record date for the determination of stockholders entitled to receive such distribution. (d) In case the Company shall, by dividend or otherwise, at any time distribute (a "Triggering Distribution") to all or substantially all holders of its Common Stock cash in an aggregate amount that, together with the aggregate amount of any other cash distributions to all or substantially all holders of its Common Stock made within the 12 months preceding the date of payment of the Triggering Distribution and in respect of which no Conversion Price adjustment pursuant to this Section 10.06 has been made, exceeds 20% of the Average Current Market Price per share of Common Stock on the Trading Day (the "Determination Date") immediately preceding the day on which such Triggering Distribution is declared by the Company multiplied by the number of shares of Common Stock outstanding on such date (excluding shares held in the treasury of the Company), the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying such Conversion Price in effect immediately prior to the Determination Date by a fraction of which the numerator shall be the Average Current Market Price per share of the Common Stock on the Determination Date less the amount of cash so distributed within such 12 months (including, without limitation, the Triggering Distribution) applicable to one share of Common Stock (determined on the basis of the number of shares of Common Stock outstanding on the Determination Date) and the denominator shall be such Average Current Market Price per share of the Common Stock on the Determination Date, such reduction to become effective immediately prior to the opening of business on the day following the date on which the Triggering Distribution is paid. (e) For the purpose of any computation under subsections (b), (c) and (d) of this Section 10.06, the "Average Current Market Price" per share of Common Stock on any date shall be deemed to be the average of the daily Closing Prices for the 30 consecutive Trading Days commencing 45 Trading Days before (i) the Determination Date with respect to distributions under subsection (d) of this Section 10.06 or (ii) the record date with respect to distributions, issuances or other events requiring such computation under subsection (b) or (c) of this Section 10.06. The Average Current Market Price of Common Stock will be appropriately and equitably adjusted to reflect the effects of any stock dividend, stock split, reclassification, recapitalization, combination or distribution of assets, securities or other property (other than ordinary course cash dividends) to holders of Common Stock by the Company affecting the Common Stock, the record date, ex-dividend date or similar date of which occurs during the period in which the Average Current Market Price is to be determined. Issuances of options and securities convertible into Common Stock are deemed to be issuances of the underlying Common Stock for purposes of adjustments to the Conversion Price. 38 (f) In any case in which this Section 10.06 shall require that an adjustment be made following a record date or a Determination Date, as the case may be, established for purposes of this Section 10.06, the Company may elect to defer (but only until five Trading Days following the filing by the Company with the Trustee of the certificate described in Section 10.10) issuing to the Holder of any Security converted after such record date or Determination Date the shares of Common Stock and other capital stock of the Company issuable upon such conversion over and above the shares of Common Stock and other capital stock of the Company issuable upon such conversion only on the basis of the Conversion Price prior to adjustment; and, in lieu of the shares the issuance of which is so deferred, the Company shall issue or cause its transfer agents to issue due bills or other appropriate evidence prepared by the Company of the right to receive such shares. SECTION 10.07. No Adjustment. ------------- No adjustment in the Conversion Price shall be required unless the adjustment would require an increase or decrease of at least 1% in the Conversion Price as last adjusted; provided, however, that any adjustments which -------- ------- by reason of this Section 10.07 are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article 10 shall be made to the nearest cent or to the nearest one- hundredth of a share, as the case may be. No adjustment need be made for a transaction referred to in Section 10.06 if all Securityholders are entitled to participate in the transaction on a basis and with notice that the Board of Directors determines to be fair and appropriate in light of the basis and notice on which holders of Common Stock participate in the transaction. The Company shall give notice to the Trustee of any such determination. No adjustment need be made for a change in the par value or a change to no par value of the Common Stock. To the extent that the Securities become convertible into the right to receive cash, no adjustment need be made thereafter as to the cash. Interest will not accrue on the cash. SECTION 10.08. Equivalent Adjustments. ---------------------- In the event that, as a result of an adjustment made pursuant to this Section 10.08, the holder of any Security thereafter surrendered for conversion shall become entitled to receive any shares of capital stock of the Company other than shares of its Common Stock, thereafter the Conversion Price of such other shares so receivable upon conversion of any Securities shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock contained in this Article 10. SECTION 10.09. Adjustment for Tax Purposes. --------------------------- The Company shall be entitled to make such reductions in the Conversion Price, in addition to those required by Section 10.06, as it in its discretion shall determine to be 39 advisable in order that any stock dividends, subdivisions of shares, distributions of rights to purchase stock or securities or distributions of securities convertible into or exchangeable for stock hereafter made by the Company to its stockholders shall not be taxable. SECTION 10.10. Notice of Adjustment. -------------------- Whenever the Conversion Price is adjusted, the Company shall promptly mail to Securityholders a notice of the adjustment and file with the Trustee an Officers' Certificate briefly stating the facts requiring the adjustment and the manner of computing it. The certificate shall be conclusive evidence of the correctness of such adjustment. SECTION 10.11. Notice of Certain Transactions. ------------------------------ In the event that: (1) the Company takes any action which would require an adjustment in the Conversion Price; (2) the Company consolidates or merges with, or transfers all or substantially all of its assets to, another corporation and stockholders of the Company must approve the transaction; or (3) there is a dissolution or liquidation of the Company, the Company shall mail to Securityholders and file with the Trustee a notice stating the proposed record or effective date, as the case may be. The Company shall mail the notice at least ten days before such date. Failure to mail such notice or any defect therein shall not affect the validity of any transaction referred to in clause (1), (2) or (3) of this Section 10.11. SECTION 10.12. Effect of Reclassification, Consolidation, Merger or Sale on ------------------------------------------------------------ Conversion Privilege. -------------------- If any of the following shall occur, namely: (a) any reclassification, reorganization or other change of shares of Common Stock issuable upon conversion of the Securities (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination); (b) any consolidation or merger to which the Company is a party other than a merger in which the Company is the continuing corporation and which does not result in any reclassification of, or change (other than a change in name, or in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination) in, outstanding shares of Common Stock; (c) any sale or transfer or other conveyance of all or substantially all of the assets of the Company; or (d) any share exchange pursuant to which all of the outstanding shares of Common Stock are converted into or exchanged for other securities or property (including cash), then the Company, or such successor or purchasing corporation, as the case may be, shall, as a condition precedent to such reclassification, reorganization, change, consolidation, merger, sale or conveyance, execute and deliver to the Trustee a supplemental indenture providing that the Holder of each Security then outstanding shall have the right thereafter to convert such Security 40 into the kind and amount of shares of stock and other securities and property (including cash) receivable upon such reclassification, reorganization, change, consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of Common Stock deliverable upon conversion of such Security immediately prior to the effective date of such reclassification, reorganization, change, consolidation, merger, sale, transfer or share exchange. Such supplemental indenture shall provide for adjustments of the Conversion Price which shall be as nearly equivalent as may be practicable to the adjustments of the Conversion Price provided for in this Article 10. If, in the case of any such reclassification, reorganization, change, consolidation, merger, sale, transfer or share exchange, the stock or other securities and property (including cash) receivable thereupon by a holder of Common Stock include shares of stock or other securities and property of a corporation other than the successor or purchasing corporation, as the case may be, in such reclassification, reorganization, change, consolidation, merger, sale, transfer or share exchange, then such supplemental indenture shall also be executed by such other corporation and shall contain such additional provisions to protect the interests of the Holders as the Board of Directors shall reasonably consider necessary by reason of the foregoing. If in connection with any such reclassification, reorganization, change, consolidation, merger, sale, transfer, or share exchange each holder of shares of Common Stock is entitled to elect to receive either securities, cash or other assets upon completion of such transaction, the Company will provide or cause to be provided to each Holder the right to elect to receive the securities, cash or other assets into which the Securities held by such Holder will be convertible after completion of any such transaction on the same terms and subject to the same conditions applicable to holders of the Common Stock (including, without limitation, notice of the right to elect, limitations on the period in which such election will be made and the effect of failing to exercise the election). The provisions of this Section 10.12 shall similarly apply to successive reclassifications, reorganizations, changes, consolidations, mergers, sales, transfers or share exchanges. In the event the Company shall execute a supplemental indenture pursuant to this Section 10.12, the Company shall promptly file with the Trustee (x) an Officers' Certificate briefly stating the reasons therefor, the kind or amount of shares of stock or securities or property (including cash) receivable by Holders upon the conversion of their Securities after any such reclassification, reorganization, change, consolidation, merger, sale or conveyance, any adjustment to be made with respect thereto and that all conditions precedent have been complied with and (y) an Opinion of Counsel that all conditions precedent have been complied with. SECTION 10.13. Trustee's Disclaimer. -------------------- The Trustee has no duty to determine when an adjustment under this Article 10 should be made, how it should be made or what such adjustment should be, but may accept as conclusive evidence of the correctness of any such adjustment, and shall be protected in relying upon, the Officers' Certificate with respect thereto which the Company is obligated to file with the Trustee pursuant to Section 10.10. The Trustee makes no representation as to the validity or value of any securities or assets issued upon conversion of Securities, and the Trustee shall not be responsible for the Company's failure to comply with any provisions of this Article 10. 41 The Trustee shall not be under any responsibility to determine the correctness of any provisions contained in any supplemental indenture executed pursuant to Section 10.12, but may accept as conclusive evidence of the correctness thereof, and shall be protected in relying upon, the Officers' Certificate with respect thereto which the Company is obligated to file with the Trustee pursuant to Section 10.12. SECTION 10.14. Voluntary Reduction. ------------------- The Company from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least 20 days or such longer period as may be required by law and if the reduction is irrevocable during the period; provided, however, that in no event may the Conversion Price be less -------- ------- than the par value of a share of Common Stock. ARTICLE 11 SUBORDINATION SECTION 11.01. Agreement to Subordinate. ------------------------ The Company agrees, and each Securityholder by accepting a Security agrees, that the indebtedness evidenced by the Securities and the payment of principal thereof and interest thereon and Liquidated Damages, if any, are subordinated in right of payment, to the extent and in the manner provided in this Article 11, to the prior payment in full of all Senior Indebtedness and that the subordination is for the benefit of the holders of Senior Indebtedness. Money and securities held in trust pursuant to Article 8 are not subject to the subordination provisions of this Article 11. SECTION 11.02. Certain Definitions. ------------------- "Representative" means the indenture trustee or other trustee, agent -------------- or representative for an issue of Senior Indebtedness. "Senior Indebtedness" means the principal of, premium, if any, and ------------------- interest on (a) any and all other indebtedness and obligations of the Company (including indebtedness of others guaranteed by the Company) other than the Securities, whether or not contingent and whether outstanding on the date of this Indenture or thereafter created, incurred or assumed, which (i) is for money borrowed; (ii) is evidenced by any bond, note, debenture or similar instrument; (iii) represents the unpaid balance on the purchase price of any property, business or asset of any kind; (iv) is an obligation of the Company as lessee under any and all leases of property, equipment or other assets required to be capitalized on the balance sheet of the lessee under GAAP; (v) is a reimbursement obligation of the Company with respect to letters of credit; (vi) is an obligation of the Company with respect to interest swap obligations and foreign exchange agreements; or (vii) is an obligation of others secured by a lien to which any of the properties or assets (including, without limitation, leasehold interests and any other tangible or intangible 42 property rights) of the Company are subject, whether or not the obligations secured thereby shall have been assumed by the Company or shall otherwise be the Company's legal liability and (b) any deferrals, amendments, renewals, extensions, modifications and refundings of any indebtedness or obligations of the types referred to above; provided that Senior Indebtedness shall not include -------- (i) the Securities; (ii) any indebtedness or obligation of the Company which, by its terms or the terms of the instrument creating or evidencing it, is both subordinated to any other indebtedness or obligations of the Company and is not superior in right of payment to the Securities (including the debentures issued in exchange for the 8% Cumulative Convertible Exchangeable Preferred Stock in accordance with its terms); (iii) any indebtedness or obligation of the Company to any of its subsidiaries and (iv) any indebtedness or obligation which both is incurred by the Company in connection with the purchase of assets, materials or services in the ordinary course of business and constitutes an unsecured trade payable. SECTION 11.03. Liquidation; Dissolution; Bankruptcy. -------------------------------------- Upon any distribution to creditors of the Company in a liquidation, dissolution or winding up of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, whether voluntary or involuntary: (1) holders of Senior Indebtedness shall be entitled to receive payment in full of the principal of and interest to the date of payment on the Senior Indebtedness before Securityholders shall be entitled to receive any payment of principal of or interest on or Liquidated Damages, if any with respect to, the Securities; and (2) until the Senior Indebtedness is paid in full, any distribution to which Securityholders would be entitled but for this Article 11 shall be made to holders of Senior Indebtedness as their interests may appear, except the Securityholders may receive securities that are subordinated to Senior Indebtedness to at least the same extent as the Securities. SECTION 11.04. Company Not to Make Payments with Respect to Securities in ---------------------------------------------------------- Certain Circumstances. --------------------- Except for payment in or distribution of securities that are subordinated to Senior Indebtedness to at least the same extent as the Securities, the Company shall not make any payment with respect to the principal of or interest on or Liquidated Damages, if any, with respect to, any of the Securities or make any other payment with respect to the purchase or other acquisition of any of the Securities: (a) if there shall have occurred a default in the payment of the principal of or interest on any Senior Indebtedness; or (b) if there shall exist at the time of such payment, or such payment would create, an event of default (or an event which, with the giving of notice or the passage of time or both, would become an event of default) with respect to any Senior Indebtedness which would permit the holders (or any specified proportion of such holders) of such Senior Indebtedness to 43 accelerate the maturity thereof, and if notification of such default or event of default has been given to the Company by a holder of such Senior Indebtedness or by a trustee, agent or Representative for an issue of Senior Indebtedness; provided, however, that this clause (b) shall not prevent the making of any such - -------- ------- payment (which is not otherwise prohibited by clause (a) of this Section 11.04) for more than 89 days after a written notice of default shall have been given unless the Senior Indebtedness in respect of which such event of default exists has been declared due and payable in its entirety, in which case no such payment may be made; unless and until, in each case, whether described in clause (a) or clause (b), such default or event of default shall have been cured or waived in the manner required by the instrument relating to such Senior Indebtedness or shall otherwise have ceased to exist. Regardless of anything to the contrary herein, nothing shall prevent (a) any payment by the Trustee to the Securityholders of amounts deposited with it pursuant to Article 8 or (b) any payment by the Trustee or the Paying Agent as permitted by Section 11.11. SECTION 11.05. Acceleration of Securities. -------------------------- If payment of the Securities is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Indebtedness of the acceleration. SECTION 11.06. When Distribution Must be Paid Over. ----------------------------------- In the event that the Company shall make any payment to the Trustee of the principal of, interest on or Liquidated Damages, if any, with respect to, the Securities at a time when such payment is prohibited by Section 11.03 or 11.04, such payment shall be held by the Trustee, in trust for the benefit of, and shall be paid forthwith over and delivered to, the holders of Senior Indebtedness (pro rata as to each of such holders on the basis of the respective amounts of Senior Indebtedness held by them) or their Representative or the trustee under the indenture or other agreement (if any) pursuant to which Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. If a distribution is made to Securityholders that because of this Article 11 should not have been made to them, the Securityholders who receive the distribution shall hold it in trust for holders of Senior Indebtedness and pay it over to them as their interests may appear. SECTION 11.07. Notice by Company. ------------------- The Company shall promptly notify the Trustee and the Paying Agent in writing of any facts known to the Company that would cause a payment of principal of, interest on or Liquidated Damages, if any, with respect to, Securities to violate this Article 11. 44 SECTION 11.08. Subrogation. ------------- After all Senior Indebtedness is paid in full and until the Securities are paid in full, Securityholders shall be subrogated to the rights of holders of Senior Indebtedness to receive distributions applicable to Senior Indebtedness to the extent that distributions otherwise payable to the Securityholders have been applied to the payment of Senior Indebtedness. A distribution made under this Article 11 to holders of Senior Indebtedness which otherwise would have been made to Securityholders is not, as between the Company and Securityholders, a payment by the Company on Senior Indebtedness. SECTION 11.09. Subordination May Not be Impaired by Company. -------------------------------------------- No right of any holder of Senior Indebtedness to enforce the subordination of the indebtedness evidenced by the Securities shall be impaired by any act or failure to act by the Company or by its failure to comply with this Indenture. SECTION 11.10. Distribution or Notice to Representative. ---------------------------------------- Whenever a distribution is to be made or a notice given to holders of Senior Indebtedness, the distribution may be made and the notice given to their Representative. SECTION 11.11. Rights of Trustee and Paying Agent. ---------------------------------- The Trustee or Paying Agent may continue to make payments on the Securities until it receives written notice of facts that would cause a payment of principal of, interest on or Liquidated Damages, if any, with respect to, the Securities to violate this Article 11. Only the Company, a Representative or a holder of an issue of Senior Indebtedness that has no Representative may give the notice. The Trustee shall be entitled to rely on the delivery to it of a written notice by a person representing himself to be a holder of Senior Indebtedness (or a Representative on behalf of such holder) to establish that such notice has been given by a holder of Senior Indebtedness or a Representative on behalf of any such holder. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any person who is a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article 11, the Trustee may request such person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such person, the extent to which such person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such person under this Article 11, and if such evidence is not furnished the Trustee may defer any payment to such person pending judicial determination as to the right of such person to receive such payment or until such time as the Trustee shall be otherwise satisfied as to the right of such person to receive such payment. The Trustee in its individual or any other capacity may hold Senior Indebtedness with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. 45 The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holder if it shall mistakenly pay over or distribute to Securityholders or the Company or any other person money or assets to which any holders of Senior Indebtedness shall be entitled by virtue of this Article 11 or otherwise. SECTION 11.12. Officers' Certificate. --------------------- If there occurs an event referred to in Section 11.03 or 11.04, the Company shall promptly give to the Trustee an Officers' Certificate (on which the Trustee may conclusively rely) identifying all holders of Senior Indebtedness or their Representatives and the principal amount of Senior Indebtedness then outstanding held by each such holder and stating the reasons why such Officers' Certificate is being delivered to the Trustee. SECTION 11.13. Obligation of Company Unconditional. ----------------------------------- Nothing contained in this Article 11 or elsewhere in this Indenture or in any Security is intended to or shall impair, as between the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities the principal of, interest on and Liquidated Damages, if any, with respect to, the Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders of the Securities and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article 11 of the holders of Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any distribution of assets of the Company referred to in this Article 11, the Trustee, subject to the provisions of Sections 7.01 and 7.02, and the Holders of the Securities shall be entitled to rely upon any order or decree by any court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of the liquidating trustee or agent or other person making any distribution to the Trustee or the Holders of the Securities, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 11. Nothing contained in this Article 11 or elsewhere in this Indenture or in any Security is intended to or shall affect the obligation of the Company to make, or prevent the Company from making, at any time except during the pendency of any dissolution, winding up, liquidation or reorganization proceeding, and except during the continuance of any default specified in Section 11.04 (not cured or waived), payments at any time of the principal of, interest on or Liquidated Damages, if any, with respect to, the Securities. 46 ARTICLE 12 MISCELLANEOUS SECTION 12.01. Trust Indenture Act Controls. ---------------------------- If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. SECTION 12.02. Notices. ------- Any notice or communication by the Company or the Trustee to the other is duly given if in writing and delivered in person, mailed by first-class mail or by express delivery to the other's address stated in this Section 12.02. The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication to a Securityholder shall be mailed by first-class mail to his address shown on the register kept by the Registrar. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Securityholders, it shall mail a copy to the Trustee and each Agent at the same time. All notices or communications shall be in writing. The Company's address is: Trans World Airlines, Inc. One City Centre 515 N. 6th Street St. Louis, Missouri 63101 Attention: Corporate Secretary The Trustee's address is: ____________________________ ____________________________ ____________________________ Attention: ___________________ 47 SECTION 12.03. Communication by Holders with Other Holders. ------------------------------------------- Securityholders may communicate pursuant to TIA (S) 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA (S) 312(c). SECTION 12.04. 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: (1) an Officer's Certificate 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; and (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Each signer of an Officers' Certificate or an Opinion of Counsel may (if so stated) rely, effectively, upon an Opinion of Counsel as to legal matters and an Officers' Certificate as to factual matters if such signer reasonably and in good faith believes in the accuracy of the document relied upon. SECTION 12.05. Statements Required in Certificate or Opinion. --------------------------------------------- Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) 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; (3) 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 covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. SECTION 12.06. Rules by Trustee and Agents. --------------------------- The Trustee may make reasonable rules for action by or at a meeting of Securityholders. The Registrar, Paying Agent or Conversion Agent may make reasonable rules and set reasonable requirements for their respective functions. 48 SECTION 12.07. Legal Holidays. -------------- A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institutions are not required to be open in the City of New York, in the State of New York or in the city in which the Trustee administers its corporate trust business. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on that payment for the intervening period. A "business day" is a day other than a Legal Holiday. SECTION 12.08. No Recourse Against Others. -------------------------- No past, present or future director, officer, employee, agent, manager, stockholder, or Affiliate, as such, of the Company shall 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. Such waiver and release are part of the consideration for the issuance of the Securities. SECTION 12.09. Duplicate Originals. ------------------- The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 12.10. Governing Law. ------------- The laws of the State of New York, without regard to principles or conflicts of law, shall govern this Indenture and the Securities. SECTION 12.11. No Adverse Interpretation of Other Agreements. --------------------------------------------- This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Indenture SECTION 12.12. Successors. ---------- All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 12.13. Separability. ------------ In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and a Holder shall have no claim therefor against any party hereto. 49 SECTION 12.14. Table of Contents, Headings, etc. --------------------------------- The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. 50 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. TRANS WORLD AIRLINES, INC. By: ----------------------------------- Title: __________________, as Trustee By: ----------------------------------- Title: 51 EXHIBIT A REGISTERED [Face of Security] REGISTERED NUMBER DOLLARS TRANS WORLD AIRLINES, INC. . . . . . . . . . . . . . . . . . . 9 1/4% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2007 TRANS WORLD AIRLINES, INC., a Delaware corporation (herein called the "Company," which term includes any successor person under the Indenture hereinafter referred to), for value received, hereby promises to pay to _____________, or registered assigns, the principal sum of _____________ Dollars on December 15, 2007, and to pay interest thereon as provided on the reverse hereof, until the principal hereof is paid or duly provided for. Interest Payment Dates: June 15 and December 15 Record Dates: June 1 and December 1 The provisions on the back of this certificate are incorporated as if set forth on the face hereof. IN WITNESS WHEREOF, TRANS WORLD AIRLINES, INC. has caused this instrument to be duly signed under its corporate seal. [SEAL] TRANS WORLD AIRLINES, INC. By: ------------------------------------- [Title] By: ------------------------------------- [Title] A-2 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. ______________________, as Trustee By: ------------------------------------- Authorized Signatory Dated: --------------- A-3 [REVERSE OF SECURITY] TRANS WORLD AIRLINES, INC. 9 1/4% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2007 This Security is one of a duly authorized issue of Securities of the Company designated as its 9 1/4% Convertible Subordinated Debentures due 2007 (hereinafter called the "Securities"), limited in aggregate principal amount to $[Insert an amount equal to the aggregate liquidation preference on the 9 1/4% Preferred Stock outstanding immediately prior to Exchange Date] issued pursuant to the Indenture, dated as of [insert Exchange Date] (hereinafter called the "Indenture"), between the Company and ___________________________________________, as Trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture). 1. Interest; Liquidated Damages. The Company promises to pay ---------------------------- interest on the principal amount of this Security at the rate per annum shown --- ----- above. The Company will pay interest and Liquidated Damages, if any, semiannually in arrears on June 15 and December 15 of each year, commencing [insert first of such dates to occur after date of Indenture], to the person in whose name this Security is registered at the close of business on the preceding June 1 and December 1, as the case may be. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance of the Securities set forth on the face of this Security. Interest and Liquidated Damages, if any, will be payable to the holders of record as they appear on the register of the Company kept by the Registrar on such record dates, provided that holders of Securities called for redemption on a redemption date falling between an interest payment record date and the interest payment date shall, in lieu of receiving such interest and Liquidated Damages, if any, on the interest payment date fixed therefor, receive such interest payment together with all other accrued and unpaid interest and Liquidated Damages, if any, on the date fixed for redemption (unless such holders convert such Securities in accordance with the Indenture, in which case such holders will receive such payment on the corresponding interest payment date). 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 ----------------- Liquidated Damages, if any, with respect to, the Securities (except defaulted interest) to the persons who are registered Holders of Securities at the close of business on the record date set forth on the face of this Security next preceding the applicable interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal, interest and Liquidated Damages, if any, at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York and at any other office or agency maintained by the Company for such purpose in money of the United States that at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company, payment of interest on and Liquidated Damages, if any, with respect to, the Securities may be by check payable in such money and mailed to a Holder's registered address. A-4 3. Paying Agent, Registrar, Conversion Agent. Initially, the Trustee ----------------------------------------- will act as Paying Agent, Registrar and Conversion Agent. The Company may change any Paying Agent, Registrar, Conversion Agent or co-registrar without notice. The Company may act in any such capacity. 4. Indenture. The terms of this Security include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbbb) (the "Act"), as in effect on the date of the Indenture. This Security is subject to all such terms, and the holder hereof is referred to the Indenture and the Act for a statement of such terms. Terms used herein which are defined in the Indenture have the meanings assigned to them in the Indenture. 5. Optional Redemption. This Security may be redeemed on at least 30 ------------------- and not more than 60 days' prior notice at the option of the Company on or after December 15, 2000, in whole at any time or in part from time to time (in any integral multiple of $1,000), at the redemption prices (expressed as a percentage of principal amount) set forth below during the 12-month periods beginning on December 15 of the years shown below, plus in each case an amount equal to accrued and unpaid interest and Liquidated Damages, if any, to (and including) the redemption date: Year Redemption Price ---- ---------------- 2000................. 106.48 2001................. 105.55 2002................. 104.63 2003................. 103.70 2004................. 102.78 2005................. 101.85 2006................. 100.93 6. Notice of Redemption. Notice of 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. On and after the redemption date, interest will cease to accrue on Securities called for redemption. 7. Change in Control. In the event of a Change in Control (as ----------------- hereinafter defined), then each Holder shall have the right, at the Holder's option, to require the Company to repurchase such Holder's Securities including any portion thereof which is $1,000 or any integral multiple thereof on the date (the "Repurchase Date") that is 45 days after the date of the Repurchase Right Notice at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any to and including the Repurchase Date (the "Repurchase Price"). Within 30 days after the occurrence of a Change in Control, the Company is obligated to give notice of the occurrence of such Change in Control, and of the procedure which such Holder must follow to exercise such right. To exercise the redemption option, the Holder of a Security must deliver on or before the 30th day after the date of the Repurchase Right Notice, A-5 written notice to the Company of the Holder's exercise of such option together with the Security or Securities with respect to which the option is being exercised, duly endorsed for transfer. Exercise of the Repurchase Right by the Holder of a Security will be irrevocable, unless the Company shall default in making the repurchase payment when due, in which case a Holder who elects to exercise the Repurchase Right will retain the right to convert such Security into Common Stock until the close of business on the date such default is cured and such Security is repurchased. If the Repurchase Date falls between any interest payment record date and the next succeeding interest payment date, Securities must be accompanied by payment of an amount equal to the interest thereon and Liquidated Damages, if any, with respect thereto which the registered Holder is to receive on such interest payment date. If any repurchase pursuant to the foregoing provisions constitutes an "issuer tender offer" as defined in Rule 13e-4 under the Exchange Act, the Company will comply with the requirements of Rule 13e-4, Rule 14e-1 and any other tender offer rules under the Exchange Act which then may be applicable, including the filing of an Issuer Tender Offer Statement on Schedule 13E-4 with the SEC and the furnishing of certain information contained therein to the Holders. A "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, (ii) the Company sells, transfers or otherwise disposes of all or substantially all of the assets of the Company, (iii) when, during any period of 12 consecutive months after the date of original issuance of the 9 1/4% Preferred Stock, 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 who were either directors at the beginning of such period or whose election or nomination for election was previously so approved), cease for any reason to constitute a majority of the Board of Directors 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. 8. Conversion. A Holder of a Security may convert such Security into ---------- shares of Common Stock of the Company at any time prior to maturity; provided, -------- however, that if the - ------- A-6 Security is called for redemption, the conversion right will terminate at the close of business on the second business day immediately preceding the redemption date for such Security (the "Conversion Termination Date") (unless the Company shall default in making the redemption payment when due, in which case the conversion right shall terminate at the close of business on the date such default is cured and such Security is redeemed); provided, further, that if -------- ------- the Holder of a Security presents such Security for redemption prior to the close of business on the Conversion Termination Date, the right of conversion shall terminate upon presentation of the Security to the Trustee (unless the Company shall default in making the redemption payment when due, in which case the conversion right shall terminate on the close of business on the date such default is cured and such Security is redeemed). The initial Conversion Price is [insert conversion price of 9 1/4% Preferred Stock on the date of exchange] per share, subject to adjustment under certain circumstances. The number of shares issuable upon conversion of a Security is determined by dividing the principal amount converted by the Conversion Price in effect on the Conversion Date. No payment or adjustment will be made for accrued interest or Liquidated Damages, if any, on a converted Security or for dividends or distributions on shares of Common Stock issued upon conversion of Security. No fractional shares will be issued upon conversion; in lieu thereof, an amount will be paid in cash based upon the Closing Price of the Common Stock on the Trading Day immediately prior to the Conversion Date. To convert a Security, a Holder must (a) complete and manually sign the conversion notice set forth below and deliver such notice to the Conversion Agent, (b) surrender the Security to the Conversion Agent, (c) furnish appropriate endorsements and transfer documents if required by the Registrar or the Conversion Agent, and (d) pay a transfer or similar tax, if required. A holder of a Security at the close of business on an interest payment record date shall be entitled to receive the interest and Liquidated Damages, if any, payable on the corresponding interest payment date notwithstanding the conversion thereof following the close of business on such interest payment record date and prior to the close of business on such interest payment date. However, if a Holder surrenders a Security for conversion after the close of business on the record date for the payment of an installment of interest and before the close of business on the related interest payment date then, notwithstanding such conversion, the interest and Liquidated Damages, if any, payable on such interest payment date shall be paid to the Holder of such Security on such record date. In such event, the Security (except Securities called for redemption on a redemption date or with a Conversion Termination Date during such period) must be accompanied by payment of an amount equal to the interest and Liquidated Damages, if any, payable on such interest payment date on the principal amount of the Security or portion thereof then converted. A Holder may convert a portion of a Security equal to $1,000 or any integral multiple thereof. 9. Subordination. The Securities are subordinated in right of ------------- payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full of all Senior Indebtedness. Each Holder by accepting a Security agrees to such subordination and authorizes the Trustee to give it effect. 10. Denominations, Transfer, Exchange. The Securities are in --------------------------------- registered form without coupons in denominations of $1,000 and whole multiples of $1,000. The transfer of A-7 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. No service charge shall be made for any such registration or transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Registrar need not exchange or register the transfer of any Security selected for redemption. Also, it need not exchange or register the transfer of any Securities for a period of 15 days before a selection of Securities to be redeemed. 11. Persons Deemed Owners. The registered Holder of a Security may --------------------- be treated as its owner for all purposes. 12. Merger or Consolidation. The Company may not consolidate with, ----------------------- or merge into, or directly or indirectly transfer or lease all or substantially all of its assets to, another person unless, among other things, the person is a corporation; such corporation assumes by supplemental indenture all the obligations of the Company under the Securities and the Indenture; and giving effect to the transaction, no Default or Event of Default (as defined in the Indenture) shall exist. 13. Amendments and Waivers. Subject to certain exceptions, the ---------------------- Indenture or the Securities may be amended with the consent of the Holders of at least a majority in principal amount of the Securities outstanding; and any existing default may be waived with the consent of the Holders of a majority in principal amount of the Securities. Without the consent of any Securityholder, the Indenture or the Securities may be amended to cure any ambiguity, omission, defect or inconsistency or to provide for uncertificated Securities in addition to certificated Securities, to comply with Sections 5.01 and 10.12 of the Indenture or to make any change that does not materially adversely affect the rights of any Securityholder. 14. Defaults and Remedies. An Event of Default is: a continuing --------------------- default for 30 days in payment of interest on the Securities; default in payment of principal of or Liquidated Damages, if any, with respect to, the Securities when due; failure by the Company for 60 days after written notice to the Company by the Trustee or to the Company and the Trustee by the holders of at least 25% in principal amount of the outstanding Securities specifying such breach or default and requiring it to be remedied and stating that such notice is a notice of default hereunder; acceleration prior to maturity of other indebtedness in excess of an aggregate of $15 million which acceleration is not rescinded or indebtedness is not paid or discharged for 30 days after notice; the rendering of a final judgment or judgments against the Company in excess of $15 million, which is not discharged, satisfied or stayed within a period of 60 days after notice; and certain events of bankruptcy or insolvency. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities may declare all the Securities to be due and payable immediately. The Holders of a majority in principal amount of the Securities by notice to the Trustee may waive a Default and its consequences. 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 A-8 amount of the 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, interest or Liquidated Damages) if it determines that withholding notice is in their interests. The Company must furnish an annual compliance certificate to the Trustee. 15. Trustee Dealings with Company. The Trustee under the Indenture, ----------------------------- or any banking institution serving as successor Trustee thereunder, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee. 16. No Recourse Against Others. A director, officer, employee, -------------------------- agent, manager, stockholder or Affiliate, as such, of the Company shall not have any liability for any obligations of the Company under this Security 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 releases are part of the consideration for the issue of this Security. 17. Authentication. This Security shall not be valid until -------------- authenticated by the manual signature of the Trustee or an authenticating agent. 18. Abbreviations. Customary abbreviations may be used in the name ------------- of a Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenant by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST AND WITHOUT CHARGE A COPY OF THE INDENTURE. REQUESTS MAY BE MADE TO: Trans World Airlines, Inc., One City Centre, 515 N. 6th Street, St. Louis, Missouri 63101, Attention: Corporate Secretary. A-9
ASSIGNMENT FORM CONVERSION NOTICE To assign this Security, fill in the form below: To convert this Security into Common Stock of the Company, check the box: [ ] I or we assign and transfer this Security to: - --------------------------------------- (Insert Assignee's Soc. Sec. or Tax I.D. No.) To convert only part of this Security, state the amount to be converted (must be in multiples of $1,000): $ ------------------------------------------------------------- - --------------------------------------- If you want the stock certificate made out in another person's name, - --------------------------------------- fill in the form below: - --------------------------------------- - --------------------------------------- (Print or type assignee's name, address and zip code) (Insert other person's Soc. Sec. or Tax I.D. no.) and irrevocably appoint __________________ agent to -------------------------------------------------------- transfer this Security on the books of the -------------------------------------------------------- Company. The agent may substitute another -------------------------------------------------------- to act for him. -------------------------------------------------------- (Print or type other person's name, address and zip code) - ----------------------------------------------------------------------------------------------------------------------- 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)
A-10 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security repurchased by the Company pursuant to Section 4.08 of the Indenture, check the box: [ ] If you want to elect to have only part of this Security repurchased by the Company pursuant to Section 4.08 of 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)
EXHIBIT B Form of Legend for Global Securities Every Global Security authenticated and delivered hereunder shall bear a legend in substantially the following form: Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to Issuer or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. EX-4.21 3 REGISTRATION RIGHTS AGREEMENT EXHIBIT 4.21 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made and --------- entered into as of December 2, 1997, by and among Trans World Airlines, Inc., a Delaware corporation (the "Company"), and Lazard Freres & Co. LLC and ------- PaineWebber Incorporated (together, the "Initial Purchasers"), who have (i) ------------------ purchased 1,500,000 shares of 9 1/4% Cumulative Convertible Exchangeable Preferred Stock, par value $.01 per share of the Company (the "9 1/4% Preferred Stock") exchangeable for 9 1/4% Convertible Subordinated Debentures due 2007 (the "Debentures") of the Company and (ii) been granted the right to acquire an ---------- additional 225,000 shares of 9 1/4% Preferred Stock (the "Option Shares"), in each case pursuant to the Purchase Agreement dated as of November 25, 1997 (the "Purchase Agreement"), among the Company and the Initial Purchasers. ------------------ This Agreement is made pursuant to the Purchase Agreement. In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company has agreed to provide the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the closing of the Purchase Agreement. All capitalized terms used but not defined herein shall have the meanings ascribed to them in the Indenture (as defined below) governing the Debentures. The parties hereby agree as follows: SECTION 1. DEFINITIONS As used in this Agreement, the following capitalized terms shall have the following meanings: Act: The Securities Act of 1933, as amended. --- Closing Date: The date on which the initial closing of the sale of ------------ shares of 9 1/4% Preferred Stock to the Initial Purchasers is consummated. Commission: The United States Securities and Exchange Commission and ---------- any successor federal agency having similar powers. Common Stock: Includes any stock of any class of the Company which ------------ has no preference in respect of 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. Unless the context otherwise requires, all references to Common Stock shall include the associated Rights. Damages Payment Date: With respect to the 9 1/4% Preferred Stock, the -------------------- Damages Payment Date shall be each dividend payment date and each Redemption Date (as defined in the Designation of the Preferred). With respect to the Debentures, the Damages Payment Date shall 2 be each interest payment date, each Repurchase Date (as defined in the Indenture) and each redemption date under the Indenture. In the event the 9 1/4% Preferred Stock or the Debentures are called for redemption on a redemption date falling between a dividend payment record date or an interest payment record date and the dividend payment date or interest payment date, holders of shares of 9 1/4% Preferred Stock or Debentures shall in lieu of receiving liquidated damages on the dividend payment date or interest payment date receive such liquidated damages on the date fixed for redemption (unless such holders convert such shares or Debentures in accordance with the Designation of the Preferred or the Indenture, in which case such holders will receive such payment on the corresponding dividend payment date or interest payment date). With respect to Common Stock issuable upon conversion of the 9 1/4% Preferred Stock or the Debentures, the Damages Payment Date shall be the dividend payment date applicable to the 9 1/4% Preferred Stock (unless all of the shares of 9 1/4% Preferred Stock have been exchanged for Debentures, in which case the Damages Payment Date will be the interest payment date applicable to the Debentures). Designation of the Preferred: The Certificate of Designations, ---------------------------- Preferences and Rights Relating to the 9 1/4% Preferred Stock. Effectiveness Target Date: As defined in Section 3. ------------------------- Exchange Act: The Securities Exchange Act of 1934, as amended. ------------ Exempt Resales: The transactions in which the Initial Purchasers -------------- propose to sell the 9 1/4% Preferred Stock (i) inside the United States to (A) certain "qualified institutional buyers" (as such term is defined in Rule 144A under the Act) and (B) certain institutional "accredited investors" (as defined in Rule 501 of Regulation D under the Act), and (ii) outside the United States in reliance on Regulation S under the Act. Holder: As defined in Section 2(b) hereof. ------ Indenture: The Indenture, dated as of the Exchange Date (as defined --------- in the Designation of the Preferred), between the Company and a trustee selected by the Company and reasonably satisfactory to the Initial Purchasers (the "Trustee"), pursuant to which the Debentures are to be issued, as such Indenture - -------- is amended or supplemented from time to time in accordance with the terms thereof. NASD: National Association of Securities Dealers, Inc. ---- Offering Memorandum: The Offering Memorandum, dated November 25, ------------------- 1997, and all amendments and supplements thereto, relating to the 9 1/4% Preferred Stock and prepared by the Company pursuant to the Purchase Agreement. Option Closing Date: The date on which the closing of the sale of the ------------------- Option Shares to the Initial Purchasers is consummated. 3 Person: An individual, partnership, corporation, limited liability ------ company, trust or unincorporated organization or other entity, or a government or agency or political subdivision thereof. 9 1/4% Preferred Stock: 9 1/4% Cumulative Convertible Exchangeable ---------------------- Preferred Stock, par value $.01 per share, of the Company. Prospectus: The prospectus included in the Shelf Registration ---------- Statement, as amended or supplemented by any prospectus supplement and by all other amendments and supplements to the prospectus included in the Shelf Registration Statement, including post-effective amendments, and all material which may be incorporated by reference into such prospectus. Record Holder: (i) With respect to any Damages Payment Date relating ------------- to the 9 1/4% Preferred Stock, each Person who is a Holder of 9 1/4% Preferred Stock on the record date with respect to the dividend payment date on which such Damages Payment Date shall occur, (ii) with respect to any Damages Payment Date relating to the Debentures, each Person who is a Holder of Debentures on the record date with respect to the interest payment date on which such Damages Payment Date shall occur and (iii) with respect to any Damages Payment Date relating to the Common Stock, each Person who is a Holder of Common Stock issued upon conversion of 9 1/4% Preferred Stock or Debentures on the record date with respect to the dividend payment date on which such Damages Payment Date shall occur (unless all of the shares of 9 1/4% Preferred Stock have been exchanged for Debentures, in which case the Record Holder shall be each Person who is a Holder of Common Stock on the record date with respect to the interest payment date on which such Damages Payment Date shall occur). Registrar: As defined in the Indenture. --------- Registration Default: As defined in Section 4 hereof. -------------------- Rights: The Rights of the Company entitling the holder to purchase ------ one one-hundredth of a share of the Company's Series A Participating Preferred Stock, par value $.01 per share, under certain circumstances issued pursuant to the Rights Agreement dated as of December 19, 1995 between the Company and American Stock Transfer & Trust Company, as Rights Agent, supplemented as of March 18, 1996 and as it may be further amended or supplemented from time to time. Securities Act: The Securities Act of 1933, as amended. -------------- Shelf Registration Statement: As defined in Section 3(a) hereof. ---------------------------- TIA: The Trust Indenture Act of 1939, as amended, as in effect on the --- date of the Indenture. Transfer Restricted Securities: Each share of 9 1/4% Preferred Stock, ------------------------------ each Debenture issued upon exchange thereof, and each share of Common Stock issued upon 4 conversion of the 9 1/4% Preferred Stock or the Debentures, until the date on which each such share of 9 1/4% Preferred Stock, Debenture or share of Common Stock (i) has been effectively registered under the Act and disposed of in accordance with the Shelf Registration Statement or (ii) is distributed to the public pursuant to Rule 144 under the Act or is saleable pursuant to Rule 144(k) under the Act (or similar provisions then in force). Usable: Complies with the applicable rules and regulations of the ------ Securities Act of 1933, as amended, including, without limitation, Rule 3-12 of Regulation S-X and Item 512 of Regulation S-K. SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT (a) Transfer Restricted Securities. The securities entitled to the ------------------------------ benefits of this Agreement are the Transfer Restricted Securities. (b) Holders of Transfer Restricted Securities. A Person is deemed to ----------------------------------------- be a holder of record of Transfer Restricted Securities (each, a "Holder") ------ whenever such Person owns Transfer Restricted Securities. SECTION 3. SHELF REGISTRATION (a) The Company shall file with the Commission, as soon as practicable after the Closing Date, but in any event on or prior to the date 60 days after the Closing Date, a shelf registration statement pursuant to Rule 415 under the Act (the "Shelf Registration Statement") on Form S-1, Form S-2 or Form S-3, as ---------------------------- determined by the Company, if the use of such form is then available, to cover resales of all Transfer Restricted Securities by the Holders thereof who have provided the information required by Section 3(b) hereof. The Company will use its reasonable best efforts to cause such Shelf Registration Statement to be declared effective by the Commission within 150 days after the Closing Date (the "Effectiveness Target Date"). The Company shall use its reasonable best efforts ------------------------- to keep such Shelf Registration Statement continuously effective, subject to the provisions of Section 5 hereof, until the earlier of (i) the sale of all Transfer Restricted Securities covered by the Shelf Registration Statement, and (ii) the expiration of two years after the date of original issuance of the 9 1/4% Preferred Stock or, if the period applicable under Rule 144(k) under the Securities Act, or any successor provision for such securities is shortened, such shorter period. Subject to the right of the Company to have the Shelf Registration Statement not be effective for periods of time set forth in Section 5 hereof, the Company further agrees to use its reasonable best efforts to prevent the happening of any event that would cause the Shelf Registration Statement to contain a material misstatement or omission or to be not effective and usable for resale of the Transfer Restricted Securities during the period that such Shelf Registration Statement is required to be effective and usable. Upon the occurrence of any event that would cause the Shelf Registration Statement (i) to contain a material misstatement or omission or (ii) to not be effective or usable for resale of Transfer Restricted Securities during the period that such Shelf Registration Statement is required to be effective and usable, the Company shall promptly file an amendment to the Shelf Registration Statement, in the case of clause (i), correcting any such misstatement or omission, and in the case of either clause (i) or (ii), use its reasonable best efforts to cause such amendment to be declared 5 effective and such Shelf Registration Statement to become usable as soon as practicable thereafter. (b) No Holder of Transfer Restricted Securities may include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement 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 any Shelf Registration Statement or Prospectus or preliminary Prospectus included therein. No Holder of Transfer Restricted Securities shall be entitled to liquidated damages pursuant to Section 4 hereof if such Holder's Transfer Restricted Securities are excluded from a 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 such Shelf Registration Statement or Prospectus or preliminary Prospectus included therein. Each Holder as to which any 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 materially misleading. SECTION 4. LIQUIDATED DAMAGES Each of the Company and the Initial Purchasers (on behalf of themselves and each subsequent Holder of Transfer Restricted Securities) agrees that (a) the Holders of Transfer Restricted Securities will suffer damages if the Shelf Registration Statement is not filed with and declared effective by, the Commission and maintained in the manner and within the time periods contemplated by Section 3 hereof and (b) it would not be feasible to ascertain the extent of such damages with precision. Accordingly, if (i) the Shelf Registration Statement is not filed with the Commission on or prior to the date 60 days after the Closing Date, (ii) the Shelf Registration Statement has not been declared effective by the Commission on or prior to the Effectiveness Target Date or (iii) the Shelf Registration Statement is filed and declared effective but shall thereafter cease to be effective (without being succeeded immediately by an additional Shelf Registration Statement filed and declared effective) or usable for a period of time which shall exceed 90 days in the aggregate during any year (defined as any period of 365 days commencing on or after the date the Shelf Registration Statement is declared effective or the Effectiveness Target Date, as the case may be) (each such event referred to in clauses (i) through (iii), a "Registration Default"), the Company shall pay -------------------- liquidated damages to each Holder of Transfer Restricted Securities who has complied with such Holder's obligations hereunder, during the first 90-day period immediately following the occurrence of such Registration Default in an amount equal to $0.0025 per week per share of 6 9 1/4% Preferred Stock (subject to adjustment in the event of stock splits, stock recombinations, stock dividends and the like), and, if applicable, $0.05 per week per $1,000 principal amount of Debentures and, if applicable, $0.01 per week per share (subject to adjustment in the event of stock splits, stock recombinations, stock dividends and the like) of Common Stock constituting Transfer Restricted Securities held by such Holder. The amount of the liquidated damages will increase by an additional $0.0025 per week per share of 9 1/4% Preferred Stock (subject to adjustment as set forth above), $0.05 per week per $1,000 principal amount of Debentures or $0.01 per week per share (subject to adjustment as set forth above) of Common Stock constituting Transfer Restricted Securities held by such Holder for each subsequent 90-day period until the Shelf Registration Statement is filed, declared effective or again becomes effective and usable, as the case may be, up to a maximum amount of liquidated damages with respect to any such Registration Default of $0.0125 per week per share of 9 1/4% Preferred Stock (subject to adjustment as set forth above), $0.25 per week per $1,000 principal amount of Debentures or $0.05 per week per share (subject to adjustment as set forth above) of Common Stock constituting Transfer Restricted Securities. All accrued and unpaid liquidated damages shall be paid to Record Holders by wire transfer of immediately available funds or by federal funds check by the Company on each Damages Payment Date. Following the cure of a Registration Default, liquidated damages will cease to accrue with respect to such Registration Default. All of the Company's obligations to pay accrued but unpaid liquidated damages set forth in the preceding paragraph which are outstanding with respect to any Transfer Restricted Security at the time such security ceases to be a Transfer Restricted Security shall survive until such time as all such obligations with respect to such security shall have been satisfied in full. The parties hereto agree that the liquidated damages provided in this Section 4 constitute a reasonable estimate of the damages that will be incurred by Holders of Transfer Restricted Securities by reason of the failure of the Shelf Registration Statement to be filed, declared effective or to remain effective, as the case may be. SECTION 5. REGISTRATION PROCEDURES In connection with the Shelf Registration Statement, the Company will use its reasonable best efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution or disposition thereof, and pursuant thereto the Company will as expeditiously as possible: (a) on or prior to the date 60 days after the Closing Date, prepare and file with the Commission a Shelf Registration Statement relating to the registration on any appropriate form under the Act, as selected by the Company, which form shall be available for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution thereof and shall include or incorporate all required financial statements, reports, schedules, exhibits and other documents; cooperate and assist in any filings required to be made with the NASD and use its reasonable best efforts to cause such Shelf Registration Statement to become effective and approved on or prior to the Target Effectiveness Date by such governmental agencies or authorities as may be necessary to enable the selling Holders to consummate the disposition of such Transfer Restricted Securities; provided that before filing a Shelf Registration Statement or any Prospectus, or any amendments or supplements thereto, including documents incorporated by reference after the initial filing of the Shelf Registration Statement, the Company shall furnish to such Holders and underwriters, if any, copies of all such documents proposed to 7 be filed, which documents shall be subject to the review of such Holders, and the Company shall not file any Shelf Registration Statement or amendment thereto or any Prospectus or any supplement thereto (including such documents incorporated by reference) to which the Holders of the Transfer Restricted Securities covered by such Shelf Registration Statement or the underwriters, if any, shall reasonably object on the grounds that such Shelf Registration Statement, Prospectus, amendment or supplement does not comply in all material respects with the requirements of the Act or the rules and regulations thereunder in writing within four business days after the receipt thereof; (b) prepare and file with the Commission such amendments and post- effective amendments to the Shelf Registration Statement as may be necessary to keep the Shelf Registration Statement effective for the applicable period set forth in Section 3(a) hereof; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Act, and to comply fully with the applicable provisions of Rule 424 under the Act in a timely manner; and comply with the provisions of the Act with respect to the disposition of all securities covered by such Shelf Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Shelf Registration Statement or supplement to the Prospectus; (c) advise the selling Holders promptly and, if requested by such Persons, to confirm such advice in writing, (i) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to the Shelf Registration Statement or any post-effective amendment thereto, when the same has become effective, (ii) of any request by the Commission for amendments to the Shelf Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Shelf Registration Statement under the Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, (iv) if at any time the representations and warranties of the Company contemplated by paragraph (l)(i) below cease to be true and correct, and (v) of the existence of any fact and the happening of any event that makes any statement of a material fact made in the Shelf Registration Statement, the Prospectus, any amendment or supplement thereto, or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Shelf Registration Statement or the Prospectus, any amendment or supplement thereto, or any document incorporated by reference therein in order to make the statements therein not misleading in the light of the circumstances then existing. If at any time the Commission shall issue any stop order suspending the effectiveness of the Shelf Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Company shall use its best efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (d) promptly prior to the filing of any document that is to be incorporated by reference into the Shelf Registration Statement or the Prospectus (after the initial filing of the 8 Shelf Registration Statement), provide copies of such document to the selling Holders and underwriters, if any, make the Company's representatives available at reasonable times for discussion of such document and include such information in such document prior to the filing thereof as such selling Holders or underwriters may reasonably and timely request; (e) furnish to each selling Holder and underwriter, if any, without charge, at least one copy of the Shelf Registration Statement, as first filed with the Commission, and of each amendment thereto, including all documents incorporated by reference therein and all exhibits (including exhibits incorporated therein by reference); (f) deliver to each selling Holder and underwriter, if any, without charge, as many copies of the Prospectus (including each preliminary Prospectus) and any amendment or supplement thereto as such Persons may reasonably request; the Company consents to the use of the Prospectus and any amendment or supplement thereto by each of the selling Holders and underwriters, if any, in connection with the public offering and sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto; (g) prior to any public offering of Transfer Restricted Securities, cooperate with the selling Holders and underwriters, if any, and their respective counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or Blue Sky laws of such jurisdictions as the selling Holders and underwriters, if any, may reasonably request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the Shelf Registration Statement; provided, however, that the Company shall be required neither to register or qualify as a foreign corporation where it is not now so qualified nor to take any action that would subject it to the service of process in suits or to taxation, other than as to matters and transactions relating to the Shelf Registration Statement, in any jurisdiction where it is not now so subject; (h) in connection with any sale of Transfer Restricted Securities that will result in such securities no longer being Transfer Restricted Securities, cooperate with the selling Holders to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends; and enable such Transfer Restricted Securities to be in such denominations and registered in such names as the Holders may request at least two business days prior to any sale of Transfer Restricted Securities made by such Holders; (i) use its best efforts to cause the Transfer Restricted Securities covered by the Shelf Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Transfer Restricted Securities, subject to the proviso contained in clause (g) above; (j) if any fact or event contemplated by clause (v) of paragraph (c) above shall exist or have occurred, as promptly as practicable thereafter, prepare a supplement or post-effective amendment to the Shelf Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter 9 delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (k) provide CUSIP numbers for all Transfer Restricted Securities not later than the effective date of the Shelf Registration Statement and provide the Trustee under the Indenture and the transfer agent for the 9 1/4% Preferred Stock and Common Stock with printed certificates for the Transfer Restricted Securities which are in a form eligible for deposit with the Depositary Trust Company; (l) enter into such agreements and take all such other actions consistent with its obligations hereunder in connection therewith and as may be reasonably required in order to expedite or facilitate the disposition of the Transfer Restricted Securities pursuant to the Shelf Registration Agreement, and in such connection the Company shall (i) make such representations and warranties to the Holders and underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in primary underwritten offerings and covering matters including, but not limited to, those set forth in the Purchase Agreement; (ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the Holders of the Transfer Restricted Securities being sold and underwriters, if any) addressed to each selling Holder requesting the same and covering such matters as are customarily covered in company counsel opinions to underwriters in primary underwritten offerings; (iii) obtain "cold comfort" letters and updates thereof from the Company's independent certified public accountants addressed to the selling Holders of Transfer Restricted Securities and underwriters, if any, requesting the same, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters to underwriters in connection with primary underwritten offerings; and (iv) deliver such documents and certificates as may be reasonably requested by the Holders of the Transfer Restricted Securities being sold and underwriters, if any, to evidence compliance with clause (i) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company pursuant to this clause (1); (m) subject to appropriate confidentiality arrangements being entered into, make available at reasonable times for inspection by the Holders of the Transfer Restricted Securities participating in any disposition pursuant to such Shelf Registration Statement, any underwriters and any attorney or accountant retained by such selling Holders or underwriters, all financial and other records, pertinent corporate documents and properties of the Company and cause the Company's officers, directors and employees to supply all information reasonably requested by any such Holder, underwriter, attorney or accountant at reasonable times in connection with such Shelf Registration Statement subsequent to the filing thereof and prior to its effectiveness; (n) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders, as soon as reasonably practicable, a consolidated earnings statement (which need not be audited) for the 10 twelve-month period, beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Shelf Registration Statement; (o) cause the Indenture to be qualified under the TIA, and, in connection therewith, cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for such Indenture to be so qualified in accordance with the terms of the TIA; and execute and use its best efforts to cause the Trustee to execute, all documents as may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Indenture to be so qualified in a timely manner; (p) use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of the Shelf Registration Statement at the earliest possible moment; use its reasonable best efforts (i) to prevent the entry of any stop order affecting the Registration Statement and (ii) to remove any such stop order if entered; (q) cause all Transfer Restricted Securities which are Common Stock covered by the Shelf Registration Statement to be listed on each securities exchange or quotation system on which the Company's Common Stock is then listed no later than the date the Shelf Registration Statement is declared effective; (r) cooperate and assist in any filings required to be made with the NASD; and (s) use its best efforts to cause the Transfer Restricted Securities to be eligible for inclusion in the National Association of Securities Dealers, Inc. Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") trading system. ------ The Company agrees that it will not include in the registration contemplated by the Shelf Registration Statement any securities other than the Transfer Restricted Securities. The Company represents and warrants to the Initial Purchasers that they will not be required to include under the Shelf Registration Statement the securities required to be registered by the Company pursuant to the Registration Rights Agreement, dated as of August 23, 1995, by and among the Company, American National Bank and Trust Company of Chicago as Settlement Trustee under the Settlement Fund Agreement dated as of January 5, 1993, as amended, by and among the Company and American National Bank and Trust Company of Chicago, the Pension Benefit Guaranty Corporation and Pichin Corp. The Initial Purchasers on behalf of themselves and each subsequent Holder of Transfer Restricted Securities agree by acquisition of such Transfer Restricted Securities that, upon receipt of any notice from the Company of the existence of any fact or the happening of any event of the kind described in clause (v) of Section 5(c) hereof, such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the Shelf Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(j) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the Prospectus may be ------ resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the Prospectus. If so 11 directed by the Company, each Holder will, or will request the managing underwriter or underwriters, if any, to deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Transfer Restricted Securities current at the time of receipt of such notice. SECTION 6. REGISTRATION EXPENSES All expenses incident to the Company's performance of or compliance with this Agreement will be borne by the Company, regardless whether a Shelf Registration Statement becomes effective, including without limitation: (i) all registration and filing fees and expenses; (ii) fees and expenses of compliance with federal securities or state blue sky laws (including reasonable fees and disbursements of counsel to the Holders and the underwriters, if any, in connection with blue sky qualifications of the Transfer Restricted Securities); (iii) expenses of printing (including, without limitation, expenses of printing or engraving certificates for the Transfer Restricted Securities in a form eligible for deposit with Depository Trust Company, expenses of printing or engraving certificates for the Common Stock, the Debentures and the 9 1/4% Preferred Stock and expenses of printing prospectuses), messenger and delivery services and telephone; (iv) fees and disbursements of counsel for the Company and reasonable fees and disbursements of one counsel for the Holders of the Transfer Restricted Securities chosen by the Holders of a majority of the outstanding Transfer Restricted Securities (determined as provided in Section 10(d)); (v) fees and disbursements of all independent certified public accountants of the Company (including the expenses of any special audit and "cold comfort" letters required by or incident to such performance); (vi) filing fees associated with any NASD filing required to be made in connection with the Shelf Registration Statement; (vii) fees and expenses of listing the Transfer Restricted Securities on any securities exchange or quotation system in accordance with Section 5(q) hereof or on PORTAL pursuant to Section 5(s); and (viii) securities acts liability insurance, if the Company desires such insurance. All such expenses, including without limitation those described in the foregoing clauses (i) to (viii) are referred to herein as "Registration ------------ Expenses." - --------- 12 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 of Transfer Restricted Securities shall bear the expense of any broker's commission or underwriters' discount or commission. SECTION 7. UNDERWRITING If any of the Transfer Restricted Securities covered by any Shelf Registration Statement are to be sold in an underwritten offering, the investment banker(s) and manager(s) that will manage the offering will be selected by the Holders of a majority of the then outstanding Transfer Restricted Securities (determined in accordance with Section 10(d)) included in such offering (after consultation with the Company as to such selection and upon the written consent of the Company, which consent shall 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 8 hereof. The Holders of Transfer Restricted Securities on whose behalf such securities are being distributed shall be party to any such underwriting agreement. Such Holders shall not be required by the Company to make any representations or warranties to the underwriters with respect to the Company or the Transfer Restricted Securities (other than that the Holders are conveying such securities free and clear of all pledges, security 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 8). Furthermore, the Company shall make available for inspection by the Holders, any underwriter participating in any disposition pursuant to such Shelf Registration Statement, and any attorney, accountant or other agent retained by the Holders or underwriter, all financial and other records and other information, pertinent corporate documents and properties of the Company as shall be reasonably necessary to enable them to exercise their due diligence responsibilities. No Holder of Transfer Restricted Securities may participate in any underwritten distribution hereunder unless such Holder (a) agrees to sell such Holder's Transfer Restricted Securities on the basis provided in any underwriting arrangements approved in accordance with the terms hereof, and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. SECTION 8. INDEMNIFICATION (a) The Company agrees to indemnify and hold harmless each Holder (each such Holder an "Indemnified Holder") and each person that controls each ------------------ Indemnified Holder within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and the agents, 13 employees, officers and directors of any such Indemnified Holder or any such controlling person of any Indemnified Holder from and against any and all losses, claims, damages, judgments, liabilities and expenses (including the reasonable fees and expenses of counsel and other expenses in connection with investigating, defending or settling any such action or claim), joint or several, as they are incurred arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Prospectus or Shelf Registration Statement or any supplement or amendment thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except the Company shall not be liable to any Indemnified Holder in any such case insofar as such losses, claims, damages, judgments, liabilities or expenses arise out of, or are based upon, any such untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information relating to such Indemnified Holder furnished in writing by such Indemnified Holder to the Company expressly for use therein; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made on any preliminary Prospectus if (i) such Holder failed to send or deliver a copy of the Prospectus with or prior to the delivery of written confirmation of the sale of Transfer Restricted Securities if the Company furnished the Holder with sufficient copies thereof, and (ii) the Prospectus would have corrected such untrue statement or omission; and provided further, that the Company shall not be liable in any case to the extent that any loss, claim, damage, liability or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission in the Prospectus, if such untrue statement or alleged untrue statement or omission or alleged omission is corrected in an amendment or supplement to the Prospectus if, having previously been furnished by or on behalf of the Company with copies of the Prospectus as so amended or supplemented, such Holder thereafter fails to deliver such Prospectus as so amended or supplemented, prior to or concurrently with the sale of a Transfer Restricted Security to the person asserting such loss, claim, damage, liability or expense who purchased such Transfer Restricted Security which is the subject thereof from such Holder. (b) If any action or proceeding (including any governmental or regulatory investigation or proceeding) shall be brought or asserted against any Indemnified Holder with respect to which indemnity may be sought against the Company pursuant to this Section 8, such Indemnified Holder shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Holder and payment of all fees and expenses; provided, that the omission so to notify the Company shall not relieve the Company from any liability that it may have to any Indemnified Holder (except to the extent that the Company is actually materially prejudiced or otherwise forfeited material substantive rights or defenses by reason of such failure). An Indemnified Holder shall have the right to employ separate counsel in any such action or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Holder unless (i) the employment of such counsel has been specifically authorized in writing by the Company, which authorization shall not be unreasonably withheld, (ii) the Company has failed promptly to assume the defense and employ counsel reasonably satisfactory to the Indemnified Holder, (iii) the named parties to any 14 such action or proceeding (including any impleaded parties) include both the Indemnified Holder and the Company and such Indemnified Holder shall have been advised by its counsel that there may be one or more legal defenses available to it that are different from or additional to those available to the Company (in which case the Company shall not have the right to assume the defense of such action on behalf of such Indemnified Holder) or (iv) a conflict or potential conflict exists (based on advice of counsel to the Indemnified Holder) between the Indemnified Holder and the Company (in which case the Company will not have the right to direct the defense of such action on behalf of the Indemnified Holder). It is understood that the Company shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for such Indemnified Holder, which firm shall be designated in writing by the Indemnified Holder, and that all such fees and expenses shall be reimbursed promptly following receipt of invoices therefor as they are incurred. The Company shall not be liable for any settlement of any such action effected without the written consent of the Company, such consent not to be unreasonably withheld or delayed, but if settled with the written consent of the Company, or if there is a final judgment with respect thereto, the Company agrees to indemnify and hold harmless each Indemnified Holder from and against any loss or liability by reason of such settlement or judgment. The Company shall not, without the prior written consent of each Indemnified Holder affected thereby, effect any settlement of any pending or threatened proceeding in which such Indemnified Holder has sought indemnity hereunder, which (x) does not include an unconditional release of such Indemnified Holder from all liability arising out of such action, claim, litigation or proceeding and/or (y) would impose injunctive relief on such Indemnified Holder. (c) Each Indemnified Holder is hereby deemed to have agreed to indemnify and hold harmless the Company, its directors, any person controlling the Company and such person's agents, employees, officers and directors (collectively, the "Company Indemnified Parties") to the same extent as the --------------------------- foregoing indemnity from the Company to any Indemnified Holder, but only with respect to information relating to each Indemnified Holder furnished to the Company in writing by each Indemnified Holder, respectively, expressly for use in a Prospectus, the Shelf Registration Statement or any supplement or amendment thereto. In case any action shall be brought against any Company Indemnified Party based on a Prospectus, Shelf Registration Statement or any supplement or amendment thereto and in respect of which indemnity may be sought against each Indemnified Holder pursuant to this Section 8(c), each Indemnified Holder shall have the rights and duties given to the Company by Section 8(b) (except that if the Company shall have assumed the defense thereof, each Indemnified Holder may, but shall not be required to employ separate counsel therein and participate in the defense thereof and the fees and expenses of such counsel shall be at the expense of the Indemnified Holder) and the Company Indemnified Parties shall have the rights and duties given to the Indemnified Holders by Section 8(b). (d) If the indemnification provided for in this Section 8 is unavailable to any party entitled to indemnification pursuant to Section 8(a) or 8(c), or is insufficient to hold any party entitled to indemnification pursuant to 8(a) or 8(c) harmless with respect to any losses, 15 claims, damages, judgments, liabilities and expenses referred to in Section 8(a) or 8(c), then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, judgments, liabilities and expenses (including any investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, but after deducting any contribution received by the Company from persons other than the Indemnified Holders, such as persons who control the Company within the meaning of the Act or the Exchange Act and officers and directors of the Company, who also may be liable for contribution) (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and each Indemnified Holder on the other from the offering of the Transfer Restricted Securities pursuant to the Shelf Registration Statement or (ii) if the allocation provided by clause (i) above 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 Company on the one hand and each Indemnified Holder on the other in connection with the statements or omissions which resulted in such losses, claims, damages, judgments, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and each Indemnified Holder on the other shall be deemed to be in the same proportions as the total net proceeds from the initial sale of 9 1/4% Preferred Stock to the Initial Purchasers (before deducting expenses) received by the Company bear to the total proceeds (before expenses) to the applicable Indemnified Holder from the offering of the Transfer Restricted Securities pursuant to the Shelf Registration Statement, in the case of an Indemnified Holder. The relative fault of the Company on the one hand and each Indemnified Holder on the other 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 by each Indemnified Holder on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) The Company and each Indemnified Holder agree that it would not be just and equitable if contributions pursuant to Section 8(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in Section 8(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or expenses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation. (f) The indemnity and contribution agreements contained in this Section 8 are in addition to any liability that any indemnifying party may otherwise have to any indemnified party. 16 SECTION 9. 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 Securities without registration under the Act within the limitation of the exemptions provided by (a) Rule 144 under the Act, as such Rule may be amended from time to time, (b) Rule 144A under the Act, as such Rule may be amended from time to time, and (c) any similar rules or regulations hereafter adopted by the Commission. Upon request of any Holder of Transfer Restricted Securities, the Company will deliver a written statement as to whether it has complied with such requirements and will, at its expense, forthwith upon the request of the Initial Purchasers, deliver to the Initial Purchasers a certificate, signed by the Company's principal financial officer, stating (a) the Company's name, address and telephone number (including area code), (b) the Company's Internal Revenue Service identification number, (c) the Company's Commission file number, (d) the number of shares of each class of capital stock outstanding as shown by the most recent report or statement published by the Company, and (e) whether the Company has filed the reports required to be filed under the Exchange Act for a period of at least ninety (90) days prior to the date of such certificate and in addition has filed the most recent annual report required to be filed thereunder. SECTION 10. MISCELLANEOUS (a) Remedies. Each Holder of Transfer Restricted Securities, in -------- addition to being entitled to exercise all rights provided herein, and as provided in the Purchase Agreement and granted by law, including the recovery of damages, shall be entitled to specific performance of such Holder's rights under this Agreement. Except with respect to the payment of Liquidated Damages in the event of the occurrence of a Registration Default, the Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees in any action for specific performance to waive the defense that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company has not and shall not on -------------------------- or after the date of this Agreement enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders of Transfer Restricted Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders of Transfer Restricted 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 securities under any other agreements. No holder of securities of the Company has rights to the registration of any securities of the Company because of the execution, delivery or performance by the Company of this Agreement or as a result of the filing of the Shelf Registration Statement. (c) No Adverse Action Affecting the Transfer Restricted Securities. -------------------------------------------------------------- The Company has not taken and will not take, any action, or permit any change to occur with respect to the Transfer Restricted Securities which would adversely affect the ability of any of the 17 Holders of Transfer Restricted Securities to include such Transfer Restricted 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 shares of 9 1/4% Preferred Stock, principal amount of Debentures and shares of Common Stock constituting Transfer Restricted Securities, as the case may be (with Holders of shares of 9 1/4% Preferred Stock or Debentures deemed to be Holders of the Common Stock into which such securities may be converted for purposes of such calculation). Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders of Transfer Restricted Securities whose securities 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 Securities may be given by the Holders of a majority of the Transfer Restricted Securities being sold. (e) Notices. All notices and other communications provided for or ------- permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telex, telecopier, or air courier guaranteeing overnight deliver: (i) if to a Holder of Transfer Restricted Securities, at the address set forth on the records of the Company or the Registrar under the Indenture, with a copy to the Registrar, and if to each of the Initial Purchasers, at the addresses 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 ---------------------- 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 Transfer Restricted Securities. 18 (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 sold pursuant to the Purchase Agreement except as provided in the Designation of the Preferred or the Indenture and in the Purchase Agreement. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 19 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. TRANS WORLD AIRLINES, INC. By: /s/ Michael J. Lichty --------------------- Name: Michael J. Lichty Title: V.P., Corp. Finance LAZARD FRERES & CO. LLC PAINEWEBBER INCORPORATED By: Lazard Freres & Co. LLC - --- ----------------------- By: /s/ James L. Kempner -------------------- Name: James L. Kempner Title: Managing Director EX-5 4 OPINION OF DAVIS, POLK & WARDELL EXHIBIT 5 Davis Polk & Wardwell 450 Lexington Avenue New York, NY 10017 January 19, 1998 Trans World Airlines, Inc. One City Centre 515 N. Sixth Street St. Louis, Missouri 63101 Re: Registration Statement on Form S-3 Ladies and Gentlemen: We have served as counsel for Trans World Airlines, Inc., a Delaware corporation (the "Company"), in connection with the registration under the Securities Act of 1933, as amended, pursuant to a Registration Statement on Form S-3 (the "Registration Statement"), of 1,725,000 shares of the Company's 9 1/4% Cumulative Convertible Exchangeable Preferred Stock, $.01 par value per share (the "Preferred Stock") along with 86,250,000 aggregate principal amount of the Company's 9 1/4% Convertible Subordinated Debentures due 2007 (the "Debentures") issuable upon exchange of the Preferred Stock and up to 10,917,525 shares of the Company's Common Stock, $.01 par value per share (the "Common Stock"), issuable upon conversion of the Preferred Stock or the Debentures, subject to adjustment under certain circumstances (the Preferred Stock, the Debentures and the Common Stock are collectively referred to herein as the "Securities"). We have examined and are familiar with originals or copies (certified, photostatic or otherwise identified to our satisfaction) of such documents, corporate records and other instruments relating to the incorporation of the Company and the authorization and issuance of the Securities as we have deemed necessary and advisable. In all such examinations, we have assumed the genuineness of all signatures on all originals and copies of documents we have examined, the authenticity of all documents submitted to us as originals and the conformity to original documents of all certified, conformed or photostatic copies. As to questions of fact material and relevant to our opinion, we have relied upon certificates or representations of Company officials and of appropriate public officials. We express no opinion as to matters under or involving laws of any jurisdiction other than the State of Delaware and its political subdivisions. Based upon and subject to the foregoing and having regard for such legal considerations as we have deemed relevant, it is our opinion that: i. the Company is a corporation in good standing, duly organized and validly existing under the laws of the State of Delaware; ii. the necessary corporate proceedings and actions legally required for the registration of the Securities have been held and taken; iii. the issuance and sale of the Preferred Stock have been duly and validly authorized; iv. the Common Stock issuable upon conversion of the Preferred Stock or the Debentures, have been duly and validly authorized; v. the Debentures issuable upon exchange of the Preferred Stock when executed, authenticated and delivered 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; and vi. the Preferred Stock and the Common Stock issuable upon conversion of the Preferred Stock or the Debentures when issued will be fully paid, non-assessable and free of preemptive rights. We hereby consent to the filing of this opinion as Exhibit 5 to the Registration Statement and to the reference to this firm under the caption "Legal Matters" in the Prospectus. In giving this consent, we do not thereby admit we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, or the rules and regulations of the Securities and Exchange Commission thereunder. Very truly yours, /s/ Davis Polk & Wardwell Davis Polk & Wardwell 2 EX-12 5 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
TRANS WORLD AIRLINES, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Reorganized Prior Predecessor Company Predecessor Company Company -------------------------- --------------------------------------- ------------- Ten months Two months Eight months Four months ---------- ---------- ------------ ----------- Year ended ended ended Year ended ended ended ---------- ----- ----- ---------- ----- ----- December 31, October 31, December 31, December 31, August 31, December 31, ------------ ----------- ------------ ------------ ---------- ------------ 1992 1993 1993 1994 1995 1995 ---- ---- ---- ---- ---- ---- (Amounts in Thousands, except for ratio) -------------------------------------- Loss from operations before income taxes ($314,292) ($362,620) ($88,140) ($432,869) ($338,309) ($32,268) Add: Interest on indebtedness (1) 110,096 91,877 31,204 195,352 123,247 45,917 Portion of rents representative of the interest factor 67,700 57,821 12,198 87,122 60,849 32,131 --------- --------- -------- --------- --------- ------- Income as adjusted ($136,496) ($212,922) ($44,738) ($150,395) ($154,213) $45,780 --------- --------- -------- --------- --------- ------- Fixed Charges: Interest on indebtedness $110,096 $91,877 $31,204 $195,352 $123,247 $45,917 Capitalized interest 3,099 2,104 267 2,133 - - Portion of rents representative of the interest factor 67,700 57,821 12,198 87,122 60,849 32,131 -------- -------- ------- -------- -------- ------- Fixed Charges $180,895 $151,802 $43,669 $284,607 $184,096 $78,048 -------- -------- ------- -------- -------- ------- Ratio of earnings to fixed charges (0.75) (1.40) (1.02) (0.53) (0.84) 0.59 -------- -------- ------- -------- -------- ------- Deficiency (coverage) $317,391 $364,724 $88,407 $435,002 $338,309 $32,268 -------- -------- ------- -------- -------- ------- (1) Includes amoritization of debt expense.
Exhibit 12 -------------------------------------------------------------- Year 9 months 9 months 3 months 3 months ---- -------- -------- -------- -------- ended ended ended ended ended ----- ----- ----- ----- ----- December 31, Sept 30, Sept 30, Sept 30, Sept 30, ------------ -------- -------- -------- -------- 1996 1997 1996 1997 1996 ---- ---- ---- ---- ---- Loss from operations before income taxes ($274,577) ($68,272) ($18,257) $13,276 ($6,905) Add: Interest on indebtedness (1) 126,822 85,518 95,483 27,404 30,864 Portion of rents representative of the interest factor 100,997 89,616 74,028 31,480 25,757 --------- -------- -------- ------- ------- Income as adjusted ($46,758) $106,862 $151,254 $72,160 $49,716 --------- -------- -------- ------- ------- Fixed Charges: Interest on indebtedness $126,822 $85,518 $95,483 $27,404 $30,864 Capitalized interest 5,463 4,204 3,563 899 1,619 Portion of rents representative of the interest factor 100,997 89,616 74,028 31,480 25,757 --------- -------- -------- ------- ------- Fixed Charges $233,282 $179,338 $173,074 $59,783 $58,240 --------- -------- -------- ------- ------- Ratio of earnings to fixed charges (0.20) 0.60 0.87 1.21 0.85 --------- -------- -------- ------- ------- Deficiency (coverage) $280,040 $72,476 $21,820 ($12,377) $8,524 --------- -------- -------- ------- -------
EX-23.1 6 CONSENT OF KPMG PEAT MARWICK LLP Exhibit 23.1 AUDITORS' CONSENT ----------------- The Board of Directors We consent to the use of our report incorporated herein by reference and to the reference to our firm under the heading "Experts" in the prospectus. Our report, dated March 24, 1997, contains an explanatory paragraph that states that the Company's recurring losses from operations and its limited sources of additional liquidity raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty. In addition, our report refers to the application of fresh start reporting as of September 1, 1995. KPMG Peat Marwick LLP Kansas City, Missouri January 19, 1998 EX-24 7 POWERS OF ATTORNEY 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 Michael J. Palumbo, Richard P. Magurno and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution for me in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-3 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its 9 1/4 % Cumulative Convertible Exchangeable Preferred Stock (the "Preferred Stock") and its 9 1/4 % Convertible Subordinated Debentures due 2007 (the "Debentures") and shares of Common Stock issuable in exchange and conversion of the Preferred Stock or the Debentures, respectively, 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 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 substitutes may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this ____ day of ___________, 1998. /s/ John W. Bachmann ------------------------------------ John W. Bachmann EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, William F. Compton, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution for me in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-3 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its 9 1/4 % Cumulative Convertible Exchangeable Preferred Stock (the "Preferred Stock") and its 9 1/4 % Convertible Subordinated Debentures due 2007 (the "Debentures") and shares of Common Stock issuable in exchange and conversion of the Preferred Stock or the Debentures, respectively, 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 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 substitutes may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this ____ day of ___________, 1998. /s/ William F. Compton ------------------------------------ William F. Compton EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, Eugene P. Conese, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution for me in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-3 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its 9 1/4 % Cumulative Convertible Exchangeable Preferred Stock (the "Preferred Stock") and its 9 1/4 % Convertible Subordinated Debentures due 2007 (the "Debentures") and shares of Common Stock issuable in exchange and conversion of the Preferred Stock or the Debentures, respectively, 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 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 substitutes may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 12th day of January, 1998. /s/ Eugene P. Conese ------------------------------------ Eugene P. Conese EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, William M. Hoffman, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution for me in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-3 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its 9 1/4 % Cumulative Convertible Exchangeable Preferred Stock (the "Preferred Stock") and its 9 1/4 % Convertible Subordinated Debentures due 2007 (the "Debentures") and shares of Common Stock issuable in exchange and conversion of the Preferred Stock or the Debentures, respectively, 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 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 substitutes may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 13th day of January, 1998. /s/ William M. Hoffman ------------------------------------ William M. Hoffman EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, Thomas H. Jacobsen, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution for me in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-3 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its 9 1/4 % Cumulative Convertible Exchangeable Preferred Stock (the "Preferred Stock") and its 9 1/4 % Convertible Subordinated Debentures due 2007 (the "Debentures") and shares of Common Stock issuable in exchange and conversion of the Preferred Stock or the Debentures, respectively, 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 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 substitutes may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 15th day of January, 1998. /s/ Thomas H. Jacobsen ------------------------------------ Thomas H. Jacobsen EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, Myron Kaplan, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution for me in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-3 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its 9 1/4 % Cumulative Convertible Exchangeable Preferred Stock (the "Preferred Stock") and its 9 1/4 % Convertible Subordinated Debentures due 2007 (the "Debentures") and shares of Common Stock issuable in exchange and conversion of the Preferred Stock or the Debentures, respectively, 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 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 substitutes may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 12th day of January, 1998. /s/ Myron Kaplan ------------------------------------ Myron Kaplan EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, Thomas F. Meagher, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution for me in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-3 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its 9 1/4 % Cumulative Convertible Exchangeable Preferred Stock (the "Preferred Stock") and its 9 1/4 % Convertible Subordinated Debentures due 2007 (the "Debentures") and shares of Common Stock issuable in exchange and conversion of the Preferred Stock or the Debentures, respectively, 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 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 substitutes may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 12th day of January, 1998. /s/ Thomas F. Meagher ------------------------------------ Thomas F. Meagher EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, G. Joseph Reddington, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution for me in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-3 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its 9 1/4 % Cumulative Convertible Exchangeable Preferred Stock (the "Preferred Stock") and its 9 1/4 % Convertible Subordinated Debentures due 2007 (the "Debentures") and shares of Common Stock issuable in exchange and conversion of the Preferred Stock or the Debentures, respectively, 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 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 substitutes may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this ____ day of ___________, 1998. /s/ G. Joseph Reddington ------------------------------------ G. Joseph Reddington EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, Blanche M. Touhill, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution for me in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-3 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its 9 1/4 % Cumulative Convertible Exchangeable Preferred Stock (the "Preferred Stock") and its 9 1/4 % Convertible Subordinated Debentures due 2007 (the "Debentures") and shares of Common Stock issuable in exchange and conversion of the Preferred Stock or the Debentures, respectively, 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 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 substitutes may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 12th day of January, 1998. /s/ Blanche M. Touhill ------------------------------------ Blanche M. Touhill EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, Stephen M. Tumblin, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution for me in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-3 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its 9 1/4 % Cumulative Convertible Exchangeable Preferred Stock (the "Preferred Stock") and its 9 1/4 % Convertible Subordinated Debentures due 2007 (the "Debentures") and shares of Common Stock issuable in exchange and conversion of the Preferred Stock or the Debentures, respectively, 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 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 substitutes may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 12th day of January, 1998. /s/ Stephen M. Tumblin ------------------------------------ Stephen M. Tumblin POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, David M. Kennedy, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution for me in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-3 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its 9 1/4 % Cumulative Convertible Exchangeable Preferred Stock (the "Preferred Stock") and its 9 1/4 % Convertible Subordinated Debentures due 2007 (the "Debentures") and shares of Common Stock issuable in exchange and conversion of the Preferred Stock or the Debentures, respectively, 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 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 substitutes may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 19th day of January, 1998. /s/ David M. Kennedy ------------------------------------ David M. Kennedy POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, William O'Driscoll, a Director of TRANS WORLD AIRLINES, INC. (the "Company"), a Delaware corporation, do constitute and appoint Michael J. Palumbo, Richard P. Magurno and Kathleen A. Soled, jointly and severally, my true and lawful attorneys-in-fact, with full power of substitution for me in any and all capacities, to sign, pursuant to the requirements of the Securities Act of 1933, the Registration Statement on Form S-3 for TRANS WORLD AIRLINES, INC. in connection with the Company's registration of its 9 1/4 % Cumulative Convertible Exchangeable Preferred Stock (the "Preferred Stock") and its 9 1/4 % Convertible Subordinated Debentures due 2007 (the "Debentures") and shares of Common Stock issuable in exchange and conversion of the Preferred Stock or the Debentures, respectively, 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 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 substitutes may do or cause to be done by virtue hereof. IN WITNESS WHEREOF, I have hereunto set my hand and seal this _____day of _________, 1998. /s/ William O'Driscol ------------------------------------ William O'Driscol EX-25 8 CONSENT OF KPMG PEAT MARWICK LLP Exhibit 25 AUDITORS' CONSENT ----------------- The Board of Directors Trans World Airlines, Inc.: We consent to the use of our report incorporated herein by reference and to the reference to our firm under the heading "Experts" in the prospectus. Our report, dated March 24, 1997, contains an explanatory paragraph that states that the Company's recurring losses from operations and its limited sources of additional liquidity raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty. In addition, our report refers to the application of fresh start reporting as of September 1, 1995. KPMG Peat Marwick LLP Kansas City, Missouri January 19, 1998 -----END PRIVACY-ENHANCED MESSAGE-----