<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1998
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AHL SERVICES, INC.
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<S> <C>
GEORGIA 58-2277249
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
</TABLE>
3353 PEACHTREE ROAD, NE
SUITE 1120, NORTH TOWER
ATLANTA, GEORGIA 30326
(404)267-2222
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
FRANK A. ARGENBRIGHT, JR.
CHAIRMAN AND CO-CHIEF EXECUTIVE OFFICER
AHL SERVICES, INC.
3353 PEACHTREE ROAD, NE
SUITE 1120, NORTH TOWER
ATLANTA, GEORGIA 30326
(404)267-2222
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
<TABLE>
<S> <C>
JEFFREY M. STEIN, ESQ. DONALD J. MURRAY, ESQ.
KING & SPALDING DEWEY BALLANTINE LLP
191 PEACHTREE STREET 1301 AVENUE OF THE AMERICAS
ATLANTA, GEORGIA 30303 NEW YORK, NEW YORK 10019
(404) 572-4600 (212) 259-8000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of the 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, other than securities offered only in connection with dividend or interest
reinvestment plans check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement 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 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(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE
AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
TITLE OF SHARES TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share................. 4,600,000 $28.0625 $129,087,500 $35,886
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</TABLE>
(1) Includes 600,000 shares which the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c). Based on the average of the high and low sales
price for the Common Stock on December 17, 1998.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1998
PROSPECTUS
4,000,000 SHARES
(AHL SERVICES, INC. LOGO)
COMMON STOCK
$.01 PER SHARE
---------------------
AHL Services, Inc. is selling 3,755,570 shares of its common stock and the
selling shareholder named in this prospectus is selling 244,430 shares. The
underwriters named in this prospectus may purchase up to 600,000 additional
shares of common stock from AHLS and certain other shareholders under certain
circumstances. AHLS will not receive any proceeds from the sale of the shares by
the selling shareholders.
The common stock is quoted on the Nasdaq National Market under the symbol
"AHLS." The last reported sale price of the common stock on the Nasdaq National
Market on December 22, 1998 was $29.00 per share.
---------------------
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds to AHLS (before expenses).......................... $ $
Proceeds to the selling shareholder (before expenses)....... $ $
</TABLE>
The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about ,
1999.
---------------------
SALOMON SMITH BARNEY BT ALEX. BROWN
CREDIT SUISSE FIRST BOSTON THE ROBINSON-HUMPHREY COMPANY
, 1998
<PAGE> 3
[Two overlapping maps depicting (1) the Company's locations in North America
and (2) the Company's locations in Europe.]
2
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 7
Use of Proceeds............................................. 13
Dividend Policy............................................. 13
Price Range of Common Stock................................. 14
Capitalization.............................................. 14
Selected Pro Forma Financial Information.................... 15
Selected Financial and Operating Data....................... 16
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 17
Overview.................................................. 17
Results of Operations..................................... 18
Nine Months Ended September 30, 1998 Compared to Nine
Months Ended September 30, 1997........................ 18
Fiscal 1997 Compared to Fiscal 1996....................... 19
Fiscal 1996 Compared to Fiscal 1995....................... 20
Quarterly Results and Seasonality......................... 21
Liquidity and Capital Resources........................... 22
Inflation................................................. 23
Year 2000................................................. 23
Business.................................................... 25
Industry Overview......................................... 25
Strategy.................................................. 27
Services Provided......................................... 28
Acquisitions.............................................. 31
Contract Terms............................................ 31
Sales and Marketing....................................... 32
Workforce Management...................................... 32
Management Information Systems............................ 33
Competition............................................... 34
Government Regulation..................................... 34
Risk Management and Safety................................ 37
Litigation................................................ 37
Management.................................................. 38
Executive Officers, Directors and Key Employees........... 38
Principal and Selling Shareholders.......................... 40
Underwriting................................................ 42
Legal Matters............................................... 43
Experts..................................................... 43
Where You Can Find More Information......................... 43
Pro Forma Financial Statements.............................. F-1
</TABLE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY
STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IS
ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS.
3
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. It is not complete and may not contain all of the information that
is important to you. To understand this offering fully, you should read
carefully the entire prospectus and the documents incorporated by reference,
including the risk factors. Unless we state otherwise, pro forma information in
this prospectus includes the acquisitions of Gage and EMD (as hereinafter
defined) as if the acquisitions had occurred on January 1, 1998 but does not
reflect other acquisitions completed since that date. Unless otherwise
indicated, all information contained in this prospectus assumes that the
underwriters will not exercise their option to purchase an additional 600,000
shares.
THE COMPANY
We are a leading provider of contract staffing and outsourcing solutions.
We professionally manage a large workforce that performs tasks that our clients
frequently regard as outside their core businesses. In assuming responsibility
for these tasks, we seek to improve the quality of the non-core operations of
our clients and to reduce their operating costs. Our services are generally
performed under long-term contracts, which have provided us with a significant
source of predictable and recurring revenues. We have the following four lines
of business:
<TABLE>
<S> <C>
- - AVIATION SERVICES
- pre-departure screening
- passenger profiling
- baggage claim and check
- sky cap and wheelchair assistance
- cargo handling
- into-plane fueling
- - FACILITY SUPPORT SERVICES
- access control personnel
- uniformed security officers
- fixed route dedicated shuttle bus services
- - MARKETING EXECUTION AND FULFILLMENT SERVICES
- consumer and trade fulfillment
- trade support services
- e-commerce fulfillment
- customer service support
- - OPERATIONAL SUPPORT STAFFING SERVICES
- assembly
- warehousing
- shipping
- electrical
- mechanical
</TABLE>
We service the multinational needs of our primarily Fortune 1000 clients
through our 95 offices in North America and 58 offices in Europe. Our ten
largest clients based on pro forma revenues are America OnLine, British Airways,
Delta Air Lines, Federal Express, Ford, Mattel, Northwest Airlines, Publishers
Clearing House, Reader's Digest and United Airlines. We focus on developing and
maintaining long-term client relationships. Our top ten clients have utilized us
or our predecessors for an average of ten years. In addition, we have achieved
an average annual retention rate of approximately 93% of contract billable hours
over the last three fiscal years (excluding two operations we terminated in
1996).
We have achieved significant growth in recent years, with our revenues
achieving a compound annual growth rate of 27.6% from 1993 to 1997. The compound
annual growth rate for our internal growth during the same period was 24.2%.
While we are focused on strong internal growth, we have also made accretive
acquisitions to provide complementary higher margin services to our clients.
These acquisitions have substantially changed our business mix, reducing our
historical dependence on the aviation industry, and improved our operating
margins. Operating income for the nine months ended September 30, 1998 increased
122% from the comparable period of 1997.
4
<PAGE> 6
Our core competency is our ability to recruit, hire, train, motivate and
manage a large workforce required to provide the non-core support services
needed by our clients. We believe there are significant opportunities to expand
our business as our existing clients and other large corporations and
institutions increasingly utilize contract staffing and outsourcing solutions.
In pursuing our strategy, we intend to:
(1) remain focused on our core competency;
(2) cross-sell our services and pursue opportunities with existing clients;
(3) develop and maintain long-term client relationships;
(4) capitalize on our multinational capabilities, predominantly in North
America, the United Kingdom and Germany;
(5) expand margins by continuing to change our business mix and leveraging
density in existing markets; and
(6) continue to seek strategic acquisitions that will be accretive to our
earnings.
Our executive offices are located at 3353 Peachtree Road, NE, Atlanta,
Georgia 30326 and our telephone number at that address is (404) 267-2222.
THE OFFERING
Total shares offered by this prospectus... 4,000,000 shares
Offered by us........................... 3,755,570 shares
Offered by one of our shareholders...... 244,430 shares
Shares outstanding at December 22, 1998... 14,119,922 shares
Shares to be outstanding after the
offering.................................. 17,875,492 shares
Use of proceeds........................... We intend to use proceeds from the
offering to repay outstanding
indebtedness.
Nasdaq National Market symbol............. AHLS
RISK FACTORS.............................. YOU SHOULD READ THE "RISK FACTORS"
SECTION, BEGINNING ON PAGE 7, AS
WELL AS THE OTHER CAUTIONARY
STATEMENTS THROUGHOUT THE ENTIRE
PROSPECTUS AND IN THE
INCORPORATED DOCUMENTS. THIS WILL
HELP YOU UNDERSTAND THE RISKS
ASSOCIATED WITH AN INVESTMENT IN
OUR COMMON STOCK.
5
<PAGE> 7
SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,(1) NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------- ----------------------------------
1995 1996 1997 1997 1998
-------- -------- ----------------------- -------- -----------------------
ACTUAL PRO FORMA(2) ACTUAL PRO FORMA(2)
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................... $168,601 $210,153 $276,013 $407,134 $196,563 $319,184 $397,951
Operating income............. 2,844 5,043 10,705 19,252 7,262 16,123 21,375
Income before income
taxes and extraordinary
charges.................... 2,355 3,618 10,269 12,860 6,710 14,729 16,542
Net income................... 1,438 2,171 6,034(3) 7,511(3) 3,740(3) 8,758 9,780
Net income per
share -- diluted........... 0.26(4) 0.55(3) 0.66(3) 0.36(3) 0.61 0.67
Weighted average common
and common equivalent
shares -- diluted.......... 8,433(4) 10,960 11,421 10,331 14,304 14,649
OPERATING DATA (AT PERIOD END):
Number of employees.......... 9,954 12,980 16,282 15,495 25,540
Number of offices............ 69 83 111 94 153
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
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ACTUAL AS ADJUSTED(5)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 58,335 $ 58,335
Total assets.............................................. 329,240 329,240
Long-term debt, net of current portion.................... 143,027(6) 40,506
Shareholders' equity...................................... 100,798 203,319
</TABLE>
- ---------------
(1) Our fiscal year ends on the last Friday in December. Each of the fiscal
years presented consists of 52 weeks.
(2) Pro forma to give effect to the Gage and EMD acquisitions as if they
occurred on the first day of the period presented.
(3) Includes extraordinary charges (actual and pro forma), net of taxes, of
$385,000, or $0.04 per share, resulting from early extinguishment of debt.
Excluding the extraordinary charges, for fiscal 1997 our net income was
$6,419,000 ($7,896,000 on a pro forma basis) and our net income per share --
diluted was $0.59 ($0.69 on a pro forma basis). Excluding the extraordinary
charges, for the nine months ended September 30, 1997 our net income was
$4,125,000 and our net income per share -- diluted was $0.40.
(4) Pro forma to give effect to the reorganization, completed in February 1997.
The reorganization included the contribution by Mr. Frank A. Argenbright,
Jr. to AHLS of all the outstanding shares of common stock of Argenbright
Holdings Limited, a holding company for our U.S. operations, and The ADI
Group Limited, a holding company for our European operations.
(5) Adjusted to give effect to the sale of the 3,755,570 shares of common stock
offered by us in this offering. This data assumes a public offering price of
$29.00 per share and our use of the proceeds as described in the "Use of
Proceeds" section on page 13.
(6) Includes the $10 million convertible subordinated debenture issued in
connection with the Gage acquisition.
6
<PAGE> 8
RISK FACTORS
Before you invest in our common stock, you should be aware that there are
various risks, including those described below. You should consider carefully
the risk factors described in this section as well as all of the other
information included and incorporated by reference in this prospectus before you
decide to purchase shares of our common stock.
Some of the information in this prospectus may contain forward-looking
statements. Such statements can be identified by the use of forward-looking
words such as "may," "will," "expect," "anticipate," "estimate" and "continue."
These statements discuss our expectations for the future and contain projections
of results of operations or financial condition or state other "forward-looking"
information. When considering such forward-looking statements, you should keep
in mind the risk factors and other cautionary statements in this prospectus and
the incorporated documents, which explain why our actual results could differ
materially from those contained in any forward-looking statement. We do not
intend for any forward-looking statement to be a guarantee of any future results
or outcome.
Reliance on Major Clients and Aviation Industry. We derive a large portion
of our revenues from relatively few clients. For the nine months ended September
30, 1998, our three largest clients accounted for the following percentage of
our revenues through an aggregate of 116 contracts:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998
------------------
<S> <C>
United Airlines..................................... 13.2%
Delta Air Lines..................................... 11.8
British Airways..................................... 5.5
----
Total..................................... 30.5%
</TABLE>
Our ten largest clients accounted for an aggregate of 61.8% of our revenues
during fiscal 1997 and 42.4% of our revenues during the nine months ended
September 30, 1998. The financial performance of our airline clients is likely
to materially impact how many of our employees they utilize and the prices that
they are willing to pay us. If the airline industry continues to consolidate, we
may lose contracts. Financial difficulties of airlines may result in their
declaring bankruptcy or terminating operations, which could result in our having
material uncollectible accounts receivable and a reduction in our volume of
business. The aviation industry historically runs in cycles, and a downturn in
the aviation industry could hurt our business. A decrease in the number of
flights would have a material adverse effect on our business by decreasing the
demand for our services. Furthermore, our clients' contracts are generally
terminable by either party upon 30 to 90 days notice, and these contracts expire
at various times over the next several years. For these reasons, we cannot
predict whether one or more of our major clients will terminate or decide not to
renew one or more of its contracts with us. We also cannot predict whether any
of our clients will seek to renegotiate its contracts at lower margins to us.
The loss of, or a significant decrease in business from, one or more of our
major clients would have a material adverse effect on our business. See
"Business -- Industry Overview" beginning on page 25 of this prospectus.
Risks Associated with Managing a Growing Business. We have rapidly
expanded our operations in the past several years, and we intend to continue to
grow, both internally and through acquisitions. Additional growth of our client
base, the types of services we offer and the geographic markets we serve would
place additional demands on our resources. We cannot guarantee that we will be
able to manage growth effectively or profitably or that we will be able to grow
in the future at the same rate as we have grown in the past. In addition, we
cannot predict whether we will be able to identify acceptable
7
<PAGE> 9
acquisition candidates or complete the acquisition of any identified candidate
on terms favorable to us or in a timely manner.
A substantial portion of our capital resources could be used for
acquisitions. We may require additional debt or equity financings for future
acquisitions, which may not be available on terms favorable to us, if at all.
To realize the anticipated benefits of acquisitions, we must successfully
combine and integrate the operations of acquired entities. The process of
integrating acquired businesses can be time consuming and costly and may
distract management from day-to-day operations. Integration will be more
difficult if we have to coordinate geographically separated organizations,
integrate personnel with disparate business backgrounds or combine different
corporate cultures. We cannot be certain that we will be able to successfully
integrate any acquired business into our business or that we will be able to
profitably operate any acquired business.
Our future performance and profitability will depend in large part on our
ability to:
- attract and retain management and other key personnel;
- complete acquisitions and integrate the operations of acquired entities;
- successfully implement enhancements to our management systems; and
- adapt our management systems to respond to changes in our business.
See "Business -- Strategy" beginning on page 27 of this prospectus.
Risks Relating to Labor Force. The contract staffing and outsourcing
industry is labor intensive and is characterized by high rates of personnel
turnover and periodic shortages of personnel in some markets. We may from time
to time be required to increase the wages that we pay and the benefits that we
provide in order to attract and retain a sufficient number of qualified
employees to service our existing business and to grow. In addition, we may not
be able to pass along to our clients all additional costs associated with any
increase in compensation that we pay to our employees. A higher turnover rate
among our employees would increase our recruiting and training costs and may
adversely affect profitability. If we were unable to recruit and retain a
sufficient number of employees, we would be forced to limit our growth or
possibly reduce the scope of our operations. There is intense competition for
qualified personnel among contract staffing and outsourcing firms as well as
other employers of large numbers of hourly workers located in the markets where
we operate. We cannot be certain that we will be able to continue to hire and
retain a sufficient number of qualified personnel to support our existing
operations or planned growth.
We are in the business of placing our employees in public facilities and
the workplaces of our clients. Our business includes risks, such as claims by
our clients' customers or employees of discrimination, harassment and negligence
by our employees and other similar claims. We are exposed to liability for the
acts or negligence of our employees that cause personal injury or damages. We
are also exposed to claims of misuse of client proprietary information or theft
of client property. As a provider of aviation and facility support services, we
face potential liability claims in the event of any terrorist attempt or other
criminal activity that occurs on any airline or premises to which we are
providing these services. We have policies and guidelines in place to reduce our
exposure to these risks. We also maintain insurance coverage against certain of
these risks. Nonetheless, we cannot predict whether acts or omissions of our
employees will result in significant monetary damages, fines or adverse
publicity. We also cannot predict whether insurance coverage will continue to be
available on acceptable terms or whether it will be adequate in scope or amount
to cover any such liability. Any of these situations would have a material
adverse effect on our reputation, business, results of operations and financial
condition. See "Business -- Workforce Management" beginning on page 32 of this
prospectus and "-- Risk Management and Safety" beginning on page 37 of this
prospectus.
8
<PAGE> 10
Risks of Conducting International Operations. A substantial portion of our
revenues and earnings comes from international operations, specifically our
European operations. For the nine months ended September 30, 1998, approximately
31% of our revenue was derived from operations in Europe. Providing services in
foreign markets subjects us to a number of risks, including:
- trade barriers;
- social and severance cost;
- exchange controls;
- national and regional labor strikes;
- political risks;
- risks of increases in duties, taxes and governmental royalties; and
- changes in laws and policies governing operations of foreign-based
companies.
In addition, earnings of our foreign subsidiaries and intercompany payments
are subject to foreign income tax rules that may reduce our cash flow. A
substantial amount of our revenues are received, and operating costs are
incurred, in foreign currencies, especially currencies used in the United
Kingdom and Germany. Because our financial statements are presented in U.S.
dollars, any significant increase in the value of the U.S. dollar relative to
the British Pound or German Deutsche Mark will negatively affect our results of
operations and financial condition. We do not currently engage in currency
hedging transactions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page 17 of this prospectus.
In addition, our European operations may experience exchange rate
fluctuations related to the planned introduction of the single European currency
in accordance with the Treaty establishing the European Community (the
"Treaty"). Pursuant to the Treaty, a single currency (the "Euro") will be
introduced on January 1, 1999 in 11 of the member states (Germany, Belgium,
Luxembourg, Spain, France, Italy, Ireland, The Netherlands, Austria, Portugal
and Finland), when it will replace the existing currencies of those countries.
Final replacement will take place on December 31, 2001. We cannot predict how
the introduction of the Euro will affect the level or volatility of foreign
exchange rates. Consequently, we cannot predict the effects of a single European
currency on our business.
Employee-Related Costs and Claims Exposure. We are required to pay
unemployment insurance premiums and workers' compensation benefits for our
employees in the United States. Any increase in the cost of unemployment
insurance or workers' compensation benefits could hurt our profitability. We are
self-insured for the first $250,000 of each workers' compensation and automobile
or shuttle bus claim and we establish reserves for future claims and payments.
We cannot guarantee that our actual future workers' compensation or liability
claims will be less than the amount of our reserves or that we will not need to
establish additional reserves. Furthermore, we cannot predict whether we will be
able to pass along to our clients any increased costs related to unemployment
and workers' compensation insurance. See "Business -- Risk Management and
Safety" beginning on page 37 of this prospectus.
Risks Relating to, and Dependence on, Government Regulation. Our aviation
security services are subject to extensive regulation by the Federal Aviation
Administration in the United States and comparable regulatory authorities in
Europe. If we fail to meet regulatory standards or requirements, we could lose
contracts or our license to perform services, either of which could adversely
affect our business. In addition, a license is required in order to perform
services at many of the airports in which we operate. The loss of, or failure to
obtain, any such license could have a material adverse effect on our business.
Demand for certain of our aviation services is significantly affected by
applicable regulatory requirements and security directives issued by
governmental authorities. We cannot predict whether applicable regulations will
be changed in a way that would adversely affect the demand for our services.
9
<PAGE> 11
For example, from time to time there have been proposals to shift responsibility
for certain aviation security functions from the airlines to airport authorities
or other governmental agencies. Any such shift could reduce demand for our
aviation services. Any shift in responsibility for aviation security functions
or any trend toward the relaxation of aviation security measures could have a
material adverse effect on our business. See "Business -- Government Regulation"
beginning on page 34 of this prospectus.
Competition. The contract staffing and outsourcing industry is extremely
competitive and highly fragmented. In addition, there are only limited barriers
to prevent new companies from offering the services we provide. Companies within
our industry compete on the basis of (1) the quality of service provided, (2)
their ability to provide national and international services, (3) the range of
services offered and (4) price. We compete in international, national, regional
and local markets with outsourcing companies, specialized contract service
providers and in-house organizations that provide services to potential clients
and third parties. Certain of our competitors and potential competitors have
significantly greater financial resources and larger operations than we do. We
expect that the level of competition will remain high or increase in the future,
and we cannot guarantee that we will continue to compete successfully. See
"Business -- Competition" beginning on page 34 of this prospectus.
Fluctuations in Quarterly Operating Results. We have experienced, and we
expect to continue to experience, quarterly fluctuations in revenues and net
income as a result of various factors. These factors include:
<TABLE>
<S> <C>
- - the seasonality of air travel; - the timing of commencement of new
- - the timing of marketing promotions; contracts; and
- - the need for supplemental staffing; - the timing of additional selling,
- - the payment of holiday wages; general and administrative expenses to
- - changes in our revenue mix; support new business.
</TABLE>
Consequently, our operating results may experience significant quarterly
fluctuations. Our planned operating expenditures are based on revenue forecasts
and, if revenues are below expectations in any given quarter, our results are
likely to be materially adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Quarterly Results
and Seasonality" beginning on page 21 of this prospectus.
Dependence on Key Personnel. We are highly dependent on the efforts of our
senior management team, particularly the following individuals:
Frank A. Argenbright, Jr. - Chairman and Co-Chief Executive Officer
Edwin R. Mellett - Vice Chairman and Co-Chief Executive Officer
David L. Gamsey - Chief Financial Officer
Thomas J. Marano - President and Chief Operating Officer -- North American
Operations
Ernest Patterson - Chief Executive -- European Operations
The loss of the services of any of these individuals could adversely affect
our business. We have key-man life insurance only for Mr. Argenbright and we
have employment agreements with Messrs. Mellett, Gamsey, Marano and Patterson.
Mr. Mellett's employment agreement expires in December 2000, and the remaining
U.S. employment agreements expire in December 2001. As we continue to grow, we
will need to recruit and retain additional qualified management personnel, and
cannot predict whether these efforts will be successful. See "Management"
beginning on page 38 of this prospectus.
10
<PAGE> 12
Control by Principal Shareholder. Immediately following this offering, Mr.
Argenbright will beneficially own approximately 44.3% of our outstanding common
stock (approximately 42.5% if the underwriters' over-allotment option is
exercised in full). As a result, Mr. Argenbright will have substantial influence
over the election of the board of directors and the outcome of all other matters
requiring shareholder approval. Such voting concentration may delay or prevent a
change in control and could consequently adversely affect the market price for
our common stock. See "Principal and Selling Shareholders" beginning on page 40
of this prospectus.
Technological Developments. The services that we provide are labor
intensive. The development of technologies that would require less manpower for
these services or which are more effective or less expensive than our current
services would reduce demand for our services. The development and
implementation of such alternative systems could adversely affect our business.
See "Business -- Services Provided" beginning on page 28 of this prospectus.
Risks of Adverse Impact of Write-Off of Goodwill. When we acquire
businesses, the excess of the cost of net assets acquired over their fair value
is recorded as goodwill. Future acquisitions could add significantly to
goodwill. We amortize goodwill on a straight-line basis over varying periods
(typically 40 years), based on the nature of the assets acquired and the
underlying circumstances. If our operating results were to decline to the point
where the undiscounted cash flows from acquired businesses over the remaining
amortization period were less than the book value of the businesses' assets
(including goodwill), we would have to write off the excess goodwill as a charge
to earnings. A write-off of goodwill could adversely affect our financial
condition.
Potential Volatility of Stock Price. The market price of our common stock
may be volatile and may be significantly affected by factors such as:
- actual or anticipated fluctuations in our operating results;
- announcements of acquisitions or new services by us or our competitors;
- developments with respect to the contract staffing industry or the
industries we serve;
- governmental regulation;
- changes in estimates by securities analysts of our future financial
performance; and
- general market conditions.
A relatively small shortfall in revenues or earnings compared with analysts
expectations may cause an immediate and substantial decline in our stock price.
In addition, the stock markets have from time to time experienced significant
price and volume fluctuations that have adversely affected the market prices of
securities of companies for reasons often unrelated to their operating
performance. Investors in our common stock must be willing to bear the risk of
such fluctuations in stock price.
Shares Eligible for Future Sale. Sales of substantial amounts of our
common stock in the public market after this offering could adversely affect the
market price of the common stock. An aggregate of 7,900,000 shares of common
stock beneficially owned by Mr. Argenbright are eligible for public sale
pursuant to Rule 144 under the Securities Act of 1933 (the "Securities Act").
Each of our officers and directors (including Mr. Argenbright) and the selling
shareholders have agreed not to sell, offer for sale, or otherwise dispose of
any common stock for a period of 60 days from the date of this prospectus unless
they obtain the prior written consent of Salomon Smith Barney Inc. In addition,
we have registered the shares of common stock issuable pursuant to stock options
and an employee stock purchase plan. As a result, persons receiving those shares
will be able to resell them in the public markets. As of December 22, 1998,
options to purchase 653,625 shares were currently
11
<PAGE> 13
exercisable and options to purchase 1,629,625 shares become exercisable at
various times between 1999 and 2002.
Certain Anti-Takeover Provisions. Our Amended and Restated Articles of
Incorporation and Bylaws provide for a five member board of directors to be
elected to staggered three year terms. Additionally, directors may only be
removed from office for cause upon a vote of 70% of the outstanding common
stock. The Articles and Bylaws also provide that they may not be amended in
certain respects except pursuant to the vote of 70% of the outstanding common
stock. These provisions of the Articles and Bylaws could discourage potential
acquisition proposals and could delay or prevent a change in control.
12
<PAGE> 14
USE OF PROCEEDS
We expect to receive net proceeds of approximately $103.4 million from this
offering. This estimate assumes that we sell 3,755,570 shares of common stock in
the offering and that the public offering price will be $29.00 per share. Net
proceeds is computed by deducting the underwriting discount and our estimated
offering expenses from the total public offering price. Our estimated net
proceeds will be $112.2 million if the underwriters exercise their
over-allotment option in full.
We intend to use all the net proceeds from this offering to repay
outstanding indebtedness. This outstanding indebtedness consists of amounts
outstanding under our credit facility and under a convertible subordinated
debenture. Our credit facility had an outstanding balance of approximately
$139.7 million as of December 18, 1998. This facility matures in November 2003
and bears interest, at our option, at the prime rate, the Federal Funds rate
plus 50 basis points or LIBOR plus a variable spread. As of December 18, 1998,
the weighted average interest rate on the outstanding balance was 6.5%. We have
borrowed under our credit facility primarily to finance acquisitions. The
convertible subordinated debenture was issued in July 1998 in connection with
the Gage acquisition, has a balance of $10.0 million, currently bears interest
at 4.5% per annum and matures on July 24, 2000.
We will not receive any proceeds from the sale of common stock by the
selling shareholders.
DIVIDEND POLICY
We have never paid any cash dividends on our common stock, and the board of
directors currently intends to retain all earnings for use in our business. Our
credit facility prohibits the payment of dividends. Any future payment of
dividends will depend upon our results of operations, financial condition, cash
requirements and other factors deemed relevant by the board of directors.
13
<PAGE> 15
PRICE RANGE OF COMMON STOCK
The Company completed its initial public offering on March 27, 1997 at
$10.00 per share. Since that date, the common stock has traded on the Nasdaq
National Market under the symbol "AHLS." The following table sets forth the high
and low closing sale prices per share for the common stock for the periods
indicated, as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
1997:
First Quarter (from March 27, 1997)............... $ 10.750 $ 10.000
Second Quarter.................................... 15.500 9.500
Third Quarter..................................... 19.500 15.125
Fourth Quarter.................................... 24.625 15.250
1998:
First Quarter..................................... 32.625 21.000
Second Quarter.................................... 39.375 29.969
Third Quarter..................................... 42.125 27.438
Fourth Quarter (through December 22, 1998)........ 33.750 21.750
</TABLE>
On December 22, 1998, the last sale price of the common stock as reported
on the Nasdaq National Market was $29.00 per share. As of December 22, 1998,
there were 25 holders of record of our common stock.
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company as of September 30, 1998: (1) on a historical basis and (2) as
adjusted to give effect to the sale of the 3,755,570 shares of common stock
offered by the Company in this offering (at an assumed public offering price of
$29.00 per share) and the application of the estimated net proceeds from such
sale as described under "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt........................... $ 492 $ 492
======== ========
Long-term debt, net of current portion:
Credit facility........................................... $130,551 $ 37,213
Convertible subordinated debenture........................ 10,000 --
Equipment financing and other............................. 2,476 2,476
-------- --------
Total long-term debt.............................. 143,027 39,689
-------- --------
Shareholders' equity:
Preferred Stock: no par value; 5,000,000 shares
authorized; none issued or outstanding................. -- --
Common Stock: $.01 par value; 50,000,000 shares
authorized; 14,072,672 shares issued and outstanding
actual; 17,828,242 shares issued and outstanding as
adjusted(1)............................................ 141 179
Paid in capital........................................... 79,988 183,288
Cumulative translation adjustment......................... 341 341
Retained earnings......................................... 20,328 20,328
-------- --------
Total shareholders' equity........................ 100,798 204,136
-------- --------
Total capitalization......................... $243,825 $243,825
======== ========
</TABLE>
- ---------------
(1) Excludes 2,321,500 shares of common stock issuable upon exercise of
outstanding options.
14
<PAGE> 16
SELECTED PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following unaudited pro forma financial information was derived from
the Pro Forma Statements of Operations for the year ended December 31, 1997 and
the nine months ended September 30, 1998 included in this prospectus. The Pro
Forma Statements of Operations give effect to the acquisitions of certain assets
of Gage Marketing Group LLC ("Gage") and EMD Gesellschaft fur
Elektroinstallation-und Maschinenbau-Dienstleistungen GmbH ("EMD") as if each
had occurred at the beginning of each period presented. The information below
should be read in conjunction with the Pro Forma Financial Statements and the
corresponding Notes included elsewhere in this prospectus. The pro forma
financial information does not purport to represent what the Company's results
of operations would actually have been had such transactions actually occurred
on any of the dates described above or to project the Company's results of
operations for any future period.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C>
Revenues.................................................... $407,134 $397,951
Operating expenses:
Cost of services.......................................... 278,323 274,390
Field operating........................................... 88,223 83,999
Corporate general and administrative...................... 21,336 18,187
-------- --------
Total operating expenses.......................... 387,882 376,576
-------- --------
Operating income............................................ 19,252 21,375
Interest expense, net....................................... 7,005 5,112
Other income, net........................................... (613) (279)
-------- --------
Income before income taxes and extraordinary charges........ 12,860 16,542
Income tax provision........................................ 4,964 6,762
-------- --------
Income before extraordinary charges......................... 7,896 9,780
Extraordinary charges....................................... (385) --
-------- --------
Net income.................................................. $ 7,511 $ 9,780
======== ========
Diluted earnings per share:
Number of shares.......................................... 11,421 14,649
======== ========
Earnings per share........................................ $ 0.66 $ 0.67
======== ========
</TABLE>
15
<PAGE> 17
SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The following selected financial and operating data of the Company are
qualified by reference to and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and Notes thereto incorporated
by reference in this prospectus. The selected financial data presented below as
of and for each of the fiscal years in the five-year period ended December 31,
1997 have been derived from the Company's financial statements which have been
audited by Arthur Andersen LLP, independent public accountants. The selected
financial data for the nine months ended September 30, 1997 and 1998 have been
derived from the Company's unaudited financial statements, which have been
prepared on the same basis as the audited financial statements. In the opinion
of management, the unaudited financial statements contain all adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for these
periods. Operating results for the nine months ended September 30, 1998 are not
necessarily indicative of results that may be expected for the year ending
December 31, 1998 or for any other interim period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31,(1) SEPTEMBER 30,
---------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $104,143 $123,234 $168,601 $210,153 $276,013 $196,563 $319,184
Operating expenses:
Cost of services........................ 78,019 91,873 124,491 155,926 204,512 146,011 230,102
Field operating......................... 18,284 20,931 30,328 37,492 45,956 32,146 59,054
Corporate general and administrative.... 6,796 8,797 10,938 11,692 14,840 11,144 13,905
-------- -------- -------- -------- -------- -------- --------
Operating income................... 1,044 1,633 2,844 5,043 10,705 7,262 16,123
Interest expense, net..................... 593 904 1,309 1,726 1,159 995 1,686
Other income, net......................... (89) (26) (820) (301) (723) (443) (292)
-------- -------- -------- -------- -------- -------- --------
Income before income taxes and
extraordinary charges............ 540 755 2,355 3,618 10,269 6,710 14,729
Income tax provision(2)................... 700 627 917 1,447 3,850 2,585 5,971
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
charges.......................... (160) 128 1,438 2,171 6,419 4,125 8,758
Extraordinary charges, net of taxes(3).... -- -- -- -- (385) (385) --
-------- -------- -------- -------- -------- -------- --------
Net income (loss).................. $ (160) $ 128 $ 1,438 $ 2,171 $ 6,034 $ 3,740 $ 8,758
======== ======== ======== ======== ======== ======== ========
Net income per share -- diluted........... $ 0.26(4) $ 0.55(5) $ 0.36(6) $ 0.61
======== ======== ======== ========
Weighted average common and common
equivalent shares -- diluted............ 8,433(4) 10,960 10,331 14,304
======== ======== ======== ========
OPERATING DATA (AT PERIOD END):
Number of employees....................... 5,714 7,334 9,954 12,980 16,282 15,495 25,540
Number of offices......................... 26 33 69 83 111 94 153
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------ SEPTEMBER 30,
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................... $ 4,341 $ (763) $13,216 $17,353 $ 42,823 $ 58,335
Total assets........................................ 21,036 29,094 40,687 51,953 109,794 329,240
Long-term debt, net of current portion.............. 7,281 1,437 14,609 19,706 3,495 143,027(7)
Shareholders' equity................................ 2,123 2,252 3,577 5,409 74,531 100,798
</TABLE>
- ---------------
(1) The Company's fiscal year ends on the last Friday in December. Each of the
fiscal years presented consists of 52 weeks except that fiscal 1993 consists
of 53 weeks.
(2) The income tax provision for 1993 and 1994 was negatively impacted by the
significance of non-deductible expenses relative to income before income
taxes.
(3) In the second quarter of 1997, the Company recorded extraordinary charges
resulting from the early extinguishment of debt.
(4) Pro forma to give effect to the reorganization, completed in February 1997.
(5) Excluding the extraordinary charges, net income per share -- diluted would
have been $0.59 per share.
(6) Excluding the extraordinary charges, net income per share -- diluted would
have been $0.40 per share.
(7) Includes the $10.0 million convertible subordinated debenture issued in
connection with the Gage acquisition.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
AHL Services ("AHLS" or the "Company") is a leading provider of contract
staffing and outsourcing solutions, through which it professionally manages a
large workforce that performs tasks that its clients frequently regard as
outside their core businesses. Through its 95 offices in North America and 58
offices in Europe, AHLS services the multinational needs of its primarily
Fortune 1000 client base. The Company's services are generally performed under
long-term contracts, which have provided the Company with a significant source
of predictable recurring revenues. As of September 30, 1998, the Company had
approximately 1,200 contracts to provide services. Revenues have grown from
$104.1 million in 1993 to $276.0 million in 1997, representing a compound annual
growth rate of 27.6%. The compound annual growth rate for the Company's internal
growth during the same period was 24.2%.
Since its initial public offering in March 1997, the Company has
experienced significant growth. The Company has focused on internal growth and
made acquisitions of companies that have operating margins in excess of the
Company's operating margin at the time of acquisition and that were immediately
accretive to earnings. These acquisitions have substantially changed the
Company's product mix, reducing its dependence on the aviation industry and
adding new lines of business. The Company intends to continue to seek accretive
acquisitions in an effort to further develop its service offerings within its
current lines of business, to add density within these lines of business, and to
expand its geographic coverage. Specifically, the Company intends to further
expand its operational support staffing and marketing execution and fulfillment
businesses, which represent a natural extension of the Company's existing core
lines of business and an opportunity to achieve higher operating margins.
Since its initial public offering, the Company has completed ten
acquisitions, with two additional acquisitions scheduled to close by December
31, 1998. For a description of these acquisitions see "Business -- Acquisitions"
beginning on page 30 of this prospectus. These acquisitions were financed with
borrowings under the Company's five year bank revolving credit facility (the
"Credit Facility") and proceeds from the Company's public offerings in March
1997 and October 1997.
The Company recognizes revenues as services are performed. A substantial
amount of the Company's revenues are received, and operating costs are incurred,
in foreign currencies (primarily the British Pound and the German Deutsche
Mark), with a significant amount of operating income being derived from
operations in the United Kingdom and Germany. The denomination of foreign
subsidiaries' account balances in their local currency exposes the Company to
certain foreign exchange rate risks. The Company addresses the exposure by
financing most working capital needs in the applicable foreign currencies. The
Company does not engage in hedging transactions to reduce exposure to
fluctuations in foreign currency exchange rates. Historically, the impact of
foreign currency fluctuations on the Company has been insignificant.
17
<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth Statement of Operations data as a percentage
of revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEARS ENDED ENDED
DECEMBER 31,(1) SEPTEMBER 30,
----------------------- --------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Cost of services......................... 73.8 74.2 74.1 74.3 72.1
Field operating.......................... 18.0 17.8 16.6 16.4 18.5
Corporate general and administrative..... 6.5 5.6 5.4 5.7 4.4
----- ----- ----- ----- -----
Operating income...................... 1.7 2.4 3.9 3.7 5.1
Interest expense, net...................... 0.8 0.8 0.4 0.5 0.5
Other income, net.......................... (0.5) (0.1) (0.2) (0.2) (0.1)
----- ----- ----- ----- -----
Income before income taxes and
extraordinary charges............... 1.4 1.7 3.7 3.4 4.6
Income tax provision....................... 0.5 0.7 1.4 1.3 1.9
----- ----- ----- ----- -----
Income before extraordinary charges... 0.9 1.0 2.3 2.1 2.7
Extraordinary charges, net of taxes........ -- -- (0.1) (0.3) --
----- ----- ----- ----- -----
Net income............................ 0.9% 1.0% 2.2% 1.9% 2.7%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) The Company's fiscal year ends on the last Friday in December. Each of the
fiscal years presented consists of 52 weeks.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Revenues. Revenues increased $122.6 million, or 62%, to $319.2 million for
the nine months ended September 30, 1998 from $196.6 million in the comparable
period of 1997. Of this increase, approximately $85.5 million was attributable
to the acquisitions completed within one year. The remaining increase was a
result of providing additional services to existing clients, entering into
contracts to provide services to new clients and rate increases on existing
contracts.
Cost of Services. Cost of services represents the direct costs
attributable to a specific contract, predominantly wages and related benefits,
as well as certain related expenses such as workers' compensation and other
direct labor related expenses. Cost of services increased $84.1 million, or 57%,
to $230.1 million for the nine months ended September 30, 1998 from $146.0
million in the comparable period of 1997. As a percentage of revenues, cost of
services decreased to 72.1% for the nine months ended September 30, 1998 from
74.3% in 1997. This decrease was primarily due to the effect of the growth in
revenues of the Company's higher margin marketing execution and fulfillment and
operational support services businesses.
Field Operating Expenses. Field operating expenses represent expenses
which directly support field operations, such as each district's management,
facilities expenses (such as rent, communication costs and taxes), employee
uniforms, equipment leasing, depreciation and maintenance, local sales and
marketing activities and acquisition related goodwill. Field operating expenses
increased $26.9 million, or 84%, to $59.1 million for the nine months ended
September 30, 1998 from $32.1 million in the comparable period of 1997. As a
percentage of revenues, field operating expenses increased to 18.5% for the nine
months ended September 30, 1998 from 16.4% in 1997. This percentage increase was
primarily attributable to the facility expenses of Gage, the Company's newly
acquired marketing execution and fulfillment services business, and the
amortization of acquisition related goodwill in 1998.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses include the cost of services the Company provides to
support and manage its field activities. These expenses, which include corporate
management, accounting and payroll, general administration, human resources
management, professional fees, headquarters occupancy, marketing and management
information services,
18
<PAGE> 20
increased $2.8 million, or 25%, to $13.9 million for the nine months ended
September 30, 1998 from $11.1 million in the comparable period of 1997. As a
percentage of revenues, these expenses decreased to 4.4% for the nine months
ended September 30, 1998 from 5.7% in 1997. This percentage decrease was
primarily due to better leveraging of corporate personnel.
Operating Income. Operating income increased $8.9 million, or 122%, to
$16.1 million for the nine months ended September 30, 1998 from $7.3 million in
the comparable period of 1997. As a percentage of revenues, operating income
improved to 5.1% for the nine months ended September 30, 1998 from 3.7% in 1997.
Interest Expense, Net. Interest expense, net, increased $691,000, or 69%,
to $1.7 million for the nine months ended September 30, 1998 from $1.0 million
in the comparable period of 1997. Interest expense increased in 1998 due to the
use of the Company's credit facility to fund acquisitions made in 1998.
Income Tax Provision. Income tax provision increased $3.4 million, or
131%, to $6.0 million for the nine months ended September 30, 1998 from $2.6
million in the comparable period of 1997. The Company provided income taxes at a
rate of 40.5% in 1998 and 38.5% in 1997. The increase in 1998 is due to the EMD
and TUJA acquisitions in Germany, which has a higher corporate income tax rate.
Income Before Extraordinary Charges. The Company expensed extraordinary
items associated with the Company's initial public offering during the second
quarter of 1997 of $385,000, net of taxes of $257,000. The extraordinary items
consisted of the write-off of unamortized loan origination costs and debt
discount.
Net Income. Net income increased $5.0 million, or 134%, to $8.8 million,
or 2.7% of revenues, for the nine months ended September 30, 1998 from net
income of $3.7 million, or 1.9% of revenues, in the comparable period of 1997.
FISCAL 1997 COMPARED TO FISCAL 1996
Revenues. Revenues increased $65.8 million, or 31%, to $276.0 million in
fiscal 1997 from $210.2 million in fiscal 1996. Of this increase, approximately
$6.3 million was attributable to the July 1996 Intersec acquisition and $15.2
million was attributable to the Midwest Staffing, RightSide Up, Lloyd, USA
Security and EAS acquisitions completed in 1997. The remaining increase was a
result of entering into contracts to provide services to new clients and as a
result of providing additional services and expanding into new markets with
existing clients.
Cost of Services. Cost of services increased $48.6 million, or 31%, to
$204.5 million in fiscal 1997 from $155.9 million in fiscal 1996. As a
percentage of revenues, cost of services improved slightly at 74.1% in fiscal
1997 from 74.2% in fiscal 1996.
Field Operating Expenses. Field operating expenses increased $8.5 million,
or 23%, to $46.0 million in fiscal 1997 from $37.5 million in fiscal 1996. As a
percentage of revenues, field operating expenses decreased to 16.6% in fiscal
1997 from 17.8% in fiscal 1996. This percentage decrease was primarily
attributable to the better leveraging of existing field operations and
termination of the Company's Florida transportation operations in the fall of
1996 which had significant field operating expenses.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased $3.1 million, or 27%, to $14.8 million in
fiscal 1997 from $11.7 million in fiscal 1996. As a percentage of revenues,
these expenses decreased to 5.4% in fiscal 1997 as compared to 5.6% in fiscal
1996. This percentage decrease was primarily due to the Company's ability to
increase revenues without a commensurate increase in corporate expenses.
Operating Income. Operating income increased $5.7 million, or 112%, to
$10.7 million in fiscal 1997 from $5.0 million in fiscal 1996. As a percentage
of revenues, operating income improved to 3.9% in fiscal 1997 from 2.4% in
fiscal 1996.
19
<PAGE> 21
Interest Expense. Interest expense decreased $567,000, or 33%, to $1.2
million in fiscal 1997 from $1.7 million in fiscal 1996. Interest expense for
fiscal 1997 decreased due to the application of the proceeds from the Company's
initial public offering to repay the Company's outstanding debt in 1997.
Income Tax Provision. Income tax provision increased $2.4 million, or
166%, to $3.9 million in fiscal 1997 from $1.5 million in fiscal 1996. The
Company provided income taxes at rates of approximately 38% in fiscal 1997 and
40% in fiscal 1996. The reduction in the effective rate was primarily due to a
reduction in the United Kingdom corporate tax rate in 1997.
Income Before Extraordinary Charges. Income before extraordinary charges
for fiscal 1997 increased $4.2 million, or 196%, to $6.4 million, or 2.3% of
revenues, from $2.2 million, or 1.0% of revenues, for fiscal 1996. The Company
expensed extraordinary charges during 1997 of $642,000, before income tax
benefit of $257,000. The extraordinary charges consisted of the write-off of
unamortized loan origination costs and debt discount.
Net Income. Net income increased $3.8 million, or 178%, to $6.0 million,
or 2.2% of revenues, in fiscal 1997 from $2.2 million, or 1.0% of revenues, in
fiscal 1996.
FISCAL 1996 COMPARED TO FISCAL 1995
Revenues. Revenues increased $41.6 million, or 24.6%, to $210.2 million in
fiscal 1996 from $168.6 million in fiscal 1995. Of this increase, approximately
$26.2 million was attributable to higher revenues from existing clients,
approximately $9.1 million to services initiated for new clients and $6.3
million to the Intersec Acquisition. Revenues from existing clients increased
15.5% in fiscal 1996 over fiscal 1995 primarily as a result of providing
additional services and expanding into new markets with these clients.
Cost of Services. Cost of services increased $31.4 million, or 25.3%, to
$155.9 million in fiscal 1996 from $124.5 million in fiscal 1995. As a
percentage of revenues, cost of services increased to 74.2% in fiscal 1996 from
73.8% in fiscal 1995. This percentage increase was primarily attributable to
lower gross margins on the terminated Florida transportation operations and
operating inefficiencies associated with a contract in Detroit which began in
April 1996. The Company believes based on subsequent operating results that it
has corrected these inefficiencies through a change in management at the Detroit
location and increases in rates paid to the Company with respect to this Detroit
contract.
Field Operating Expenses. Field operating expenses increased $7.2 million,
or 23.6%, to $37.5 million in fiscal 1996 from $30.3 million in fiscal 1995,
primarily as a result of administrative staff, systems and facilities expenses
for new operations in Chicago, Cincinnati, San Francisco, Los Angeles and
Seattle opened during fiscal 1996. As a percentage of revenues, these expenses
decreased to 17.8% in fiscal 1996 from 18.0% in fiscal 1995.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased $754,000, or 6.9%, to $11.7 million in fiscal
1996 from $10.9 million in fiscal 1995. As a percentage of revenues, these
expenses decreased to 5.6% in fiscal 1996 from 6.5% in fiscal 1995. This
percentage decrease was primarily due to the Company's ability to increase
revenues without a commensurate increase in corporate expenses.
Operating Income. Operating income increased $2.2 million, or 77.3%, to
$5.0 million in fiscal 1996 from $2.8 million in fiscal 1995. As a percentage of
revenues, operating income improved to 2.4% in fiscal 1996 from 1.7% in fiscal
1995.
Interest Expense, Net. Net interest expense increased $417,000 to $1.7
million in fiscal 1996 from $1.3 million in fiscal 1995. This was the result of
approximately $4.7 million of additional indebtedness incurred in connection
with the Intersec Acquisition in July 1996 and higher borrowings under the
Company's revolving line of credit.
Other Income, Net. Other income, net decreased $519,000 to $301,000 in
fiscal 1996 from $820,000 in fiscal 1995. This decrease was primarily due to the
non-recurring collection of notes received in the sale of the Company's drug
testing subsidiary in October 1995. See Note 3 of the Notes to the Company's
Financial
20
<PAGE> 22
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
Net Income. Net income increased $733,000, or 51.0%, to $2.2 million, or
1.0% of revenues, in fiscal 1996 from net income of $1.4 million, or 0.9% of
revenues, in fiscal 1995. The Company's effective income tax rate was
approximately 40.0% for fiscal 1996 compared to 38.9% in fiscal 1995.
QUARTERLY RESULTS AND SEASONALITY
The following table sets forth statement of operations data for the fiscal
quarters indicated. This quarterly information is unaudited but has been
prepared on a basis consistent with the Company's audited financial statements.
In the Company's opinion, this data includes all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
information for the quarters presented. The operating results for any quarter
are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1997 1998 1998 1998
------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues..................................... $79,450 $84,500 $98,871 $135,813
Operating expenses:
Cost of services........................... 58,501 62,842 72,755 94,505
Field operating............................ 13,810 14,420 17,074 27,560
Corporate general and administrative....... 3,696 4,449 4,598 4,858
------- ------- ------- --------
Operating income........................ 3,443 2,789 4,444 8,890
Interest expense, net........................ 164 37 177 1,472
Other (income) expense, net.................. (280) (282) (17) 7
------- ------- ------- --------
Income before income taxes.............. 3,559 3,034 4,284 7,411
Income tax provision......................... 1,265 1,210 1,717 3,043
------- ------- ------- --------
Net income.............................. $ 2,294 $ 1,824 $ 2,567 $ 4,368
======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997 1997
------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues..................................... $59,671 $60,424 $63,770 $72,369
Operating expenses:
Cost of services........................... 44,590 45,428 47,341 53,242
Field operating............................ 10,619 9,923 10,343 11,880
Corporate general and administrative....... 3,272 3,435 3,668 4,041
------- ------- ------- -------
Operating income........................ 1,190 1,638 2,418 3,206
Interest expense, net........................ 567 648 170 177
Other (income) expense, net.................. (82) (88) (154) (201)
------- ------- ------- -------
Income before income taxes and
extraordinary items................... 705 1,078 2,402 3,230
Income tax provision......................... 282 427 948 1,210
------- ------- ------- -------
Income before extraordinary items....... 423 651 1,454 2,020
Extraordinary items, net of taxes............ -- -- (385) --
------- ------- ------- -------
Net income.............................. $ 423 $ 651 $ 1,069 $ 2,020
======= ======= ======= =======
</TABLE>
While the effects of seasonality on AHLS' business often are less apparent
due to the timing of the addition of new clients, the performance of new
services for existing clients or the completion of acquisitions, the Company's
revenues tend to be lower in the first and fourth quarters of the fiscal year
and highest in the third quarter of the fiscal year.
21
<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES
To support its rapid growth, AHLS has historically relied on borrowings
under its Credit Facility. In November 1998, the Company amended its Credit
Facility to provide for an increase from $150 million to $210 million in
aggregate commitments from its lenders. Of the $210 million in aggregate
commitments, the U.S. dollar equivalent of $100 million is available in foreign
currencies. The interest rate under the Credit Facility is based, at the
Company's option, upon LIBOR plus an applicable margin or the Domestic Base Rate
(in the case of U.S. dollar borrowings) or the Foreign Base Rate (in the case of
borrowings denominated in pounds sterling). The Domestic Base Rate is the
greater of the rate publicly announced by First Union National Bank as its prime
rate or the Federal Funds Rate plus 50 basis points. The Foreign Base Rate is
the publicly announced base rate of Midland Bank plc plus 200 basis points. The
applicable margin for LIBOR borrowings is based upon a matrix ranging from 87.5
basis points to 175 basis points, based upon the ratio of the Company's most
recently reported total indebtedness to pro forma adjusted EBITDA. The Credit
Facility is secured by substantially all the assets of the Company and its
domestic subsidiaries, and borrowings under the Credit Facility made by foreign
subsidiaries of the Company are secured by the assets of the foreign
subsidiaries. The Credit Facility is subject to certain restrictive covenants.
Giving effect to the November 1998 amendment to the Credit Facility, there is
currently approximately $77 million of availability remaining under the Credit
Facility. Approximately $28.2 million of this will be utilized to finance the
acquisitions of UNICCO Security Services, Inc. and Verfurth Personal Leasing
GmbH, which are expected to close in December 1998. The Company will repay a
substantial portion of the amounts outstanding under the Credit Facility from
the proceeds of this offering.
Cash used in operating activities was $5.5 million for the nine months
ended September 30, 1998 compared to cash provided by operating activities of
$1.8 million for the nine months ended September 30, 1997. This decrease in cash
from operating activities was primarily the result of an increase of $6.6
million in net income before depreciation and amortization offset by $13.3
million of changes in working capital due to increases in accounts receivable as
a result of the Company's acquisitions, the growth in revenues and the timing of
payments of accounts payable and accrued expenses. Cash used in investing
activities for the nine months ended September 30, 1998 was $131.0 million
compared to $12.3 million for the nine months ended September 30, 1997. The
increased use of cash was principally as a result of the acquisitions made in
1998, which were larger than the acquisitions in 1997, and additional purchases
of transportation and computer equipment. Cash provided by financing activities
for the nine months ended September 30, 1998 was $132.3 million compared to
$10.8 million for the nine months ended September 30, 1997. The increase in cash
provided by financing activities for 1998 was principally the result of
additional borrowings under the Company's Credit Facility in 1998 to fund the
acquisitions.
Cash used in operating activities was $2.6 million in fiscal 1997 compared
to cash provided by operating activities of $1.2 million for fiscal 1996. This
decrease was the result of the increase of $5.3 million in net income before
depreciation and amortization and extraordinary charges offset by $9.1 million
of changes in working capital due to an increase in accounts receivable as a
result of the increase in revenues and the timing of payments of accounts
payable and accrued expenses. Cash used in investing activities for fiscal 1997
was $26.8 million compared to $4.0 million for fiscal 1996. This was principally
the result of the five acquisitions completed in 1997 as compared to only one in
1996 as well as increased expenditures on capital assets, primarily
transportation and computer equipment. Cash provided by financing activities for
fiscal 1997 was $43.1 million compared to $3.4 million for fiscal 1996. The
increase was principally the result of net proceeds from the public offerings of
common stock in 1997 of $63.4 million offset by an increase in net payments of
debt of $24.7 million, as compared to 1996.
Cash provided by operating activities was $1.2 million for fiscal 1996 as
compared to cash used in operating activities of $3.5 million in fiscal 1995.
This increase was primarily the result of the increase of $1.0 million in net
income before depreciation and amortization and by $2.9 million of changes in
operating assets, primarily accounts receivable, accrued salaries and related
benefits payable. These changes were consistent with the Company's higher volume
of business. Cash used in investing activities for fiscal 1996 was $4.0 million
as compared to $1.6 million in fiscal 1995, principally as a result of the
Intersec acquisition made in July 1996. Cash provided by financing activities
for fiscal 1996 was $3.3 million compared to $5.1 million in
22
<PAGE> 24
fiscal 1995, principally representing changes in borrowings under the Company's
Credit Facility and issuance of the subordinated notes associated with the
Intersec acquisition.
Capital expenditures were $4.7 million, $2.0 million and $2.6 million in
fiscal 1997, 1996 and 1995, respectively, and $7.6 and $1.9 million for the nine
months ended September 30, 1998 and 1997, respectively. Historically, capital
expenditures have been, and future expenditures are anticipated to be, primarily
to support expansion of the Company's operations, including transportation
equipment and management information systems. The Company's capital expenditures
over the next several years, as a percentage of its revenues, are expected to be
generally consistent with those of the past three fiscal years.
In connection with certain acquisitions, the Company has agreed to pay
additional consideration based on operating results of the acquired entity. The
payment of any such earnouts could result in an increase in the purchase prices
for such acquisitions and, as a result, additional goodwill.
The Company completed its initial public offering in March 1997, raising
net proceeds of approximately $22 million. These proceeds were used to repay all
outstanding amounts under the Company's Credit Facility, to repurchase an
outstanding warrant and to retire other outstanding acquisition-related debt.
The Company completed a follow-on offering in October 1997, raising net proceeds
of approximately $41 million. These proceeds were used to repay outstanding debt
of approximately $16 million, to fund acquisitions and for general corporate
purposes, including working capital to support the Company's growth.
The Company believes that funds generated from operations, together with
existing cash, the net proceeds of this offering and borrowings under the Credit
Facility, will be sufficient to finance its current operations, planned capital
expenditures and internal growth for at least the next several years. If the
Company were to make a significant acquisition for cash, it may be necessary for
the Company to obtain additional debt or equity financing.
INFLATION
The Company does not believe that inflation has had a material effect on
its results of operations in recent years. However, there can be no assurance
that the Company's business will not be affected by inflation in the future.
YEAR 2000
The Company is currently in the process of addressing the Year 2000 issue,
which is the result of computer programs being written using two digits rather
than four to define the applicable year. As a result, computer applications and
software may recognize an input of two zeros (00) as the year 1900. This
incorrect date recognition could cause systems and software malfunctions that
may have a material adverse effect on business operations. This potential
problem could affect not only the Company's internal information systems but
also those of third parties, such as clients and vendors using information
systems that may interact with or affect the Company's operations.
Company's Readiness. To ensure minimal business interruption due to
computer failures, the Company has performed a review of various software
applications and computer infrastructure that were likely to be affected by the
Year 2000 issue. Both "IT systems" and "non-IT systems" were reviewed. IT
systems refer to all pre-packaged and internally developed software applications
and programs and related computer hardware. Non-IT systems refer to various
equipment and devices that have "embedded" computer language, examples of which
are computer integrated circuits ("chips") and telephone switches. The review
was completed using the Company's employees and various computer consulting
vendors.
The Company's response is being conducted in phases. First all relevant
computer systems were assessed as to functionality and to determine Year 2000
compliance. Second, for those systems and software found to be non-compliant or
in need of upgrading, corrective steps are being and will be taken. Corrective
steps primarily relate to development and purchasing of system software and
hardware. Finally, all systems will be tested and then implemented at necessary
levels. The Company has substantially completed the corrective phase and is
transitioning into the testing and implementation phase. The Company's
objectives are to
23
<PAGE> 25
complete substantially all remediation and replacement of internal information
systems by June 1999, and to complete final testing and certification for Year
2000 readiness by September 1999.
The Company presently believes that, with planned conversions to new
software, the Year 2000 issue will not pose significant operations problems for
its computer systems.
The Company has identified its significant clients and vendors that it
believes, at this time, to be critical to business operations and steps are
underway to reasonably ascertain their respective stages of readiness through
the use of questionnaires, interviews, and other available means to determine
the progress that those clients and vendors are making in remediating their own
Year 2000 issues. The Company is requiring that significant clients and vendors
certify those products and services to be Year 2000 compliant. However, there
can be no assurance that the information systems provided by or utilized by
other companies which affect the Company's operations will be timely revised in
such a way as to allow them to continue normal business operations or furnish
products, services or data to the Company without disruption.
Cost of Compliance. The Company is replacing non-compliant systems.
Preliminary estimates for these new systems are in the range of $2.0 to $3.0
million. To date, the Company has incurred approximately $1.0 million of this
estimated cost. The Company expects the majority of the remaining capital
expenditures to be incurred in 1999. The Company's Year 2000 project costs are
not expected to have a material impact on its results of operation or financial
condition.
Company Risk and Contingency Plans. The systems identified as non-compliant
or in need of replacement are being replaced. The Company expects these
replacements to be completed in all material aspects by year-end 1999. If needed
conversions to the information systems are not made on a timely basis or the
Company's significant clients or vendors fail to make such remediations and
conversions on a timely basis, it could have a material adverse effect on the
Company's results of operation or financial condition.
Forward-Looking Statements. The preceding Year 2000 discussion contains
various forward-looking statements which represent the Company's beliefs or
expectations regarding future events. When used in this discussion, the words
"believes," "expects," "estimates" and similar expressions are intended to
identify forward-looking statements. Forward-looking statements include, without
limitation, the Company's expectations as to when it will complete the
remediation and testing phases of its Year 2000 program as well as its Year 2000
contingency plans; its estimated cost of achieving Year 2000 readiness; and the
Company's belief that its internal systems and equipment will be Year 2000
compliant in a timely manner. All forward-looking statements involve a number of
risks and uncertainties that could cause the actual results to differ materially
from the projected results. Factors that may cause these differences include,
but are not limited to, the availability of qualified personnel and other
information technology resources, the ability to identify and remediate all date
sensitive lines of computer code or to replace embedded computer chips in
affected systems or equipment; and the actions of governmental agencies or other
third parties with respect to Year 2000 issues.
24
<PAGE> 26
BUSINESS
The Company is a leading provider of contract staffing and outsourcing
solutions. The Company professionally manages a large workforce that performs
tasks that its clients frequently regard as outside their core businesses. By
assuming responsibility for these tasks, the Company seeks to improve the
quality of the non-core operations of its clients and to reduce their costs. The
Company's services are generally performed under long-term contracts, which have
provided a significant source of predictable and recurring revenues.
The Company services the multinational needs of its primarily Fortune 1000
clients through its 95 offices in North America and 58 offices in Europe. The
Company's ten largest clients based on pro forma revenues are America OnLine,
British Airways, Delta Air Lines, Federal Express, Ford, Mattel, Northwest
Airlines, Publishers Clearing House, Reader's Digest and United Airlines. The
Company focuses on developing and maintaining long-term client relationships.
The Company's top ten clients have utilized the Company or its predecessors for
an average of ten years. In addition, the Company has achieved an average annual
retention rate of approximately 93% of contract billable hours over the last
three fiscal years (excluding two operations the Company terminated in 1996).
The Company has achieved significant growth in recent years, with its
revenues achieving a compound annual growth rate of 27.6% from 1993 to 1997. The
compound annual growth rate for internal growth during the same period was
24.2%. While the Company is focused on strong internal growth, it has also made
accretive acquisitions to provide complementary higher margin services to our
clients. These acquisitions have substantially changed the Company's business
mix, reducing its historical dependence on the aviation industry, and improved
its operating margins. Operating income for the nine months ended September 30,
1998 increased 122% from the comparable period of 1997.
The Company's contract staffing and outsourcing solutions are divided into
four lines of business:
<TABLE>
<S> <C>
- - AVIATION SERVICES
- pre-departure screening
- passenger profiling
- baggage claim and check
- sky cap and wheelchair assistance
- cargo handling
- into-plane fueling
- - FACILITY SUPPORT SERVICES
- access control personnel
- uniformed security officers
- fixed route dedicated shuttle bus services
- - MARKETING EXECUTION AND FULFILLMENT SERVICES
- consumer and trade fulfillment
- trade support services
- e-commerce fulfillment
- customer service support
- - OPERATIONAL SUPPORT STAFFING SERVICES
- assembly
- warehousing
- shipping
- electrical
- mechanical
</TABLE>
The Company began providing marketing execution and fulfillment services in
October 1997 through its acquisition of RightSide Up and further expanded this
business line through its acquisition of Gage in July 1998. This line of
business represents a natural extension of the Company's contract staffing
operations, enabling the Company to capitalize on its labor management expertise
by providing higher margin services, such as program management and
administration, advanced information systems and facilities for the storage and
distribution of materials. The Company provides these services through a network
of 18 facilities in North America to clients principally in the automotive,
consumer, publishing and entertainment industries. The Company's marketing
execution and fulfillment services clients include The Coca-Cola Company,
Disney, Ford, Fox, General Motors, Kraft, Mattel, ONSALE, Proctor & Gamble,
Publishers Clearing House and Reader's Digest.
INDUSTRY OVERVIEW
Many corporations and other institutions need to recruit, hire, train,
motivate and manage large numbers of personnel to handle non-core functions in
labor environments often characterized by relatively low pay and
25
<PAGE> 27
high turnover rates. Enterprises incur considerable expense and invest
substantial amounts of management time in managing this process. These
enterprises are increasingly contracting with specialized third party providers
to better ensure long-term labor availability for support functions. Contract
staffing and outsourcing service providers often are able to provide higher
quality services at a lower cost than these enterprises are able to provide
themselves. Outsourcing these functions shifts employment costs and
responsibilities, such as workers' compensation, recruitment and turnover costs
and changes in labor regulations, to outside vendors and allows enterprises to
reduce the administrative overhead and time necessary to properly manage
non-core functions.
The market for contract staffing and outsourcing services has evolved as
companies increasingly outsource non-core functions. The outsourcing company
provides on-site management of staff, assumes responsibility for a particular
function (including designing and implementing a solution for its client) and
shares in the economic benefits derived from improved execution of the function.
As enterprises centralize purchasing decisions and seek to reduce the number of
vendors with whom they do business, the ability of providers to offer national
account capability and national and international coverage is growing in
importance. These trends, as well as the increasing need for capital and
management depth for growth, are creating consolidation opportunities in the
highly fragmented contract staffing and outsourcing services industry.
Aviation Services. While airlines have historically outsourced certain
functions, such as food service and pre-departure screening, they are
increasingly outsourcing other functions not directly related to flight
operations. Aviation service functions that are increasingly being outsourced
include passenger profiling, baggage claim and check, sky cap, aircraft clean
and search, wheelchair assistance, inter-gate cart, escorting of unaccompanied
minors, ticketing and check-in, cargo handling and into-plane fueling. While the
trend toward outsourcing labor management in Europe is not as developed as it is
in the United States, the Company expects two trends to increase demand for
contract staffing of aviation services in Europe: (i) the privatization of major
airlines, which should increase their focus on improving operating performance,
and (ii) the liberalization of airport authority licensing, which currently
restricts the number of vendors that may provide services at a particular
location. The European Union has mandated that European airports be opened to
increased competition to provide various ground and passenger services beginning
in January 1999.
Facility Support Services. In addition to the general trends that have
contributed to the growth of contract staffing and outsourcing services, several
developments have contributed to the increased demand for facility support
services in recent years. Increases in crime, the greater value of both business
equipment and various types of inventory, and growth in the size of many
facilities have contributed to greater demand for access control and commercial
security services. Businesses, educational institutions and governmental
authorities are also adding fixed route, dedicated shuttle bus services as the
scale of their physical facilities grows larger, the numbers of employees and
students increase, and urban congestion and sprawl increase the need for
transportation solutions.
Marketing Execution and Fulfillment Services. Recent trends in the way
marketers deliver their marketing messages and sell and deliver their goods have
resulted in growth in outsourcing of marketing execution and fulfillment
services. Marketing messages are delivered to more focused groups of customers
through specialized point of purchase, direct marketing and telemarketing
programs. In addition, product sales through the Internet and from catalogues
are growing. Customers expect reliable, rapid delivery of their purchases with
minimal delivery costs. Marketing execution and fulfillment companies specialize
in managing the complexities of implementing these sales and marketing programs,
including the receipt of orders, picking, packing and shipping of kits to
retailers and product orders to customers, customer service, credit card
processing, inventory management and database development. Due to the growing
complexity of efficiently performing these tasks, clients are increasingly
seeking larger, national vendors with capabilities to handle unique marketing
programs, multiple types of order taking and delivery methods, and handle both
large and small distribution volumes.
Operational Support Staffing Services. The trends toward outsourcing,
increased specialization and an emphasis on productivity have led many
enterprises to outsource task repetitive, labor intensive functions such as
light assembly and manufacturing, warehousing and shipping. Each of these
functions involves certain
26
<PAGE> 28
repetitive tasks, such as sorting, selecting, moving, packing and labeling
various items. Third party providers are increasingly developing "best
practices" for each of these functions in order to improve productivity and
efficiency. Additionally, enterprises are increasingly utilizing contract
staffing in order to manage their cost structures when faced with seasonality or
other factors causing fluctuations in their volume of production. Typically,
German companies outsource semi-skilled laborers, including mechanics, plumbers
and electricians. Outsourcing companies are able to charge higher billing rates
than for unskilled laborers, and the contracts generally have longer terms.
STRATEGY
AHLS believes there are significant opportunities to expand its business as
existing clients and other large corporations and institutions utilize contract
staffing and outsourcing solutions that will enable them to focus on their core
competencies. Key elements of the Company's strategy include:
Continue to Focus on Core Competency. The Company's core competency is
its ability to recruit, hire, train, motivate and manage a large workforce
to provide the non-core support services needed by its clients. The Company
believes that it has achieved lower employee turnover rates than are
typical in its lines of business, enabling the Company to provide higher
levels of service while expanding its business. The Company believes its
core labor management competencies can be leveraged across a wide range of
contract staffing and outsourcing functions.
Cross-Sell Services and Pursue New Opportunities. Throughout its
history, the Company has focused on internal growth by offering high
quality, value-added services, introducing and cross-selling new services
to existing clients and expanding into new geographic markets. The
Company's revenues (excluding revenues derived from acquired companies)
increased from $104.1 million in 1993 to $248.2 million in 1997,
representing a compound annual growth rate of 24.2%. The Company believes
that its reputation for quality service has been critical in attracting new
clients and retaining existing clients, as well as in securing contract
renewals. Once the Company begins to provide a client with a particular
service in a local market, the Company seeks to capitalize on its ability
to provide that service in additional markets and to provide new services
to the client. The Company believes there are substantial opportunities to
expand relationships with existing clients by cross-selling the full range
of its services. In addition, the Company believes its multinational
capabilities and breadth of services allow it to compete effectively
against companies that provide a more limited range of services. The
Company has 75 sales representatives in the United States and Europe, and
it is currently implementing a new marketing program that will increase its
emphasis on national account selling.
Develop Long-Term Client Relationships. AHLS targets large corporations
and institutions that have significant needs for contract staffing and
outsourcing solutions. The Company has established long-term relationships
with most of its large clients through preferred outsourcing vendor
relationships. The Company's top ten clients (based on pro forma revenues
for the nine months ended September 30, 1998) have utilized the Company or
its predecessors' services for an average of ten years. In addition, the
Company has achieved an average annual retention rate of approximately 93%
of contract billable hours over the last three fiscal years (excluding two
operations the Company terminated in 1996). These long-term relationships
have provided the Company with a significant source of predictable and
recurring revenues. Building and maintaining relationships with its
clients' senior executives and local operating personnel is an important
operating philosophy of the Company.
Capitalize on Multinational Capabilities. Companies are centralizing
purchasing decisions and seeking to reduce the number of vendors with whom
they do business. As a result, the ability of contract staffing and
outsourcing providers to offer national and international coverage is
growing in importance. Through its operations in 95 offices in North
America and 58 offices in six European countries, AHLS is able to service
the multinational needs of its clients. The Company's multinational
presence also reduces its reliance on the economic conditions in any single
country. For example, the Company's three largest clients utilize AHLS'
services in both their North American and European operations. The Company
27
<PAGE> 29
believes its ability to provide a consistently high level of service at
numerous locations worldwide provides it with a significant competitive
advantage while strengthening and diversifying its economic base.
Expand Margins by Changing its Business Mix and Leveraging its
Density. Since its March 1997 initial public offering, the Company has
added two lines of business -- operational support staffing and marketing
execution and fulfillment services. These higher margin businesses utilize
the Company's core competency of workforce retention and management, and
also include "value-added" elements such as program management and
administration, advanced information systems and facilities for the storage
and distribution of materials. By offering these value added services, the
Company believes it can better serve the needs of its clients and expand
its operating margins. The Company has also expanded its operating margins
by increasing the "density" in its existing lines of business in order to
achieve economies of scale and leverage its corporate and field operating
infrastructure. For the nine months ended September 30, 1998, the Company's
operating margin was 5.1% compared with 3.7% for the comparable period of
1997.
Continue to Seek Strategic Acquisitions. AHLS actively seeks accretive
acquisitions in an effort to further develop its service offerings and
geographic coverage. Since May 1997, the Company has completed ten
acquisitions aggregating approximately $218 million in revenues (for the
calendar year prior to their acquisition), including five acquisitions in
1998. In addition, the Company has two pending acquisitions that are
expected to close in December 1998. Specifically, the Company has pursued
acquisitions in the operational support staffing and marketing execution
and fulfillment businesses, which represent a natural extension of the
Company's previous lines of business and an opportunity to achieve higher
operating margins. The Company expects to focus on completing additional
acquisitions in these lines of business, while continuing to acquire
aviation services or facility support services businesses on an
opportunistic basis. The Company believes that a disciplined acquisition
program and an effective integration process allow the Company to leverage
its existing infrastructure and capitalize on the fragmented nature of the
contract staffing and outsourcing industry.
SERVICES PROVIDED
The following table presents information with respect to the percentage of
the Company's revenues by major service category for the periods shown:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, 1998
--------------------- ---------------------
SERVICES PROVIDED 1995 1996 1997 ACTUAL PRO FORMA(1)
----------------- ----- ----- ----- ------ ------------
<S> <C> <C> <C> <C> <C>
Aviation services............................. 64% 59% 58% 43% 34%
Facility support services..................... 36 41 39 31 25
Operational support staffing services......... -- -- 3 17 22
Marketing execution and fulfillment
services.................................... -- -- * 9 19
--- --- --- --- ---
Total............................... 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
- ---------------
* Less than 1%.
(1) Includes revenues of Gage and EMD as if the acquisitions of Gage and EMD had
occurred on January 1, 1998. Does not include revenues of five other
companies acquired, or to be acquired, by the Company during 1998 for the
period prior to their acquisition. See "-- Acquisitions."
Aviation Services
The Company is one of the largest providers of pre-departure screening and
passenger profiling services in the United States and Europe, currently
providing services at 44 airports in the United States and 28 airports in
Europe. Pre-departure screening is a security procedure performed at all
commercial airports in the United States and the United Kingdom under mandates
of the Federal Aviation Administration ("FAA") and the United Kingdom Department
of Transport and at many other airports throughout the world under similar
mandates of other regulatory authorities. At pre-departure screening
checkpoints, all passengers and other airport patrons must physically pass
through a device called a magnetometer, designed to reveal the
28
<PAGE> 30
presence of metal objects, and all carry-on baggage and other items carried into
the concourse or gate area must pass through an X-ray device to determine
whether certain suspicious materials are present. Major airports at which the
Company provides pre-departure screening services in the United States include
Los Angeles International, New York -- Kennedy and LaGuardia,
Washington -- National and Dulles, Denver International, Chicago -- O'Hare, San
Francisco, Orlando, Boston and Dallas.
In Europe, the Company's employees perform a sophisticated passenger
profiling procedure which has been used by certain major European airlines for
several years at high-risk international airports in Europe. In 1994 the FAA
mandated passenger profiling for U.S. airlines' international flights from those
airports. Passenger profiling seeks to identify a potential threat before it
materializes by means of interviewing, document verification and behavioral
analysis. This procedure results in the classification of the vast majority of
passengers as low risk, thereby enabling more scrutiny to be focused on higher
risk passengers. The Company has been providing profiling services in Europe
since 1992 and management believes that if the FAA were to mandate profiling in
the United States, the Company would be well-positioned to quickly implement
profiling procedures for its U.S. clients. See "-- Government Regulation." Major
airports at which the Company provides passenger profiling services include
London -- Heathrow, Paris -- Charles de Gaulle, Frankfurt, Berlin and Munich.
The Company prepares cargo and mail for flight by sorting, packaging and
transporting the cargo and mail to and from airplanes. In some cases, the
Company provides the actual staffing of customer counters and data input into
the airline's cargo computer system, in addition to handling the cargo. Cargo
services are provided in certain markets pursuant to outsourcing arrangements,
under which the Company manages the entire process for its clients. The Company
processes air cargo for several of its major aviation clients, including Delta
Air Lines, United Airlines and Lufthansa Airlines. The Company also provides
cargo services to Air China and SwissAir in New York and Cathay Pacific and
Vanguard in Seattle pursuant to subcontracts from Delta Air Lines. In addition
to cargo handling, the Company provides U.S. Postal Service mail handling for
Delta Air Lines in selected locations.
The Company provides guarding and control of airport entrances, checking of
employee identification cards and baggage, guarding and control of employee
parking lots and under-the-wing guarding of parked aircraft in Europe.
Furthermore, the Company provides a variety of other aviation services to its
airline clients, including baggage claim and check, aircraft clean and search,
lost baggage delivery or replacement services, sky cap, wheelchair assistance,
escorting of unaccompanied minors, inter-gate cart services and into-plane
fueling.
Facility Support Services
The Company provides business and facility access control, special event
security and uniformed security officer services to a broad range of commercial
and governmental clients. The Company's access control personnel are used at
office and government buildings, airports, hospitals, distribution centers,
sports arenas, museums and other facilities.
Depending on the needs of the client, security officers are on premises,
often around-the-clock, to provide facility security, access control, personnel
security checks and traffic and parking control and to guard against fire,
theft, sabotage and safety hazards. The Company's security officers are trained
to respond appropriately to emergency situations and report fires, intrusions,
natural disasters, work accidents and medical crises to appropriate authorities.
Fewer than one percent of the Company's security personnel are armed. See "Risk
Factors -- Risks Relating to Labor Force."
The Company provides fixed route, dedicated shuttle bus services in 19
locations within the United States and two locations in the United Kingdom
through its fleet of approximately 295 shuttle bus vehicles. The vehicles
generally seat between 15 and 50 passengers. Under its shuttle bus contracts,
the Company provides the shuttle bus and the driver. During fiscal 1997, AHLS
vehicles traveled more than 7,000,000 miles and operated for more than 700,000
hours. AHLS currently provides (1) campus shuttle services at The Georgia
Institute of Technology, Emory University, S.W. Texas State University and The
American School in London, (2) corporate shuttle services between various
facilities of The Coca-Cola Company, Georgia Power
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<PAGE> 31
and Federal Express, (3) public parking shuttle services for Port of New York,
the Memphis/Shelby County Airport Authority and the Nashville Airport Authority,
(4) employee transportation services from employee parking lots for Port of New
York, Federal Express and Delta Air Lines and (5) airside crew and passenger
transport at Heathrow Airport.
Operational Support Staffing Services
The Company provides staffing for operational support services, which
includes providing staffing for assembly, warehousing, shipping, electrical and
mechanical functions. The Company began providing operational support staffing
services with the acquisition of Lloyd and further expanded its operations in
this area through the acquisitions of Midwest Staffing and SES in the United
States, TUJA and EMD in Germany and Right Associates in the United Kingdom. The
Company's operational support staffing services include assembly, warehousing,
shipping, electrical and mechanical functions. The Company's operational support
staffing services are provided through 16 branch offices located in the Chicago
and Baltimore metropolitan areas, through 30 offices located throughout the
Munich and Frankfurt metropolitan areas and through three branch offices located
south of London.
Marketing Execution and Fulfillment Services
The Company began providing marketing execution and fulfillment services
with the acquisition of RightSide Up in October 1997 and further expanded its
operations in this area through the acquisition of Gage in July 1998. The
Company provides marketing execution and fulfillment services for clients in the
automotive, consumer, travel and entertainment industries, including The
Coca-Cola Company, Disney, Ford, Fox, General Motors, Kraft, Mattel, ONSALE,
Proctor & Gamble, Publishers Clearing House and Reader's Digest. The Company
provides a comprehensive array of marketing support services, enabling it to
execute and administer complex, multifaceted marketing programs for its clients.
These programs include consumer and trade fulfillment, trade support services,
e-commerce fulfillment and customer support services.
Consumer and Trade Fulfillment Programs. The Company's execution and
administration of consumer promotion programs and direct response fulfillment
services typically involves (1) receiving consumer orders (via mail, telephone
or the Internet), (2) processing the order to check for compliance and validate
materials submitted, (3) fulfilling the order by developing or selecting from
inventory the refund, coupon, premium, sample or merchandise and packing,
labeling and shipping it to the consumer, (4) reporting program results to the
client, either by mail or electronically, (5) providing customer service
regarding the product, promotion or order status, and (6) providing related data
entry services, including information from warranty cards, credit cards and
promotion media.
Similarly, corporations use the Company's fulfillment services to
distribute point-of-purchase displays, new product introduction literature,
posters, banners, demonstration kits, signs, samples and other sales and
marketing materials to distributors, retailers and other trade channels. In
providing these services, the Company (1) receives, stores, controls and manages
inventory owned by the client, (2) prints and personalizes trade materials, (3)
manages and coordinates shipment of materials, (4) provides database management
and information processing services and (5) operates call centers to process
requests for information. In providing trade materials and trade promotion
fulfillment, the Company provides many of the same services it provides to
clients utilizing its consumer promotion or direct response fulfillment
services, including order receipt, processing, fulfillment, reporting and
customer services.
Trade Support Services. The Company executes trade support services for
its clients that have extensive distribution or franchise networks. Services
include (1) the collection and sorting of memoranda and informational mailings,
training and support materials, and other communications, (2) packaging and
shipping the information, and (3) in-bound teleservices support to answer
questions and solve problems for the client's trade channels.
E-Commerce Fulfillment. The Company executes fulfillment services for
clients who sell products over the Internet's World Wide Web. The services
include (1) receipt and tracking of client inventory, (2) storage of inventory
in secured areas, (3) receipt of customer orders via the Internet, (4)
fulfillment of orders by
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selecting from inventory the merchandise ordered and packing, labeling and
shipping the merchandise to the consumer within 24 hours, and (5) production of
reports, files, and transaction records transmitted to the client via the
Internet. Products fulfilled by the Company include personal computers, consumer
electronics, housewares, sports and fitness equipment, vacation packages and
specialty foods.
Customer Support Services. The Company receives orders from consumers and
also provides inbound customer service focusing on business-to-consumer
applications, with increasing activity in business-to-business applications. The
Company receives and processes orders from consumers and handles inquiries
relating to billing, product information, product uses, product problems or
concerns, and client services. The Company has particular expertise in regulated
industries, housewares, electronics, publishing and packaged goods.
ACQUISITIONS
The Company's management has extensive experience in identifying
acquisition candidates, completing acquisitions and integrating acquired
companies into the Company's operating infrastructure. Since the completion of
its initial public offering in March 1997, the Company has completed ten
acquisitions. Each acquired company had operating margins in excess of the
Company's operating margin at the time of acquisition and was immediately
accretive to earnings. Together these acquisitions have significantly increased
the Company's presence in Europe, added new lines of business to the Company's
operations and increased density in the Company's existing lines of business.
The table below provides certain information with respect to the
acquisitions that the Company has pending or completed since its initial public
offering in March 1997:
<TABLE>
<CAPTION>
REVENUES FOR THE
CALENDAR YEAR
DATE COMPANY PRIOR TO ACQUISITION HEADQUARTERS SERVICES PROVIDED
- ---- ------- ---------------------- ------------ -----------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Pending Verfurth........ $20.0 Munster, Germany Operational Support Staffing
Pending UNICCO.......... 50.0 Boston, MA Facility Support Services
Aug 1998 Right
Associates...... 17.0 Portsmouth, England Operational Support Staffing
July 1998 EMD............. 50.0 Frankfurt, Germany Operational Support Staffing
July 1998 Gage Marketing
Support
Services........ 80.0 Minneapolis, MN Marketing Execution/Fulfillment
Apr 1998 TUJA............ 16.0 Munich, Germany Operational Support Staffing
Feb 1998 SES Staffing
Solutions....... 16.0 Baltimore, MD Operational Support Staffing
Dec 1997 Midwest
Staffing........ 8.0 Chicago, IL Operational Support Staffing
Oct 1997 RightSide Up.... 6.4(1) Los Angeles, CA Marketing Execution/Fulfillment
Sept 1997 Lloyd Creative
Staffing........ 14.0 Chicago, IL Operational Support Staffing
June 1997 USA Security.... 8.6 Hackensack, NJ Facility Support Services
May 1997 Executive
Aircraft
Services........ 2.4 London, England Aviation Services
</TABLE>
- ---------------
(1) For the twelve months ended August 31, 1997
CONTRACT TERMS
Substantially all the Company's services are provided under long-term
contracts, typically having terms of one to five years, which have provided the
Company with a significant source of predictable recurring revenues. Although
the terms of the Company's contracts vary significantly, the Company's aviation
services, facility support services and operational support services businesses
generally agree to provide a stated service level and clients generally agree to
pay the Company an hourly rate for services provided. Certain of the Company's
clients, especially in the cargo services area, are billed a fixed dollar amount
per month for services performed. Under some contracts, the Company is entitled
to rate increases when there are increases in the Federal minimum wage,
notwithstanding that most of the Company's employees are paid at rates in excess
of the Federal minimum wage. In the marketing execution and fulfillment services
business, the Company
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<PAGE> 33
generally enters into three year contracts with its clients, pursuant to which
it agrees to provide services for a fixed number of programs per year. The scope
and magnitude of the programs are determined by the client.
Most contracts have multi-year terms and are generally terminable by either
party upon 30 to 90 days written notice. The Company's contracts have rarely
been terminated. Most of the contracts entered into by the Company have been
renewed or extended upon the expiration of their original terms. The Company has
experienced an average annual retention rate of approximately 93% of its
contracts over the last three fiscal years (excluding two operations the Company
terminated in 1996).
SALES AND MARKETING
AHLS targets large corporations and institutions that have significant
contract staffing and outsourcing needs, marketing its services to potential
clients through senior management, regional and district managers and a local
sales force. As part of its operating philosophy, the Company emphasizes
building and maintaining relationships with personnel at various levels of its
clients' organizations, including relationships with both senior executives and
local operating personnel.
The Company is currently implementing a national sales and marketing
strategy, under which the Company focuses on cross-selling its services to its
primarily Fortune 1000 clients. Furthermore, the Company has designated certain
senior managers as responsible for specific national account relationships and
is in the process of adding national account sales representatives.
The Company's facility support services businesses have a local sales force
in the United States of 39 representatives located in AHLS' regional and
district offices and four sales representatives in Europe. The Company's
operational support staffing services business has 14 sales representatives in
the United States and Europe. The Company's marketing execution and fulfillment
services business has 18 sales representatives in the United States and is
planning to add a national account sales structure during 1999. Many of AHLS's
managers also have sales responsibilities and a portion of their incentive
compensation is dependent on meeting sales goals. The sales and marketing
function for the Company's aviation services business is handled primarily by
corporate management.
WORKFORCE MANAGEMENT
The Company's core competency includes recruiting, hiring, training,
motivating and managing the large numbers of personnel required to provide many
of the support services needed by its clients. The Company's district managers
and their human resources staff have ongoing responsibility for hiring,
recruiting and training the Company's local workforce.
Recruiting. The Company has developed innovative recruiting methods that
have been particularly effective in reaching targeted pools of prospective
employees, in addition to utilizing traditional recruiting methods such as job
fairs, trade journals, local advertising, and interviewing at vocational
schools. After analyzing the demographics of each market, the Company seeks to
establish relationships with community groups and leaders. For example, in a
number of markets, the Company has found that senior citizens are an excellent
source of potential employees for its pre-departure screening services and
recruiters frequently visit senior citizen centers. The Company leverages these
community relationships to provide a feeder into the Company's employment pool
and believes that current Company employees serve as effective recruiters for
the Company. The Company believes these methods are more effective than more
traditional recruiting methods.
Hiring. Within the United States, every employee hired by the Company must
complete a written application and provide proof of citizenship or resident
alien status. Further, every employee is subject to a 10-year employment and
criminal background check, which is conducted internally by the Company. Unlike
many of its competitors, the Company requires mandatory pre-employment drug
testing for all aviation and commercial security services employees.
In Europe, the Company screens potential applicants through a telephone
interview, and each potential employee must complete a written application and
undergo an interview that includes vision, hearing and psychological testing. An
initial one-year background check is required for every new employee. Each
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<PAGE> 34
European employee is hired subject to a three month probationary period and
continuity of employment is subject to a 20-year background check. Where legally
permitted, employees in certain European countries are also subject to random
drug testing.
Training. The Company provides in-house classroom and on-the-job training
programs for its hourly personnel through videos, guest lecturers and full-time
trainers who are employed at the Company's major district locations. The Company
is ISO 9002-certified in its commercial security business in the United Kingdom
and certain of its marketing execution and fulfillment services operations in
the United States. The Company is in the process of establishing performance
measures to improve job focus and accountability, create a quality audit process
and implement "best practices and procedures" in the Company's field operations.
The Company is the only organization approved by the U.K. DOT to provide
aviation security training to personnel of the U.K. DOT, the agency that
regulates aviation security matters in the United Kingdom.
Retention. The Company believes that employee retention is critical to
lowering operating costs and providing high quality service to its clients.
Accordingly, the Company places significant emphasis on programs to motivate its
employees and reduce employee turnover. Since inception, the Company has been
able to provide quality service and expand its business despite the high
employee turnover that is inherent in low wage, task-repetitive positions. The
Company's "110% Club" recognizes employees for superior attendance, attitude,
appearance and performance. Members receive quarterly bonuses and other rewards,
and are recognized throughout the Company. The Company has also enhanced
employee benefits by adding an employee stock purchase plan, which is available
to all employees with three months of active service. The Company believes its
historical retention rates are significantly higher than industry averages.
Field Management. The Company has developed a management structure under
which significant workforce decisions are made at the local level, thereby
requiring field managers to assume responsibility for recruiting, hiring and
retention. The Company's bonus system for regional and district managers is
based upon achievement of specific performance objectives, including revenue,
profitability, new business and client retention. Regional and district managers
can earn bonuses of up to 35% of their base compensation by achieving all their
objectives established annually by the Company. The Company has a stock option
plan for key corporate and field management.
Employees. As of September 30, 1998, the Company had 25,540 employees.
Approximately 1,840 of the Company's employees are covered by collective
bargaining agreements. Each of these agreements was assumed by the Company in
connection with an acquisition or an outsourcing contract previously held by
another vendor. Over the last three years, unions initiated five efforts to
organize certain Company employees, each of which failed to receive sufficient
support to require a vote. The Company considers its relations with its
employees to be good.
MANAGEMENT INFORMATION SYSTEMS
The Company's management information systems contribute significantly to
its daily operations, financial performance and customer service. The Company
has invested, and will continue to invest, resources in the development of
systems to grow and support the business needs of its clients.
In aviation services, the Company has developed and is implementing an
application to help manage its large workforce effectively through integrated
employee tracking, scheduling, time recording and reporting. In facility support
services, the Company has implemented at certain locations an automated,
integrated scheduling and time capture application which confirms an employee is
serving the customer as required. The Company will continue to integrate these
systems into the contract management, billing and payroll processes during 1999.
In operational support staffing services, the Company acquired several
integrated scheduling and accounting systems through its acquisitions. In
marketing execution and fulfillment services, the Company uses technology
extensively. The state-of-the-art marketing and sales support applications and
related infrastructure provide the business with order entry and inventory
control automation, organized distribution facilities, efficient out-bound
logistics, and valuable management database and reporting system.
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<PAGE> 35
Across all its business lines, the Company has utilized technology to
simplify, automate and integrate the administrative and management reporting
processes that serve its business units.
COMPETITION
The contract staffing and outsourcing industry is extremely competitive and
highly fragmented, with limited barriers to entry. Companies within the contract
staffing and outsourcing industry compete on the basis of the quality of service
provided, their ability to provide national and international services, the
range of services offered, and price. The Company believes its competitive
advantages include its reputation for providing high quality service and its
ability to serve large clients in the United States and Europe. Most of the
Company's competitors offer a more limited range of services and focus on a few
specific industries.
The Company competes in international, national, regional and local markets
with outsourcing companies, specialized contract service providers and in-house
organizations that provide services to potential clients and third parties.
AHLS' principal national competitors include:
- Aviation services -- ICTS International N.V., Globe Aviation Securities
Corporation and International Total Services, Inc.;
- Facility support services -- Borg-Warner Security Corporation,
Guardsmark, Inc. and The Wackenhut Corporation;
- Operational support staffing services -- Manpower, Inc., Kelly Services,
Inc. and Olsten Corporation; and
- Marketing execution and fulfillment services -- Young America
Corporation, StarTek, Inc. and LCS Industries.
The Company also competes with numerous local and regional companies as
well as divisions of several major staffing companies. Certain of the Company's
competitors and potential competitors have significantly greater financial
resources and larger operations than the Company.
GOVERNMENT REGULATION
Current Regulations Relating to Aviation Security. The Company's business,
particularly its aviation services line of business, is significantly affected
by government regulation. The aviation security services provided by the Company
are subject to extensive regulation by the Federal Aviation Administration in
the United States and comparable regulatory authorities in Europe. Aviation
security in the United States is subject to regulations and directives issued by
the FAA and to legislation enacted by the United States Congress. Under current
regulations, responsibility for aviation security is shared between the FAA and
various other federal, state and local agencies and industry participants (which
include air carriers and airport authorities as well as independent contractors
that perform services for or on behalf of these industry participants). The FAA
conducts threat and vulnerability assessments and, through its regulatory
authority, directs the aviation industry to implement measures that address
existing and anticipated threat situations. The FAA also tests security measures
at airports to assess vulnerabilities in current airport security systems. Any
change in the FAA's directives relating to aviation security could affect the
Company's operations in the aviation services business.
Under FAA regulations, which the FAA has proposed to revise through
rulemaking proceedings, each air carrier and airport authority must adopt and
carry out an FAA-approved security program that provides for the safety of
persons and property traveling in air transportation against acts of criminal
violence and aircraft piracy. Air carriers are responsible for providing
security measures for all people and items connected with their aircraft,
including passengers, baggage, and maintenance and flight crews. Airport
authorities are responsible for maintaining a secure environment on airport
grounds and for providing law enforcement support and training.
Each security program adopted by an airline must include: (1) the screening
of passengers and their carry-on baggage, and other persons having access to
controlled areas, to prevent the carriage aboard aircraft
34
<PAGE> 36
of weapons or explosive devices, (2) controlling access to aircraft, checked
baggage and cargo, (3) appropriate controls on shipping of cargo and (4)
security inspection of any aircraft left unattended.
Airlines may utilize either their own employees or third-party contractors
to carry out their security programs. Screeners operating X-ray systems must
receive initial and recurrent training in the detection of weapons and other
dangerous articles. Certain of these requirements are currently the subject of
an FAA rulemaking proceeding, which has been delayed until more data becomes
available, and may be modified upon adoption of final rules.
From time to time, the FAA issues directives requiring the implementation
of specific actions by air carriers and airport authorities. For example,
following the destruction of TWA flight 800 in July 1996, the FAA began to
require additional passenger profiling for specified types of flights, matching
of passengers and checked baggage, additional searching of aircraft cabins and
cargo areas, additional physical searches of carry-on items and other enhanced
security measures. The Company's business can be negatively or positively
affected by any such directives.
Generally, European standards for aviation security are more stringent than
those currently in effect in the United States. Passengers are subject to more
comprehensive "profiling" and review of documents; parked aircraft must be
guarded, searched and cleaned in accordance with applicable regulations;
passenger baggage is subject to match procedures as well as random X-ray and
hand searches; commercial cargo is guarded and subject to random X-ray searches;
and airline employees and other crews are subject to additional security
measures. The FAA requires that U.S. airlines utilize similar passenger
profiling programs in their European operations.
The Company is subject to random periodic testing by the FAA with regard to
adherence to regulations relating to pre-departure screening and passenger
profiling, hiring practices (including background checks, drug testing, training
and individual employee file maintenance) and baggage handling. In the United
Kingdom, the U.K. DOT also conducts testing relating to passenger and baggage
handling, aircraft security, document verification and employee background
checks. Any failure to meet these performance standards or to pass these tests
may result in the loss of a contract or the Company's license to perform
services, either of which is likely to have a material adverse effect on the
Company's reputation, business, results of operations and financial condition.
Recent Developments Relating to Aviation Security. Several initiatives by
United States governmental authorities and industry participants have resulted
in recommended changes in regulatory requirements relating to aviation security.
These initiatives have been undertaken by the United States Congress, through
provisions of the Federal Aviation Reauthorization Act of 1996 (the "1996 Act");
the White House Commission on Aviation Safety and Security (the "Gore
Commission"), which published its final report in February 1997; and the
Aviation Security Advisory Committee ("ASAC"), a committee of government,
industry, and consumer advocacy representatives that issued its recommendations
in December 1996. Each of these groups has considered issues that have ranged
from the fundamental structure of, and sharing of responsibilities relating to,
aviation security to specific near-term measures that could be implemented to
improve aviation security.
The Gore Commission, included the heads of various federal agencies and was
charged with making recommendations as to how the partnership between the U.S.
government and industry participants can achieve improved aviation security. The
Gore Commission issued its final report in February 1997 and included among its
recommendations:
(1) development of uniform performance standards for the selection,
training and certification of pre-departure screening companies;
(2) implementation of procedures for matching of passengers and checked
baggage on a nationwide basis no later than December 31, 1997;
(3) the continued development and implementation of an automated
passenger profiling system; and
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<PAGE> 37
(4) utilization of U.S. Customs Service personnel and computer systems
to complement the efforts of the FAA and other federal agencies.
On February 12, 1998, Transportation Secretary Rodney Slater presented Vice
President Gore with a one year status report on the progress of the
implementation of the recommendations of the Gore Commission. With regard to
development of uniform standards for the selection, training, and certification
of pre-departure screening companies, the FAA issued an Advance Notice of
Proposed Rulemaking ("ANPRM") on March 17, 1997 to solicit comments on
certification of screening companies. The FAA announced the withdrawal of this
ANPRM in the May 13, 1998 Federal Register. The FAA noted that uniform screener
performance standards will be a key component of the rule regarding
certification of screener companies and that an automated screener testing
system is currently in the development and testing process. The FAA decided to
withdraw the ANPRM before proceeding with any rulemaking until the automated
system has been adequately field tested and evaluated. This automated system,
called Threat Image Projection ("TIP"), is installed onto existing X-ray
machines and is used to project artificial threat images onto X-ray screens.
Screeners' ability to detect these images is then used to evaluate individual
performance and identify areas for additional training. The TIP system is a
component of the Screener Proficiency Evaluation and Reporting System, a system
that the FAA has been working with airlines to deploy, which aims to improve the
training and monitoring of skills of screeners through computer-based training
aids. Regarding implementation of bag match and automated profiling systems, the
FAA has developed an automated passenger profiling system referred to as
Computer Assisted Passenger Screening ("CAPS"). By September 1998, five major
airlines and many regional carriers had voluntarily implemented the CAPS system.
Both CAPS and manual passenger screening systems are being used in the passenger
bag match system, to select passengers' luggage which will either be examined by
explosives detection systems or will not be allowed to be transported unless a
passenger is on the flight. As the airlines voluntarily implement the CAPS
program, the FAA is expected to initiate rulemaking proceedings to require the
use of the automated screening program. The FAA expects to issue a notice of
proposed rulemaking in the near future, dealing with the requirements for the
use of CAPS in conjunction with bag matching and screening by explosive
detection systems. Lastly, the U.S. Customs Service is deploying personnel to
assist aviation security efforts and is working to evaluate, select and deploy
high technology cargo and baggage screening equipment.
FAA regulations require pre-departure screeners and their supervisors to
undergo a 10-year criminal and employment background check and a five-year
employment verification, and a fingerprint based criminal record background
check if warranted, with the employer required to maintain records of these
investigations throughout the term of employment. Airport operations and air
carriers are required to audit employment history investigations. The Company
believes that it complies with these standards.
The 1996 Act required that the FAA conduct a study and report to Congress
on whether to transfer certain responsibilities of air carriers to either
airport authorities or to the federal government or whether to provide for some
other sharing of current responsibilities. This report has not yet been issued
by the FAA. However, the Company believes that the FAA is likely to follow the
final recommendation released by the Gore Commission, as described above. The
1996 Act directed the FAA to "certify" companies that provide pre-departure
screening, continue to assist air carriers in developing computer-assisted
passenger profiling programs, assess programs for matching of passengers and
checked baggage that are currently being utilized in the industry on a test
basis, and report on changes to enhance and supplement the screening and
inspection of cargo and mail shipments.
The Company cannot accurately predict the outcome of these or any future
aviation security initiatives. However, any such initiatives could have an
adverse effect on the Company.
Other Applicable Regulations. In many European airports in which the
Company operates, a license is required from the airport authority in order to
perform services at the airport. Some airport authorities limit the number of
licenses they issue. The Company is also required to maintain various licenses
and permits from state and local government authorities in order to provide
commercial security, shuttle bus and certain other services.
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RISK MANAGEMENT AND SAFETY
Because the Company's business is labor intensive, workers' compensation is
a significant operating expense for the Company in the United States. In
addition, the Company is exposed to possible claims by its clients' customers or
employees, alleging discrimination or harassment by the Company's employees. The
Company is also exposed to liability for the acts or negligence of its employees
who cause personal injury or damage while on assignment, as well as claims of
misuse of client proprietary information or theft of client property. The
Company has adopted policies and procedures intended to reduce its exposure to
these risks.
The Company maintains insurance against these risks with policy limits it
considers sufficient, subject to self insurance of $250,000 per incident and an
aggregate stop-loss. In addition, the Company maintains aviation liability
insurance of $500 million per incident. The Company establishes reserves in its
financial statements for the estimated costs of pending claims as well as the
estimated costs of incurred but not yet reported claims. The reserve for these
unreported claims is based on prior experience. The Company's reserves are
periodically revised, as necessary, based on developments related to pending
claims. The Company's reserve for workers' compensation and automobile claims
was $4.9 million as of September 30, 1998.
The Company's risk management specialist, with the assistance of the
Company's regional managers, is responsible for claims management and the
establishment of appropriate reserves for the portion of claims not covered by
insurance. The Company has a risk allocation program which provides local
managers with financial incentives to improve safety performance by decreasing
the number of workplace accidents. The Company has quarterly safety committee
meetings with its local managers and field employees, conducts defensive driving
training sessions for its transportation employees, conducts routine safety
inspections of local work sites and instructs personnel in proper lifting
techniques in an effort to reduce the number of preventable accidents.
LITIGATION
From time to time, the Company is involved in routine legal proceedings
incidental to the conduct of its business. In the opinion of management, the
litigation, individually or in the aggregate, to which the Company is currently
a party, is not likely to have a material adverse effect on the Company's
results of operations or financial condition.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The Company's executive officers, directors and key employees are as
follows:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS: AGE POSITION
- --------------------------------- --- --------
<S> <C> <C>
Frank A. Argenbright, Jr. ......... 50 Chairman and Co-Chief Executive Officer
Edwin R. Mellett................... 59 Vice Chairman and Co-Chief Executive
Officer
Thomas J. Marano................... 48 President and Chief Operating
Officer -- U.S.
Ernest Patterson................... 51 Chief Executive -- Europe
David L. Gamsey.................... 41 Chief Financial Officer
Edwin C. "Skip" Gage............... 57 President -- Gage Marketing Support
Services and Director
Robert McCullough(1)(2)............ 56 Director
Hamish Leslie Melville(1)(2)....... 53 Director
KEY EMPLOYEES:
- -------------
Henry F. Anthony................... 46 Vice President of Human
Resources -- U.S.
Nicholas G. Bailey................. 47 Finance Director -- Europe
L. Celeste Bottorff................ 45 Vice President of Marketing and
Strategic Planning -- U.S.
Nigel D.J. Cotton.................. 45 Human Resources Director -- Europe
Daniel E. DiGiusto................. 46 Senior Vice President of Field
Operations -- U.S.
Barry J. Jenkins................... 36 Vice President of Finance -- U.S.
Larry G. Parrotte.................. 38 Senior Vice President of Field
Operations -- U.S.
John Rollo......................... 54 Managing Director -- Germany
Mark T. Ryall...................... 38 Vice President and Chief Information
Officer -- U.S.
</TABLE>
- ---------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Mr. Argenbright founded the Company in 1979 and has been its Chairman and
Chief Executive Officer since that time. Mr. Argenbright graduated from the
Owner/President Management Program at Harvard Business School in 1991.
Mr. Mellett has been Vice Chairman and Co-Chief Executive Officer of the
Company since December 1994 and served on the Company's Advisory Board during
1994. From 1993 to 1994, he was a consultant and private investor. From 1984 to
1992, Mr. Mellett was Senior Vice President of The Coca-Cola Company, serving
also as President of Coca-Cola Northern Europe from 1990 to 1992 and President
of Coca-Cola USA from 1986 to 1988. From 1972 to 1984, Mr. Mellett was President
of the Food Services Division of PepsiCo.
Mr. Marano has been President and Chief Operating Officer -- U.S., since
July 1995. From 1990 to June 1995, Mr. Marano was Vice President and a Global
Customer Director for The Coca-Cola Company, and from 1986 to 1990, he was Vice
President of U.S. Sales, Fountain Division, of The Coca-Cola Company. From 1985
to 1986, Mr. Marano was Vice President of U.S. Sales of Apple Computer.
Mr. Patterson has been Chief Executive -- Europe since June 1997. From 1996
to 1997, Mr. Patterson was the Group Chief Executive Officer for National
Express Group PLC. From 1990 to 1996, he was the Chief Executive Officer,
Worldwide Distribution Services for B.E.T. PLC, and from 1985 to 1990, he was
the Managing Director of a foreign subsidiary of B.E.T. PLC.
38
<PAGE> 40
Mr. Gamsey has been Chief Financial Officer of the Company since September
1995. From 1988 to September 1995, Mr. Gamsey was a Managing Director of
Investment Banking of Price Waterhouse LLP. From 1987 to 1988, Mr. Gamsey was
Chief Financial Officer of Visiontech, Inc., and from 1979 to 1987, Mr. Gamsey
was a Senior Audit Manager for Arthur Andersen LLP. Mr. Gamsey is a Certified
Public Accountant.
Mr. Gage has been a director of the Company since July 1998. He has been
President of Gage Marketing Group since he formed it in January 1992. Prior
thereto, Mr. Gage served in various capacities at Carlson Companies Inc. from
1977 to 1992, most recently as President and Chief Executive Officer of Carlson
Companies Inc. Mr. Gage is a member of the Board of Directors of Fingerhut
Corporation, SuperValu and Kellog School of Management, Northwestern University.
Mr. McCullough has been a director of the Company since consummation of its
initial public offering in March 1997. Mr. McCullough has been Chief Financial
Officer and member of the Board of Directors of AMVESCO PLC (formerly INVESCO
PLC) since April 1996. He was a partner for Arthur Andersen LLP from 1974 until
April 1996.
Mr. Melville has been a director of the Company since consummation of its
initial public offering in March 1997. Mr. Melville has been a Managing Director
of Credit Suisse First Boston (Europe) Ltd. since June 1998 and, prior thereto,
was Chairman of Scottish Woodlands Limited from 1992 to June 1998. He was
Chairman of Dunedin Fund Managers Limited from 1992 to 1995, Chairman and Chief
Executive Officer of Capel Cure Myers Capital Management from 1988 to 1991 and
Founder and Chief Executive of Enskilda Securities from 1982 to 1987. Mr.
Melville is a director of Fleming Mercantile Investment Trust PLC, Mithras
Investment Trust PLC, Old Mutual South Africa Trust plc, Persimmon plc and the
Scottish Investment Trust PLC.
Mr. Anthony has been Vice President of Human Resources - U.S. since January
1996. From 1993 to 1995, Mr. Anthony was Vice President of Human Resources of
National Linen Service. From 1989 to 1993, Mr. Anthony was Vice President of
Human Resources for BET Plant Services, Inc.
Mr. Bailey has been Finance Director -- Europe since May 1995. From January
1994 to April 1995, he worked in Kazakhstan establishing the financial
operations for Tengizchevroil, a joint venture between the Government of
Kazakhstan and Chevron Petroleum. From 1992 to 1993, Mr. Bailey was an
independent consultant to the airline industry. Prior thereto, Mr. Bailey held a
number of positions in the airline industry. Mr. Bailey is a Chartered
Accountant.
Ms. Bottorff has been Vice President of Marketing and Strategic
Planning -- U.S. since September 1996. From 1994 to 1996, Ms. Bottorff was
Marketing Director of The Atlanta Journal-Constitution. From 1990 to 1994, Ms.
Bottorff was Director of Strategic Planning of Holiday Inn Worldwide. From 1987
to 1990, she was Manager of Field Planning for The Coca-Cola Company and, from
1983 to 1987, she was an Engagement Manager for McKinsey & Co., Inc.
Mr. Cotton has been Human Resources Director -- Europe since August 1993.
From 1989 to 1992, he was Head of Human Resources -- United Kingdom for Ericsson
plc and, during 1988, he was a Personnel Manager with British Airways. Prior
thereto, he was employed by British Caledonian Airways.
Mr. DiGiusto has been Senior Vice President of Field Operations -- U.S.
since 1989. From 1974 to 1989, Mr. DiGiusto was employed by Burns International
Security, most recently as its Northeast Division Vice President.
Mr. Jenkins has been Vice President of Finance -- U.S. since May 1997. From
1984 to 1997, he was a Senior Audit Manager with Price Waterhouse LLP. Mr.
Jenkins is a Certified Public Accountant.
Mr. Parrotte has been Senior Vice President of Field Operations -- U.S.
since 1997. From 1992 to 1997, he was Regional Vice President of the Company's
mid-Atlantic area operations. Prior thereto, he was a regional manager with
Burns International Security.
39
<PAGE> 41
Mr. Rollo has been Managing Director -- Germany since December 1998. From
1996 to November 1998, he was general manager of Blockbuster -- Germany. From
1980 to 1996, he held various positions with Grand Metropolitan, PLC's Burger
King division in Europe.
Mr. Ryall has been Vice President and Chief Information Officer -- U.S.
since April 1997. From 1990 to 1997, he was Group Manager of Ryder System, Inc.
From 1983 to 1990, he was a manager for Andersen Consulting.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's common stock as of November 30, 1998 and
as adjusted to reflect the sale of shares offered in this prospectus: (1) by
each person known to the Company to beneficially own more than five percent of
the outstanding common stock; (2) by each selling shareholder; (3) by each
executive officer and director of the Company; and (4) by all executive officers
and directors of the Company as a group. Unless otherwise indicated, the
business address of each person listed is c/o AHL Services, Inc., 3353 Peachtree
Road, NE, Suite 1120, North Tower, Atlanta, Georgia 30326.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING NUMBER OF AFTER OFFERING
----------------------- SHARES ----------------------
NAME NUMBER PERCENT(1) BEING OFFERED NUMBER PERCENT(1)
- ---- ---------- ---------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Frank A. Argenbright, Jr.(2)....... 7,937,500 56.1% -- 7,937,500 44.3%
Edwin R. Mellett(3)................ 311,875 2.2 -- 311,875 1.7
Thomas J. Marano(3)................ 177,500 * -- 177,500 *
Ernest Patterson(3)................ 37,500 * -- 37,500 *
David L. Gamsey(3)................. 43,500 * -- 43,500 *
Edwin C. "Skip" Gage(4)............ 461,172 3.3 244,430 216,742 1.2
Robert McCullough(5)............... 3,500 * -- 3,500 *
Hamish Leslie Melville(5).......... 17,225 * -- 17,225 *
Caledonia Investments (Bermuda)
Limited(6)....................... 1,102,000 7.8 -- 1,102,000 6.2
All executive officers and
directors as a group (8
persons)(7)...................... 8,989,772 61.0 244,430 8,745,342 48.6
</TABLE>
- ---------------
* Less than 1.0%.
(1) Applicable percentages of ownership prior to the offering are based on
14,119,922 shares of common stock outstanding on November 30, 1998, adjusted
as required by rules promulgated by the SEC. Applicable percentages of
ownership after the offering are based on 17,875,492 shares of common stock
outstanding. This table is based upon information supplied by executive
officers, directors and principal shareholders, and Schedules 13D and 13G
(if any) filed with the SEC. Unless otherwise indicated in the footnotes to
this table and subject to community property laws where applicable, the
Company believes that each of the shareholders named in this table has sole
voting and investment power with respect to the shares indicated as
beneficially owned. Any shares that any person named above has the right to
acquire within 60 days are deemed to be outstanding for purposes of
calculating the percentage ownership of such person, but are not deemed to
be outstanding for purposes of calculating the ownership percentage of any
other person.
(2) Includes (a) 633,660 shares beneficially owned by Argenbright Partners,
L.P., of which a limited liability company managed by Mr. Argenbright and
his spouse is the general partner, (b) 241,800 shares owned by a charitable
trust, of which Mr. Argenbright is sole trustee, (c) 2,500 shares owned by
Mr. Argenbright's spouse and (d) 37,500 shares issuable pursuant to
exercisable options.
(3) Represents shares of common stock issuable pursuant to exercisable options.
(4) Represents shares owned by Gage Marketing Services LLC, which is controlled
by Mr. Gage.
(5) Includes 2,500 shares issuable pursuant to exercisable options.
40
<PAGE> 42
(6) The address of Caledonia Investments (Bermuda) Limited is c/o Caledonia
Investments plc, Cayzer House, 1 Thomas More Street, London E1 9AR.
(7) Includes 612,875 shares issuable pursuant to exercisable options.
Mr. Argenbright and a trust controlled by Mr. Argenbright have granted to
the underwriters an option to purchase up to 200,000 shares of common stock to
cover over-allotments incurred in this offering. Mr. Mellett has granted to the
underwriters an option to purchase up to 80,000 shares of common stock to cover
over-allotments incurred in this offering. If the underwriters exercise such
options in full, Messrs. Argenbright and Mellett will beneficially own after the
offering 7,737,500 and 231,875 shares, respectively, representing 42.5% and
1.3%, respectively, of the outstanding shares of common stock.
41
<PAGE> 43
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof each underwriter named below has severally agreed to
purchase, and AHLS and the selling shareholder named herein have agreed to sell
to such underwriter, the number of shares set forth opposite the name of such
underwriter.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ---- ----------------
<S> <C>
Salomon Smith Barney Inc....................................
BT Alex. Brown Incorporated.................................
Credit Suisse First Boston Corporation......................
The Robinson-Humphrey Company, LLC..........................
-----------
Total............................................. 4,000,000
===========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares (other than those
covered by the over-allotment option described below) if they purchase any of
the shares.
The underwriters, for whom Salomon Smith Barney Inc., BT Alex. Brown
Incorporated, Credit Suisse First Boston Corporation and The Robinson-Humphrey
Company, LLC are acting as representatives, propose to offer some of the shares
directly to the public at the public offering price set forth on the cover page
of this prospectus and some of the shares to certain dealers at the public
offering price less a concession not in excess of $ per share. The
underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share on sales to certain other dealers. After the initial
offering of the shares to the public, the public offering price and such
concession may be changed by the representatives.
AHLS and certain shareholders named in this prospectus have granted to the
underwriters an option exercisable for 30 days from the date of this prospectus,
to purchase up to 600,000 additional shares of common stock at the public
offering price less the underwriting discount. The underwriters may exercise
such option solely for the purpose of covering over-allotments, if any, in
connection with this offering. To the extent such option is exercised, each
underwriter will be obligated, subject to certain conditions, to purchase a
number of additional shares approximately proportionate to such underwriter's
initial purchase commitment.
AHLS, its executive officers and directors and the selling shareholders
have agreed that, for a period of 60 days from the date of this prospectus, they
will not, without the prior written consent of Salomon Smith Barney Inc., offer,
sell, contract to sell, or otherwise dispose of, any shares of common stock of
AHLS or any securities convertible into, or exercisable or exchangeable for,
common stock. Salomon Smith Barney Inc., in its sole discretion, may release any
of the securities subject to these lock-up agreements at any time without
notice.
The common stock is quoted on the Nasdaq National Market under the symbol
"AHLS."
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by AHLS and the selling shareholders in connection with
this offering. These amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares of common
stock.
<TABLE>
<CAPTION>
PAID BY AHLS PAID BY SELLING SHAREHOLDER
--------------------------- ---------------------------
NO EXERCISE FULL EXERCISE NO EXERCISE FULL EXERCISE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Per share........................................ $ $ $ $
Total............................................ $ $ $ $
</TABLE>
42
<PAGE> 44
In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may over-allot, or engage in syndicate covering transactions,
stabilizing transactions and penalty bids. Over-allotment involves syndicate
sales of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of common stock made for the purpose of preventing or retarding a
decline in the market price of the common stock while the offering is in
progress. Penalty bids permit the underwriters to reclaim a selling concession
from a syndicate member when Salomon Smith Barney Inc., in covering syndicate
short positions or making stabilizing purchases, repurchases shares originally
sold by that syndicate member. These activities may cause the price of the
common stock to be higher than the price that otherwise would exist in the open
market in the absence of such transactions. These transactions may be effected
on the Nasdaq National Market or in the over-the-counter market, or otherwise
and, if commenced, may be discontinued at any time.
Certain of the representatives have performed certain investment banking
and advisory services for AHLS from time to time for which they have received
customary fees and expenses. The representatives may, from time to time, engage
in transactions with and perform services for AHLS in the ordinary course of
their business.
AHLS and the selling shareholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments the underwriters may be required to make in
respect of any of those liabilities.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by King & Spalding, Atlanta, Georgia. Certain legal matters in
connection with this offering will be passed upon for the underwriters by Dewey
Ballantine LLP, New York, New York.
EXPERTS
The audited financial statements of AHL Services, Inc. and Gage Marketing
Support Services incorporated by reference in this prospectus and elsewhere in
the registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports. The audited financial statements
of EMD Gesellschaft fur Elektroinstallation-und Maschinenbau-Dienstleistungen
GmbH incorporated by reference in this prospectus and elsewhere in the
registration statement have been audited by Price Waterhouse GmbH, independent
public accountants as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
WHERE YOU CAN FIND MORE INFORMATION
AHLS files annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy the reports, statements or
other information we file at the SEC's public reference room in Washington, D.C.
located at 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also
maintains regional offices where you can read and copy the reports. These are
located at 500 West Madison Street, Room 1400, Chicago, Illinois 60606 and at 7
World Trade Center, Suite 1300, New York, New York 10048. You can request copies
of these documents, upon payment of photocopying fees, by writing to the SEC.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the public reference rooms. Our SEC filings are also available to the public
on the SEC's internet site (http://www.sec.gov). These documents are also
available for viewing and copying at the offices of The Nasdaq Stock Market,
Inc. at 1735 K Street, NW, Washington, D.C. 20006-1506.
43
<PAGE> 45
This prospectus is part of a registration statement on Form S-3 that we
filed with the SEC. This prospectus does not contain all the information in that
registration statement. For further information with respect to the Company and
the securities offered by this prospectus, you should review the registration
statement. You can obtain the registration statement from the SEC and The Nasdaq
Stock Market at the public reference facilities we referred to above.
The SEC allows us to "incorporate by reference" information into this
prospectus. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this prospectus, except for
any information superseded by information contained directly in this prospectus.
This prospectus incorporates by reference the documents set forth below that
AHLS has previously filed with the SEC. These documents contain important
information about AHLS and its financial condition.
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 is also incorporated or deemed
to be incorporated by reference herein, modifies or supersedes the earlier
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this prospectus.
The following documents are incorporated by reference into this prospectus:
<TABLE>
<CAPTION>
FILING PERIOD
- ------ ------
<S> <C>
Annual Report on Form 10-K................................. Year Ended December 31, 1997
Quarterly Report on Form 10-Q.............................. Quarter Ended March 31, 1998
Quarterly Report on Form 10-Q.............................. Quarter Ended June 30, 1998
Quarterly Report on Form 10-Q.............................. Quarter Ended September 30, 1998
Current Report on Form 8-K (relating to the
SES Staffing Solutions acquisition)...................... Dated February 6, 1998
Current Reports on Form 8-K and 8-K/A (relating to the
Gage acquisition)........................................ Dated July 24, 1998
Current Reports on Form 8-K and 8-K/A (relating to the
EMD acquisition)......................................... Dated July 31, 1998
The description of common stock included in the Company's
registration statement on Form 8-A....................... Dated March 3, 1997
</TABLE>
All documents filed by AHLS pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the date of this prospectus
will be deemed to be incorporated by reference into this prospectus and to be a
part hereof from the date of filing of such documents.
Documents incorporated by reference are available from AHLS without charge,
excluding all exhibits unless specifically incorporated by reference as an
exhibit to this prospectus. Prospective investors may obtain documents
incorporated by reference in this prospectus by requesting them in writing or by
telephone from the Company at its executive offices.
44
<PAGE> 46
PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements (the "Pro Forma
Financial Statements") are based on the historical financial statements of the
Company, Gage and EMD for the year ended December 31, 1997 and for the nine
months ended September 30, 1998, adjusted to give effect to the acquisitions of
Gage and EMD (collectively, the "Recent Acquisitions"). The Pro Forma Statements
of Operations give effect to the Recent Acquisitions as if each had occurred on
the first day of each period presented.
The Pro Forma Financial Statements do not purport to represent what the
Company's results of operations would actually have been had such transactions
actually occurred on any of the dates set forth above or to project the
Company's results of operations for any future period. These statements are
qualified in their entirety by, and should be read in conjunction with, the
historical financial statements of the Company, Gage and EMD and the notes
thereto incorporated by reference in this prospectus.
The Recent Acquisitions were accounted for under the purchase method of
accounting. The total purchase price for these acquisitions has been allocated
to tangible and identifiable intangible assets and liabilities based upon their
fair values on the date of the acquisitions with the excess of cost over net
assets acquired allocated to goodwill. Each of the allocations of the purchase
price for these acquisitions is subject to revision when additional information
concerning asset and liability valuations is obtained. In management's opinion,
the asset and liability valuation for these acquisitions will not be materially
different from the pro forma financial information presented herein.
The Pro Forma Financial Statements give effect only to the adjustments set
forth in the accompanying notes and do not reflect any other benefits
anticipated by management as a result of the Recent Acquisitions and the
implementation of the Company's business strategy.
F-1
<PAGE> 47
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AHLS GAGE EMD ADJUSTMENTS TOTAL
-------- ------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues................................... $276,013 $81,318 $49,803 $ -- $407,134
-------- ------- ------- ------- --------
Operating expenses:
Cost of services......................... 204,512 37,892 35,919 -- 278,323
Field operating.......................... 45,956 33,941 7,857 2,157(1)
(1,688)(2) 88,223
Corporate general and administrative..... 14,840 5,479 1,017 -- 21,336
-------- ------- ------- ------- --------
Total operating expenses......... 265,308 77,312 44,793 469 387,882
-------- ------- ------- ------- --------
Operating income........................... 10,705 4,006 5,010 (469) 19,252
Interest (income) expense, net............. 1,159 624 (78) 5,300(3) 7,005
Other (income) expense, net................ (723) 336 (226) -- (613)
-------- ------- ------- ------- --------
Income before income taxes and
extraordinary charges.................... 10,269 3,046 5,314 (5,769) 12,860
Income tax provision....................... 3,850 -- 2,332 (1,218)(4) 4,964
-------- ------- ------- ------- --------
Income before extraordinary charges........ 6,419 3,046 2,982 (4,551) 7,896
Extraordinary charges...................... (385) -- -- -- (385)
-------- ------- ------- ------- --------
Net income................................. $ 6,034 $ 3,046 $ 2,982 $(4,551) $ 7,511
-------- ------- ------- ------- --------
Diluted earnings per share:
Number of shares......................... 10,960 461(5) 11,421
======== ======= ========
Earnings per share....................... $ 0.55 $ 0.66
======== ========
</TABLE>
F-2
<PAGE> 48
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AHLS GAGE(6) EMD(7) ADJUSTMENTS TOTAL
-------- ------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues................................... $319,184 $47,715 $31,052 $ -- $397,951
-------- ------- ------- ------- --------
Operating expenses:
Cost of services......................... 230,102 21,977 22,311 -- 274,390
Field operating.......................... 59,054 19,924 4,746 1,262(1)
(987)(2) 83,999
Corporate general and administrative..... 13,905 3,687 595 -- 18,187
-------- ------- ------- ------- --------
Total operating expenses......... 303,061 45,588 27,652 275 376,576
-------- ------- ------- ------- --------
Operating income........................... 16,123 2,127 3,400 (275) 21,375
Interest (income) expense, net............. 1,686 137 (27) 3,316(3) 5,112
Other (income) expense, net................ (292) 14 (1) -- (279)
-------- ------- ------- ------- --------
Income before income taxes................. 14,729 1,976 3,428 (3,591) 16,542
Income tax provision....................... 5,971 -- 1,512 (721)(4) 6,762
-------- ------- ------- ------- --------
Net income................................. $ 8,758 $ 1,976 $ 1,916 $(2,870) $ 9,780
======== ======= ======= ======= ========
Diluted earnings per share:
Number of shares......................... 14,304 345(5) 14,649
======== ======= ========
Earnings per share....................... $ 0.61 $ 0.67
======== ========
</TABLE>
F-3
<PAGE> 49
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(1) Reflects additional amortization of intangible assets, primarily goodwill,
over estimated useful lives of 20 to 40 years.
(2) Reflects change in depreciation and amortization as a result of the
allocation of the purchase price to the estimated fair value of net assets
acquired.
(3) Reflects interest expense on the increase in the Company's Credit Facility
at an annual rate of 6.2% for the Gage acquisition and 5% for the EMD
acquisition and interest expense on the convertible subordinated debenture
issued in the Gage acquisition at an annual rate of 4.5%. The lower interest
rate for the EMD acquisition is due to the borrowings being in the acquired
company's foreign currency.
(4) Reflects effect of income taxes at 40% on Gage income, net of pro forma
adjustments, and at 44% on EMD income, net of pro forma adjustments.
(5) Weighted average common shares outstanding assumes that the 461,172 shares
of AHLS common stock issued as part of the Gage acquisition purchase price
were issued at the beginning of the respective periods.
(6) Includes the results of operations for Gage for the period from January 1,
1998 through July 24, 1998.
(7) Includes the results of operations for EMD for the period from January 1,
1998 through July 31, 1998.
F-4
<PAGE> 50
[Six photographs depicting certain of the services provided by the Company,
with the following captions:
(1) AHLS provides consumer, trade and e-commerce fulfillment services to a
variety of Fortune 1000 clients.
(2) AHLS provides light industrial and warehousing services in the U.S.,
Germany and the U.K.
(3) AHLS' fixed route shuttle services provide transportation at corporate and
university campus locations and at major airports across the U.S. and
Europe.
(4) AHLS provides access control and security services at major office
buildings, warehouses, plants, residential and hotel complexes, sports
arenas and government buildings in both the U.S. and Europe.
(5) AHLS provides cargo handling services for many of the world's largest air
carriers.
(6) AHLS screens passengers and baggage at major airports in the U.S. and
Europe.]
<PAGE> 51
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,000,000 SHARES
AHL SERVICES, INC.
COMMON STOCK
(AHL SERVICES, INC. LOGO)
------------
PROSPECTUS
, 1998
------------
SALOMON SMITH BARNEY BT ALEX. BROWN
CREDIT SUISSE FIRST BOSTON
THE ROBINSON-HUMPHREY COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 52
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder, all of
which are being paid by the Company. Except for the SEC registration fee and
NASD filing fee, all amounts are estimates.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 35,886
--------
NASD filing fee............................................. 13,409
--------
Nasdaq National Market Listing Fee.......................... 17,500
--------
Accounting fees and expenses................................ 50,000
--------
Legal fees and expenses..................................... 120,000
--------
Printing and Engraving expenses............................. 75,000
--------
Transfer Agent and Registrar fees and expenses.............. 10,000
--------
Miscellaneous Expenses...................................... 78,205
--------
Total............................................. $400,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Georgia Business Corporation Code permits a corporation to eliminate or
limit the personal liability of a director to the corporation or its
shareholders for monetary damages for breach of duty of care or other duty as a
director, provided that no provision shall eliminate or limit the liability of a
director: (A) for any appropriation, in violation of his duties, of any business
opportunity of the corporation; (B) for acts or omissions which involve
intentional misconduct or a knowing violation of law; (C) for unlawful corporate
distributions; or (D) for any transaction from which the director received an
improper personal benefit. This provision pertains only to breaches of duty by
directors in their capacity as directors (and not in any other corporate
capacity, such as officers) and limits liability only for breaches of fiduciary
duties under Georgia corporate law (and not for violation of other laws, such as
the Federal securities laws). The Company's Restated and Amended Articles of
Incorporation (the "Restated Articles") exonerate the Company's directors from
monetary liability to the extent permitted by this statutory provision.
The Company's Bylaws (the "Bylaws") also provide that the Company shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (including any action by or in
the right of the Company), by reason of the fact that such person is or was a
director or officer of the Company, or is or was serving at the request of the
Company as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including reasonable
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the Company
(and with respect to any criminal action or proceeding, if such person had no
reasonable cause to believe such person's conduct was unlawful), to the maximum
extent permitted by, and in the manner provided by, the Georgia Business
Corporation Code. In addition, the Bylaws provide that the Company will advance
to its directors or officers reasonable expenses of any such proceeding.
Notwithstanding any provision of the Company's Amended and Restated
Articles and Bylaws to the contrary, the Georgia Business Corporation Code
provides that the Company shall not indemnify a director or officer for any
liability incurred in a proceeding in which the director is adjudged liable to
the Company or is subjected to injunctive relief in favor of the Company: (1)
for any appropriation, in violation of his duties, of any business opportunity
of the Company; (2) for acts or omissions which involve intentional misconduct
or a
II-1
<PAGE> 53
knowing violation of law; (3) for unlawful corporate distributions; (4) for any
transaction from which the director or officer received an improper personal
benefit.
Section 8 of the Underwriting Agreement filed as Exhibit 1.1 hereto also
contains certain provisions pursuant to which certain officers, directors and
controlling persons of the Company may be entitled to be indemnified by the
underwriters named therein.
The Company has purchased insurance with respect to, among other things,
any liabilities that may accrue under the statutory provisions referred to
above.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NUMBER DESCRIPTION
- ------- ------------------
<S> <C> <C>
1.1* -- Form of Underwriting Agreement
3.1 -- Restated and Amended Articles of Incorporation of the
Company (incorporated by reference to the Registration
Statement on Form 8-A dated March 25, 1997)
3.2 -- Bylaws of the Company (incorporated by reference to the
Registration Statement on Form 8-A dated March 25, 1997)
4.1 -- Specimen common stock certificate (incorporated by reference
to the Registration Statement on Form S-1, File No.
333-20315)
4.2 -- 1997 Stock Incentive Plan (incorporated by reference to the
Registration Statement on Form S-1, File No. 333-20315)
4.1 -- Convertible Subordinated Promissory Note dated July 24, 1998
(incorporated by reference to the Current Report on Form 8-K
dated July 24, 1998).
5.1* -- Opinion of King and Spalding as to the legality of the
common stock being registered
10.1 -- Restated Employment Agreement between the Company and Edwin
R. Mellett dated as of February 1, 1997, as amended on
February 28, 1997 (incorporated by reference to the
Registration Statement on Form S-1, File No. 333-20315)
10.2 -- Restated Employment Agreement between the Company and Thomas
J. Marano dated as of February 1, 1997, as amended on
February 28, 1997 (incorporated by reference to the
Registration Statement on Form S-1, File No. 333-20315)
10.3 -- Restated Employment Agreement between the Company and David
L. Gamsey dated as of February 1, 1997, as amended on
February 28, 1997 (incorporated by reference to the
Registration Statement on Form S-1, File No. 333-20315)
10.4 -- Letter Agreement between the Company and Ernest Patterson
dated as of May 23, 1997 (incorporated by reference to the
Registration Statement on Form S-1, File No. 333-37327)
10.5 -- Credit Agreement dated as of February 10, 1998 by and among
AHL Services, Inc., Argenbright Security, Inc., Argenbright,
Inc., Intersec, Inc., ADI U.K. Limited, Aviation Defence
International Germany Limited, Argenbright Holdings Limited
and The ADI Group Limited, as borrowers, the Lenders
referred to therein, First Union National Bank (London
Branch), as European Facility Lender and First Union
National Bank of Georgia, as Administrative Agent
(incorporated by reference to Annual Report on Form 10-K for
the year ended December 31, 1997)
10.6 -- First Amendment to Amended and Restated Credit Agreement
dated as of July 9, 1998 by and among AHL Services, Inc.,
Argenbright Security, Inc., Argenbright, Inc., Intersec,
Inc., ADI U.K. Limited, Aviation Defence International
Germany Limited, Argenbright Holdings Limited and The ADI
Group Limited, as borrowers, the Lenders referred to
therein, First Union National Bank (London Branch), as
European Facility Lender and First Union National Bank of
Georgia, as Administrative Agent
</TABLE>
II-2
<PAGE> 54
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NUMBER DESCRIPTION
- ------- ------------------
<S> <C> <C>
10.7 -- Second Amendment to Amended and Restated Credit Agreement
dated as of November 18, 1998 by and among AHL Services,
Inc., Argenbright Security, Inc., Argenbright, Inc.,
Intersec, Inc., ADI U.K. Limited, Aviation Defence
International Germany Limited, Argenbright Holdings Limited
and The ADI Group Limited, as borrowers, the Lenders
referred to therein, First Union National Bank (London
Branch), as European Facility Lender and First Union
National Bank of Georgia, as Administrative Agent
10.8 -- Purchase Agreement, dated as of July 24, 1998, by and among
Argenbright, Inc., Gage Marketing Group, LLC and Adistra LLC
(incorporated by reference to the Current Report on Form 8-K
dated July 24, 1998).
10.9 -- First Amendment to Purchase Agreement, dated as of July 24,
1998, by and among Argenbright, Inc., Gage Marketing Group,
LLC and Adistra LLC (incorporated by reference to the
Current Report on Form 8-K dated July 24, 1998).
10.10 -- Stock Purchase Agreement for the Acquisition of UNICCO
Security Services, Inc. dated as of October 26, 1998 by and
among Argenbright Security, Inc., UNICCO Security Services,
Inc., USC, Inc. and UNICCO Service Company.
10.11 -- First Amendment to Stock Purchase Agreement, dated December
11, 1998, by and among Argenbright Security, Inc., UNICCO
Security Services, Inc., USC, Inc. and UNICCO Service
Company.
10.12 -- Registration Rights Agreement, dated July 24, 1998, by and
between AHL Services, Inc. and Gage Marketing Group, LLC
(incorporated by reference to the Current Report on Form 8-K
dated July 24, 1998).
10.13 -- Consulting Agreement, dated July 24, 1998, by and between
AHL Services, Inc. and Edwin C. Gage (incorporated by
reference to the Current Report on Form 8-K dated July 24,
1998).
23.1* -- Consent of King and Spalding (contained in Exhibit 5.1)
23.2 -- Consent of Arthur Andersen LLP
23.3 -- Consent of Price Waterhouse GmbH
24.1 -- Powers of Attorney (contained on signature page)
</TABLE>
- ---------------
* To be filed by amendment
(b) Financial Statement Schedules.
Not Applicable
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the 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,
II-3
<PAGE> 55
or controlling person in connection with the securities being registered
hereunder, 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 Act and will be governed by the final adjudication of
such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus 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.
II-4
<PAGE> 56
SIGNATURES AND POWER OF ATTORNEY
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 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on December 23, 1998.
AHL SERVICES, INC.
By: /s/ DAVID L. GAMSEY
------------------------------------
David L. Gamsey
Chief Financial Officer
KNOW ALL MEN BY THESE PRESENT, that the undersigned constitutes and
appoints Frank A. Argenbright, Jr., Edwin R. Mellett and David L. Gamsey, and
each of them, his or her true and lawful attorney-in-fact and agents, with full
power of substitution and resubstitution, from such person and in each person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to the Registration Statement on Form S-3
of AHL Services, Inc., and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission
and to sign and file any other registration statement for the same offering that
is to be effective upon filing pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, granting unto said attorneys-in-fact and agents, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on December 23, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ FRANK A. ARGENBRIGHT, JR. Chairman and Co-Chief Executive Officer
- ----------------------------------------------------- (Principal Executive Officer)
Frank A. Argenbright, Jr.
/s/ EDWIN R. MELLETT Vice Chairman and Co-Chief Executive Officer
- -----------------------------------------------------
Edwin R. Mellett
/s/ DAVID L. GAMSEY Chief Financial Officer (Principal Financial
- ----------------------------------------------------- and Principal Accounting Officer)
David L. Gamsey
/s/ EDWIN C. GAGE Director
- -----------------------------------------------------
Edwin C. Gage
/s/ ROBERT F. MCCULLOUGH Director
- -----------------------------------------------------
Robert F. McCullough
/s/ HAMISH LESLIE MELVILLE Director
- -----------------------------------------------------
Hamish Leslie Melville
</TABLE>
II-5
<PAGE> 1
EXHIBIT 10.6
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT
AGREEMENT (this "Agreement"), is dated as of July 9, 1998, by and among AHL
SERVICES, INC. ("AHL"), ARGENBRIGHT SECURITY, INC. ("Argenbright Security"),
ARGENBRIGHT, INC. ("Argenbright Transportation"), ADI U.K. LIMITED ("ADI
U.K."), AVIATION DEFENCE INTERNATIONAL GERMANY LIMITED ("ADI Germany"),
ARGENBRIGHT HOLDINGS LIMITED ("U.S. Holdings"), and THE ADI GROUP LIMITED
("European Holdings") (each of AHL, Argenbright Security, Argenbright
Transportation, ADI U.K., ADI Germany, U.S. Holdings, and European Holdings is
sometimes individually referred to as a "Borrower" and collectively are
referred to as the "Borrowers"), the financial institutions listed on the
signature pages hereto as lenders (the "Lenders"), and First Union National
Bank, a national banking association ("First Union"), as administrative agent
for the Lenders (in such capacity, the "Administrative Agent").
RECITALS
WHEREAS, First Union, First Union National Bank, London Branch, Bank
of America, FSB, Wachovia Bank N.A., SunTrust Bank, Atlanta, NationsBank, N.A.
and Bank of America National Trust and Savings Association, London Branch (such
Lenders are referred to herein collectively as the "Existing Lenders"), the
Administrative Agent and the Borrowers are parties to that certain Amended and
Restated Credit Agreement dated as of February 10, 1998 (the "Existing Credit
Agreement"; and as amended by this Agreement, the "Amended Credit Agreement";
capitalized terms used herein and not otherwise defined herein shall have the
meanings ascribed to them in the Existing Credit Agreement); and
WHEREAS, the Borrowers, Lenders and Administrative Agent desire to
enter into this Agreement to, among other things: amend the Existing Credit
Agreement to, subject to certain terms and conditions contained herein, (i)
increase the Aggregate Commitment from One Hundred Million Dollars
($100,000,000) to One Hundred Fifty Million Dollars ($150,000,000), to finance
Acquisitions and to provide working capital for the Borrowers, (ii) increase
the Foreign Currency Sublimit so that the limit on the Assigned Dollar Value of
the principal amount of all Foreign Currency Loans made under the Revolving
Facility is increased from Thirty-Five Million Dollars ($35,000,000) to
Seventy-Five Million Dollars ($75,000,000), and (iii) modify certain of the
financial and negative covenants contained therein.
NOW, THEREFORE, in consideration of the premises and the agreements,
covenants and provisions herein contained and for TEN DOLLARS ($10.00) and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
<PAGE> 2
SECTION 1. AMENDMENTS TO EXISTING CREDIT AGREEMENT
Subject to the satisfaction of the condition precedent set forth in
Section 3 of this Agreement, the Borrowers, the Lenders and the Administrative
Agent hereby agree that the Existing Credit Agreement be, and it hereby is,
amended as follows:
1.1 General. Upon and after the date hereof, all references to
the Existing Credit Agreement in that document or in any other Loan Document
shall mean the Existing Credit Agreement as amended hereby. Except as expressly
provided herein, the execution and delivery of this Agreement does not and will
not amend, modify or supplement any provision of, or constitute a consent to or
a waiver of any noncompliance with the provisions of, the Existing Credit
Agreement, and, except as specifically provided in this Agreement, the Existing
Credit Agreement shall remain in full force and effect and is hereby ratified
and confirmed.
1.2 Amendment to Section 1.1. Section 1.1 of the Existing Credit
Agreement is further amended by amending and restating the following defined
terms to read in their entirety as follows:
"Aggregate Commitment" means One Hundred Fifty
Million Dollars ($150,000,000).
"Foreign Currency Sublimit" means, with respect to
the Revolving Facility, the Assigned Dollar Value of
Seventy-Five Million Dollars ($75,000,000), and with respect
to the European Swingline Facility, the Assigned Dollar Value
of Seven Million Five Hundred Thousand Dollars ($7,500,000),
being the maximum aggregate Loans to be made in the
Alternative Currency under the respective Facilities.
"LOC Committed Amount" means Ten Million Dollars
($10,000,000), reflecting the Assigned Dollar Value of any
Letters of Credit issued, extended or renewed in Alternative
Currency.
1.3 Amendments to Subsection 2.1. Section 2.1 of the Existing
Credit Agreement is hereby amended by deleting the figure "$35,000,000" that
appears in the proviso to the first sentence thereof and replacing it with the
words "the Foreign Currency Sublimit applicable to the Revolving Facility".
- 2 -
<PAGE> 3
1.4 Amendments to Subsection 2.5. Section 2.5 of the Existing
Credit Agreement is hereby amended by amending and restating clause (a) thereof
to read in its entirety as follows:
(a) Issuance of Letters of Credit. Issuing Bank
shall from time to time issue, extend or renew Letters of
Credit that are payable in Dollars or Alternative Currency
for the account of each of the Borrowers, upon such terms and
conditions as Issuing Bank may then require; provided that
(i) the undrawn amount of outstanding Letters of Credit
(reflecting the Assigned Dollar Value of any Letters of
Credit issued, extended or renewed in Alternative Currency)
shall at no time exceed the LOC Committed Amount, and (ii)
the sum of (A) the aggregate principal amount of Revolving
Loans outstanding (reflecting the Assigned Dollar Value of
all Foreign Currency Loans), (B) the undrawn amount of
outstanding Letters of Credit (reflecting the Assigned Dollar
Value of any Letters of Credit issued, extended or renewed in
Alternative Currency), and (C) the aggregate principal amount
of outstanding Swingline Loans and (D) the Assigned Dollar
Value of the aggregate European Swingline Loans outstanding
shall all at no time exceed the Aggregate Commitment. No
Letter of Credit shall have an original expiration date more
than one year from the date of issuance or that extends
beyond the Revolving Facility Termination Date. The joint and
several reimbursement obligations of the Borrowers under any
such Letters of Credit are to be Obligations hereunder, and
the coming due of any reimbursement obligation under any such
Letter of Credit shall be deemed to be a request for a
Revolving Loan in the amount of such Obligation. If an Event
of Default occurs or exists, or, if at the Revolving Facility
Termination Date, there is outstanding a Letter of Credit
that as originally issued or as extended had an expiry date
extending beyond the Revolving Facility Termination Date,
Borrowers, on demand, are to deliver to the Administrative
Agent good funds equal to 100% of the maximum liability under
all outstanding Letters of Credit, which funds are to be
deposited in a separate, blocked account (the "Cash
Collateral Account") maintained by Borrowers with the
Administrative Agent and are to be held in the Cash
Collateral Account for the benefit of the Lenders as cash
collateral for the Borrowers' joint and several reimbursement
obligations and the other Obligations.
- 3 -
<PAGE> 4
1.5 Amendments to Subsection 3.1(b). Section 3.1(b) of the
Existing Credit Agreement is hereby amended by amending and restating clause
(v) thereof to read in its entirety as follows:
(v) at any time there shall be no more than
ten Tranches of LIBOR Rate Loans (excluding European
Swingline Loans made as LIBOR Rate Loans) under the
Revolving Facility, no more than five of which Tranches
may be Foreign Currency Loans (excluding European
Swingline Loans made as LIBOR Rate Loans); for purposes
of this provision, a "Tranch" of Loan shall refer to
Loans with Interest Periods beginning and ending on the
same date;
1.6 Amendments to Subsection 8.1. Section 8.1 of the Existing
Credit Agreement is hereby amended and restated to read in its entirety as
follows:
SECTION 8.1 Capitalization Ratio. At any date
on or prior to December 31, 1998, permit the ratio of
Consolidated Total Indebtedness to Total Capitalization
to be more than 0.60 to 1.00, and at any date after
December 31, 1998, permit the ratio of Consolidated Total
Indebtedness to Total Capitalization to be more than 0.50
to 1.00.
1.7 Amendments to Subsection 9.1. Section 9.1 of the Existing
Credit Agreement is hereby amended by adding and restating clause (h) thereof
to read in its entirety as follows:
(h) Debt constituting seller financing incurred in
connection with a purchase or acquisition permitted
by Section 9.4(g), and unsecured Debt for borrowed
money of any Foreign Borrower so long as the proceeds
of which are used solely for working capital and general
corporate purposes by such Foreign Borrower, provided
that the aggregate principal amount of all such Debt
referred to above in this clause (h) outstanding at
any time does not to exceed the Assigned Dollar Value
of $10,000,000;
1.8 Amendments to Subsection 9.4(g). Section 9.4(g) of the
Existing Credit Agreement is hereby amended as follows:
(a) clause (iii) of Section 9.4(g) is hereby amended and
restated in its entirety as follows:
(iii) (A) on and prior to December
31, 1998, the aggregate consideration (including
any indebtedness assumed by AHL or any of its
Subsidiaries in connection
- 4 -
<PAGE> 5
with such acquisition) for the acquisition does not
equal or exceed $10,000,000, and (B) after December
31, 1998, the aggregate consideration (including any
indebtedness assumed by AHL or any of its
Subsidiaries in connection with such acquisition)
for the acquisition does not exceed $15,000,000,
(b) clause (iv) of Section 9.4(g) is hereby amended and
restated in its entirety as follows:
(iv) (A) the aggregate consideration
(including any indebtedness assumed by AHL or any of
its Subsidiaries in connection with such
acquisition) paid by AHL and its Subsidiaries for
all such acquisitions consummated during the period
commencing on July 1, 1998 through and including
December 31, 1998, together with aggregate
consideration (including any indebtedness assumed by
AHL or any of its Subsidiaries in connection with
such acquisition) for the acquisition, does not
exceed $20,000,000, and (B) the aggregate
consideration (including any indebtedness assumed by
AHL or any of its Subsidiaries in connection with
such acquisition) paid by AHL and its Subsidiaries
for all such acquisitions during any Fiscal Year
commencing with Borrowers' 1999 Fiscal Year (which
begins on January 1, 1999), together with aggregate
consideration (including any indebtedness assumed by
AHL or any of its Subsidiaries in connection with
such acquisition) for the acquisition, does not
exceed (I) $30,000,000 if, after giving effect to
any such acquisition on a pro forma basis, the ratio
of Consolidated Total Indebtedness of AHL and its
Subsidiaries as of the most recently ended fiscal
quarter to Consolidated Pro Forma EBITDA of AHL and
its Subsidiaries for the period of four (4)
consecutive fiscal quarters ending on or immediately
prior to such fiscal quarter end is equal to or
greater than 2.00 to 1.00, and (II) $50,000,000 if,
after giving effect to any such acquisition on a pro
forma basis, the ratio of Consolidated Total
Indebtedness of AHL and its Subsidiaries as of the
most recently ended fiscal quarter to Consolidated
Pro Forma EBITDA of AHL and its Subsidiaries for the
period of four (4) consecutive fiscal quarters
ending on or immediately prior to such fiscal
quarter end is less than 2.00 to 1.00,
- 5 -
<PAGE> 6
1.9 Amendments to Disclosure Schedules. Schedule 1.1 to the Existing
Credit Agreement is hereby amended and restated in its entirety as set forth on
Exhibit A attached hereto and made a part hereof.
SECTION 2. REPRESENTATIONS AND WARRANTIES
Each Borrower hereby represents and warrants to the Lenders as
follows:
2.1 Authorization of Amendment, Etc. The Borrower has the right and
power, and has taken all necessary action to authorize it, to execute, deliver
and perform this Agreement in accordance with its terms. This Agreement has
been duly executed and delivered by the Borrower and is a legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its terms.
2.2 Compliance of Amendment with Laws, Etc. The execution, delivery
and performance of this Agreement in accordance with its terms do not and will
not, by the passage of time, the giving of notice or otherwise,
(a) require any governmental approval or violate any
applicable law relating to the Borrower;
(b) conflict with, result in a breach of or constitute a
default under the articles or certificate of incorporation or bylaws
of the Borrower, any material provisions of any indenture, agreement
or other instrument to which the Borrower is a party or by which the
Borrower or any of its properties may be bound or any governmental
approval relating to the Borrower, or
(c) result in or require the creation or imposition of any
Lien upon or with respect to any property now owned or hereafter
acquired by the Borrower.
2.3 Representations in Credit Agreement. Immediately prior to the
effectiveness of this Agreement, all of the representations set forth in the
Existing Credit Agreement were accurate in all material respects as of the date
hereof. After giving effect to this Agreement, all of the representations and
warranties set forth in the Amended Credit Agreement, will be accurate in all
material respects as of the date hereof, except to the extent that such
representations and warranties expressly relate to an earlier date, in which
case such representations and warranties shall have been true and correct on
and as of such date.
- 6 -
<PAGE> 7
SECTION 3. CONDITIONS TO EFFECTIVENESS
The effectiveness of this Agreement and each of the amendments set
forth in Section 1 hereof is subject to the satisfaction in full of each of the
following conditions precedent:
3.1 Executed Loan Documents. This Agreement shall have been duly
authorized and executed by the parties thereto in form and substance
satisfactory to the Administrative Agent, shall be in full force and effect and
no default shall exist thereunder, and the Borrowers and Lenders party thereto
shall have delivered original counterparts thereof to the Administrative Agent.
3.2 Delivery of New Notes. The Borrowers shall have duly executed
and delivered (a) new Revolving Notes, each dated the date hereof, to each of
the Lenders, and (b) a new Swingline Note and European Swingline Note, each
dated the date hereof, to First Union, in form and substance satisfactory to
each of the Lenders.
SECTION 4. MISCELLANEOUS
4.1 Counterparts. This Agreement may be executed by each party to
this Agreement upon a separate copy, and in such case one counterpart of this
Agreement shall consist of enough of such copies to reflect the signature of
all of the parties to this Agreement. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, and it shall not
be necessary in making proof of this Agreement or its terms to produce or
account for more than one of such counterparts.
4.2 Section References. The references in this Agreement to any
section are, unless otherwise specified, to such section of this Agreement.
4.3 Construction. This Agreement is a Loan Document executed
pursuant to the Existing Credit Agreement and shall be construed, administered
and applied in accordance with all of the terms and provisions of the Existing
Credit Agreement.
4.4 Governing Law. This Agreement shall be governed by, construed
and enforced in accordance with the laws of the State of Georgia, without
reference to the conflicts or choice of law principles thereof.
4.5 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
[Signatures appear on following pages]
- 7 -
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers hereunder duly authorized as of the
day and year first written above.
AHL SERVICES, INC.
("BORROWER")
By: /s/ David L. Gamsey
---------------------------------------
Title: Vice President, Chief Financial Officer
---------------------------------------
[CORPORATE SEAL]
ARGENBRIGHT SECURITY, INC.
("BORROWER")
By: /s/ David L. Gamsey
---------------------------------------
Title: Vice President, Chief Financial Officer
---------------------------------------
[CORPORATE SEAL]
ARGENBRIGHT, INC.
("BORROWER")
By: /s/ David L. Gamsey
---------------------------------------
Title: Vice President, Chief Financial Officer
---------------------------------------
[CORPORATE SEAL]
ADI U.K. LIMITED
("BORROWER")
By: /s/ David L. Gamsey
---------------------------------------
Title: Director
---------------------------------------
[CORPORATE SEAL]
- 8 -
<PAGE> 9
AVIATION DEFENCE INTERNATIONAL
GERMANY LIMITED
("BORROWER")
By: /s/ David L. Gamsey
-----------------------------------
Title: Director
--------------------------------
[CORPORATE SEAL]
ARGENBRIGHT HOLDINGS LIMITED
("BORROWER")
By: /s/ David L. Gamsey
-----------------------------------
Title: Vice President, Chief Financial
--------------------------------
Officer
--------------------------------
[CORPORATE SEAL]
THE ADI GROUP LIMITED
("BORROWER")
By: /s/ David L. Gamsey
-----------------------------------
Title: Director
--------------------------------
[CORPORATE SEAL]
FIRST UNION NATIONAL BANK, as
Administrative Agent and Lender
By: /s/ Grace R. Jackson
-----------------------------------
Title: Vice President
--------------------------------
- 9 -
<PAGE> 10
FIRST UNION NATIONAL BANK,
LONDON BRANCH, as European Swingline Lender
By: /s/ Claire Hatherley
----------------------------------------
Title: AVP Corporate Banking
-------------------------------------
BANK OF AMERICA, FSB, as Lender
By: /s/ Calvin E. Blount, Jr.
----------------------------------------
Title: Vice President
-------------------------------------
WACHOVIA BANK, N.A., as Lender
By: /s/ Douglas L. Strickland
----------------------------------------
Title: Vice President
-------------------------------------
SUNTRUST BANK, ATLANTA, as Lender
By: /s/ Daniel S. Komitor
----------------------------------------
Title: Vice President
-------------------------------------
By: /s/ R. Michael Dunlap
----------------------------------------
Title: Vice President
-------------------------------------
NATIONSBANK, N.A., as Lender
By: /s/ Melinda M. Bergbom
----------------------------------------
Title: Senior Vice President
-------------------------------------
- 10 -
<PAGE> 11
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, LONDON
BRANCH, as Lender for Revolving Loans made in
Alternative Currencies
By: /s/
-----------------------------------------
Title:
--------------------------------------
FLEET NATIONAL BANK, as Lender
By: /s/ Thomas Engels
-----------------------------------------
Title: Vice President
--------------------------------------
Address: One Federal Street
MA OF DO 4J
Telecopier: 617-346-4667
DRESDNER BANK AG, NEW YORK AND GRAND
CAYMAN BRANCHES, as Lender
By: /s/ Deborah Slusarczyk
-----------------------------------------
Title: Vice President
--------------------------------------
By: /s/ A. R. Morris
-----------------------------------------
Title: First Vice President
--------------------------------------
Address: 75 Wall Street
New York, New York 10005
Telecopier: 212-429-2524
- 11 -
<PAGE> 12
EXHIBIT A
SCHEDULE 1.1: LENDERS AND COMMITMENTS
<TABLE>
<CAPTION>
Lenders Commitment Commitment
------- ---------- Percentage
(Dollars) ----------
- -------------------------------------------------------------------
<S> <C> <C>
First Union National $ 35,000,000 23.333%
Bank and its Lender
Affiliates
- -------------------------------------------------------------------
Wachovia Bank N.A. $ 25,000,000 16.667%
- -------------------------------------------------------------------
SunTrust Bank, Atlanta $ 25,000,000 16.667%
- -------------------------------------------------------------------
NationsBank, N.A. $ 20,000,000 13.333%
- -------------------------------------------------------------------
Fleet National Bank $ 17,000,000 11.333%
- -------------------------------------------------------------------
Dresdner Bank AG, $ 15,000,000 10.0000%
New York and Grand
Cayman Branches
- -------------------------------------------------------------------
$ 13,000,000 8.667%
Bank of America, FSB
and its Lender
Affiliates
- -------------------------------------------------------------------
TOTAL: $150,000,000 100%
- -------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.7
SECOND AMENDMENT TO AMENDED AND RESTATED
CREDIT AGREEMENT
This SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Agreement"), is dated as of November 18, 1998, by and among AHL SERVICES, INC.
("AHL"), certain other Subsidiaries of AHL identified on the signature pages
hereto (together with AHL, sometimes individually referred to as a "Borrower"
and collectively are referred to as the "Borrowers"), the financial institutions
listed on the signature pages hereto as lenders (the "Lenders"), and First Union
National Bank, a national banking association ("First Union"), as administrative
agent for the Lenders (in such capacity, the "Administrative Agent").
RECITALS
WHEREAS, First Union, First Union National Bank, London Branch, Bank of
America, FSB, Wachovia Bank N.A., SunTrust Bank, Atlanta, NationsBank, N.A.,
Bank of America National Trust and Savings Association, London Branch, Dresdner
Bank AG, New York and Grand Cayman Branches and Fleet National Bank (such
Lenders are referred to herein collectively as the "Existing Lenders"), the
Administrative Agent and the Borrowers are parties to that certain Amended and
Restated Credit Agreement dated as of February 10, 1998, as amended by that
certain First Amendment to Amended and Restated Credit Agreement dated as of
July 9, 1998 (as so amended, the "Existing Credit Agreement"; and as amended by
this Agreement, the "Amended Credit Agreement"; capitalized terms used herein
and not otherwise defined herein shall have the meanings ascribed to them in the
Existing Credit Agreement); and
WHEREAS, the Borrowers, Lenders and Administrative Agent desire to
enter into this Agreement to, among other things: (a) amend the Existing Credit
Agreement to, subject to certain terms and conditions contained herein, (i)
extend the maturity date of the Credit Facility to five years from the date
first set forth above, (ii) increase the Aggregate Commitment from One Hundred
Fifty Million Dollars ($150,000,000) to Two Hundred Ten Million Dollars
($210,000,000), to finance acquisitions and to provide working capital for the
Borrowers, (iii) increase the Foreign Currency Sublimit so that the limit on the
Assigned Dollar Value of the principal amount of all Foreign Currency Loans made
under the Revolving Facility is increased from Seventy-Five Million Dollars
($75,000,000) to One Hundred Million Dollars ($100,000,000), (iv) modify certain
of the financial and negative covenants contained therein, and (v) increase the
Swingline Committed Amount from Seven Million Five Hundred Thousand Dollars
($7,500,000) to Ten Million Dollars ($10,000,000); and (b) add one or more
financial institutions as Lenders (the "New Lenders") under the Amended Credit
Agreement.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the agreements,
covenants and provisions herein contained and for TEN DOLLARS ($10.00) and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO EXISTING CREDIT AGREEMENT
Subject to the satisfaction of the condition precedent set forth in
Section 3 of this Agreement, the Borrowers, the Lenders and the Administrative
Agent hereby agree that the Existing Credit Agreement be, and it hereby is,
amended as follows:
1.1 General. Upon and after the date hereof, all references to the
Existing Credit Agreement in that document or in any other Loan Document shall
mean the Existing Credit Agreement as amended hereby. Except as expressly
provided herein, the execution and delivery of this Agreement does not and will
not amend, modify or supplement any provision of, or constitute a consent to or
a waiver of any noncompliance with the provisions of, the Existing Credit
Agreement, and, except as specifically provided in this Agreement, the Existing
Credit Agreement shall remain in full force and effect and is hereby ratified
and confirmed.
1.2 Amendment to Section 1.1. Section 1.1 of the Existing Credit
Agreement is further amended by
(a) amending and restating the following defined terms to
read in their entirety as follows:
"Aggregate Commitment" means Two Hundred Ten
Million Dollars ($210,000,000).
"Expiration Date" means November 18, 2003.
"Foreign Currency Sublimit" means, with respect to
the Revolving Facility, the Assigned Dollar Value of One
Hundred Million Dollars ($100,000,000), and with respect to
the European Swingline Facility, the Assigned Dollar Value of
Seven Million Five Hundred Thousand Dollars ($7,500,000),
being the maximum aggregate Loans to be made in the
Alternative Currency under the respective Facilities.
"Swingline Committed Amount" means $10,000,000.
(b) deleting in its entirety the defined term "EMU
Event".
- 2 -
<PAGE> 3
1.3 Amendments to Section 3.1(c). The last sentence of Section
3.1(c) of the Existing Credit Agreement is hereby amended and restated to read
in its entirety as follows:
The Applicable Margin provided for in Section 3.1(a) shall
initially be set at 1.625% for the period commencing on
November 18, 1998 through (but not including) the date which
is five (5) Business Days after receipt by the Administrative
Agent of the financial statements for the fourth fiscal
quarter of AHL and its Subsidiaries ending on December 31,
1998, required to be delivered by Borrowers pursuant to
Section 6.1(a) hereof, together with the Officer's Compliance
Certificate required to be delivered pursuant to Section 6.2
hereof in connection with such financial statements.
1.4 Amendments to Section 3.1(d). Section 3.1(d) of the Existing
Credit Agreement is hereby amended and restated to read in its entirety as
follows:
(d) Determination of Applicable Margin. Except
as provided in Section 3.1(c) above, the Applicable Margin
with respect to such LIBOR Rate Loans shall be determined on
the earlier of (A) at the end of each fiscal quarter hereof by
reference to the ratio of Consolidated Total Indebtedness of
AHL and its Subsidiaries as of the end of such fiscal quarter
to Consolidated Pro Forma Adjusted EBITDA for AHL and its
Subsidiaries for the period of four (4) consecutive fiscal
quarters ending on the last day of such fiscal quarter, and
(B) where the Borrowers are required to deliver an officer's
certificate under Section 9.4(g)(v) in connection with the
consummation of an acquisition, by reference to the ratio of
Consolidated Total Indebtedness of AHL and its Subsidiaries as
of the most recently ended fiscal quarter to Consolidated Pro
Forma Adjusted EBITDA for AHL and its Subsidiaries for the
period of four (4) consecutive fiscal quarters ending on the
last day of such fiscal quarter (calculated on a pro forma
basis in accordance with said Section), in each case, as
follows:
<TABLE>
<CAPTION>
Total Indebtedness/Pro LIBOR Margin
---------------------- ------------
Forma Adjusted EBITDA
---------------------
<S> <C>
Greater than or equal to 3.50 1.750%
to 1.00
Greater than or equal to 3.00 1.625%
to 1.00 but less than 3.50 to
1.00
</TABLE>
- 3 -
<PAGE> 4
<TABLE>
<S> <C>
Greater than or equal to 2.50 1.375%
to 1.00 but less than 3.00 to
1.00
Greater than or equal to 1.50 1.125%
to 1.00 but less than 2.50 to
1.00
Less than 1.50 to 1.00 0.875%
</TABLE>
All adjustments to the Applicable Margin shall be made by the
Administrative Agent as provided in Section 3.1(e) below.
1.5 Amendments to Section 3.3(a). Section 3.3(a) of the Existing
Credit Agreement is hereby amended and restated to read in its entirety as
follows:
(a) Facility Fee.
(i) Payment of Facility Fee. Commencing
on November 18, 1998 and continuing through and
including the Revolving Facility Termination Date,
the Borrowers shall pay to the Administrative Agent,
for the account of the Lenders, a non-refundable
facility fee (the "Facility Fee") on the average
daily Aggregate Commitment of the Lenders outstanding
at a rate per annum (the "Facility Fee Percentage")
(based on a 360 day year), as set forth below in this
Section 3.3(a). The Facility Fee shall be payable
quarterly in arrears on the last Business Day of each
calendar quarter commencing March 31, 1998, and on
the Revolving Facility Termination Date. Such
Facility Fee shall be distributed by the
Administrative Agent between the Lenders pro rata in
accordance with the Lenders' respective Commitment
Percentages.
(ii) Initial Facility Fee Percentage.
The Facility Fee Percentage shall initially be set at
0.375% for the period commencing on November 18, 1998
through (but not including) the date which is five
(5) Business Days after receipt by the Administrative
Agent of the financial statements for the fourth
fiscal quarter of AHL and its Subsidiaries ending on
December 31, 1998, required to be delivered by
Borrowers pursuant to Section 6.1(a) hereof, together
with the Officer's Compliance Certificate required to
be delivered pursuant to Section 6.2 hereof in
connection with such financial statements.
(iii) Determination of Facility Fee
Percentage. Except as provided in clause (ii) of this
Section 3.1(a), the Facility Fee Percentage shall be
determined on the earlier of (A) at the end of each
fiscal quarter hereof by reference to the ratio of
Consolidated Total Indebtedness of AHL and its
- 4 -
<PAGE> 5
Subsidiaries as of the end of such fiscal quarter to
Consolidated Pro Forma Adjusted EBITDA for AHL and
its Subsidiaries for the period of four (4)
consecutive fiscal quarters ending on the last day of
such fiscal quarter, and (B) where the Borrowers are
required to deliver an officer's certificate under
Section 9.4(g)(v) in connection with the consummation
of an acquisition, by reference to the ratio of
Consolidated Total Indebtedness of AHL and its
Subsidiaries as of the most recently ended fiscal
quarter to Consolidated Pro Forma Adjusted EBITDA for
AHL and its Subsidiaries for the period of four (4)
consecutive fiscal quarters ending on the last day of
such fiscal quarter (calculated on a pro forma basis
in accordance with said Section), in each case, as
follows:
<TABLE>
<CAPTION>
Total Indebtedness/Pro Facility Fee
---------------------- ------------
Forma Adjusted EBITDA Percentage
--------------------- ----------
<S> <C>
Greater than or equal to .500%
3.50 to 1.00
Greater than or equal to .375%
3.00 to 1.00 but less than
3.50 to 1.00
Greater than or equal to .375%
2.50 to 1.00 but less than
3.00 to 1.00
Greater than or equal to .375%
1.50 to 1.00 but less than
2.5 to 1.00
Less than 1.50 to 1.00 .375%
</TABLE>
All adjustments to the Facility Fee Percentage shall
be made by the Administrative Agent as provided in
Section 3.3(a)(iv) below.
(iv) Adjustments to Facility Fee
Percentage. Adjustments, if any, in the Facility Fee
Percentage shall be made by the Administrative Agent
five (5) Business Days after receipt by the
Administrative Agent of (i) quarterly financial
statements for AHL and its Subsidiaries and the
accompanying Officer's Compliance Certificate setting
forth the ratio of Consolidated Total Indebtedness to
Consolidated Pro Forma Adjusted EBITDA for AHL and
its Subsidiaries as of the most recent fiscal quarter
end (calculated as provided in subsection (d) above),
and (ii) each officer's certificate setting forth the
ratio of Consolidated Total Indebtedness to
Consolidated Pro Forma Adjusted EBITDA for AHL and
its Subsidiaries calculated on a pro forma basis
required to be delivered pursuant to Section 9.4(g)
(v).
- 5 -
<PAGE> 6
If AHL fails to deliver such financial statements and
certificate within the time required by Section 6.2
or Section 9.4(g)(v), as applicable, the Facility Fee
Percentage shall be the highest Facility Fee
Percentage set forth above until five (5) Business
Days after the delivery of such financial statements
and certificate.
1.6 Amendments to Section 8.1. Section 8.1 of the Existing Credit
Agreement is hereby amended and restated to read in its entirety as follows:
SECTION 8.1 Capitalization Ratio. At any date (a) on
or prior to December 31, 1999, permit the ratio of
Consolidated Total Indebtedness to Total Capitalization to be
more than 0.70 to 1.00, (b) after December 31, 1999 and on or
prior to December 31, 2000, permit the ratio of Consolidated
Total Indebtedness to Total Capitalization to be more than
0.65 to 1.00, and (c) after December 31, 2000, permit the
ratio of Consolidated Total Indebtedness to Total
Capitalization to be more than 0.60 to 1.00.
1.7 Amendments to Section 8.2. Section 8.2 of the Existing Credit
Agreement is hereby amended and restated to read in its entirety as follows:
SECTION 8.2 Total Indebtedness to Pro Forma EBITDA.
As of any fiscal quarter end, permit the ratio of (a)
Consolidated Total Indebtedness of AHL and its Subsidiaries as
of such date to (b) Consolidated Pro Forma EBITDA of AHL and
its Subsidiaries for the period of four (4) consecutive fiscal
quarters ending on or immediately prior to such date to exceed
(i) 3.75 to 1.00, at each fiscal quarter end during the period
commencing on November 18, 1998 through and including
September 30, 1999, and (ii) 3.50 to 1.00, at each fiscal
quarter end thereafter.
1.8 Amendments to Section 8.3. Section 8.3 of the Existing Credit
Agreement is hereby amended and restated to read in its entirety as follows:
SECTION 8.3 [RESERVED]
1.9 Amendments to Section 9.1(j). Clause (j) of Section 9.1 of the
Existing Credit Agreement is hereby deleted in its entirety.
1.10 Amendments to Section 9.4(g). Clause (ii) of Section 9.4(g) of
the Existing Credit Agreement is hereby amended and restated in its entirety as
follows:
- 6 -
<PAGE> 7
(ii) no Default or Event of Default is in
existence at the time of such acquisition or would be created
as a consequence of such acquisition, and after giving effect
to any such acquisition on a pro forma basis, the ratio of
Consolidated Total Indebtedness of AHL and its Subsidiaries as
of the most recently ended fiscal quarter to Consolidated Pro
Forma EBITDA of AHL and its Subsidiaries for the period of
four (4) consecutive fiscal quarters ending on the last day of
such fiscal quarter end will not exceed 3.50 to 1.00,
1.11 Amendments to Section 12.9. Clause (a) of Section 12.9 of the
Existing Credit Agreement is hereby amended and restated in its entirety as
follows:
(a) increase the amount or extend the time of the
obligation of the Lenders to make Loans, provided, however,
that First Union as Lender may at any time, in its sole
discretion (but shall be under no obligation to), approve any
increases requested by Borrowers in the amount of the
Aggregate Commitment without the approval of any other Lender
or Lenders (but in no event will any Lender's Commitment be
increased without the prior written consent of such Lender) so
long as after giving effect to any such proposed increase (x)
no Default or Event of Default has occurred and shall be
continuing, and (y) the Aggregate Commitment shall not exceed
$250,000,000,
1.12 Amendments to Section 12.20. Section 12.20 of the Existing
Credit Agreement is hereby amended and restated in its entirety as follows:
SECTION 12.20 EMU; Continuity of Contract, Etc.
(a) Definitions. As used in this Section 12.20 the
following terms have the following meanings:
"beginning of the third stage of EMU" means the date the third
stage of EMU begins (at the date of this Agreement expected to
be January 1, 1999) or the date on which circumstances arise
which, in the opinion of the Administrative Agent, have
substantially the same effect and result in substantially the
same consequences as the beginning of the third stage of EMU
as contemplated by the Treaty on European Union.
"EMU" means economic and monetary union as contemplated in the
Treaty on European Union.
"EMU legislation" means legislative measures of the European
Council for the introduction of change over to or operation of
a single or unified European currency
- 7 -
<PAGE> 8
(whether known as the euro or otherwise), being in part the
implementation of the third stage of EMU.
"euro" means the single currency to which participating member
states of the European Union are converting.
"euro unit" means the currency unit of the euro.
"fixed exchange rate" means the exchange rate for a national
currency unit into a euro unit set in accordance with EMU
legislation in effect from time to time.
"national currency unit" means the unit of currency (other
than a euro unit) of a participating member state.
"participating member state" means each state so described in
any EMU legislation.
"Treaty on European Union" means the treaty of Rome of March
25, 1957, as amended by the Single European Act 1986 and the
Maastricht Treaty ( signed February 7, 1992), as amended from
time to time.
(b) Effectiveness of Provisions. The provisions
of clauses (c) through (m) below, inclusive, shall be
effective at and from the later of the execution of this
Agreement or the beginning of the third stage of EMU,
provided, that if and to the extent that any such provision
relates to any state (or the currency of such state) that is
not a participating member state on the beginning of the third
stage of EMU, such provision shall become effective in
relation to such state (and the currency of such state) at and
from the date on which such state becomes a participating
member state.
(c) Continuity of Contract. The parties to this
Agreement agree that the occurrence or non-occurrence of EMU,
any event or events associated with the EMU and/or the
introduction of the euro in all or any part of the European
Union will not result in the discharge, cancellation,
rescission or termination in whole or in part of any agreement
between any the parties hereto or give the Administrative
Agent, the Lenders or the Borrowers the right to cancel,
rescind, terminate or vary any agreement, other than as
specifically provided in this Agreement.
(d) Redenomination and Alternative Currencies.
Each obligation of any party under this Agreement which has
been denominated in the national currency unit of a
participating member state shall be redenominated into the
euro unit at the fixed exchange rate, provided, that if and to
the extent that any EMU legislation provides that following
the beginning of the third stage of EMU an amount denominated
either in the euro unit or in the national currency unit of a
member state and payable within the member state by crediting
an account of a creditor can be paid by a debtor either
- 8 -
<PAGE> 9
in the euro unit or in that national currency unit, each party
to this Agreement shall be entitled to pay or repay any such
amount either in the euro unit or in such national currency
unit; provided, however, any amount paid in a national
currency unit shall equal, at the fixed exchange rate for that
national currency unit, the required amount stated to be due
in euro units.
(e) Loans. Any Loan in the currency of a
participating member state shall be made in the euro unit,
provided that any Loan may, if so requested by any Borrower,
be made in the national currency unit (based upon the fixed
exchange rate) of any participating member state so long as
such national currency unit continues to be available as legal
tender for obligations of the same type or character as the
obligations set forth in this Agreement, is freely convertible
and is not subject to exchange controls.
(f) Business Days. With respect to any amount
denominated or to be denominated in the euro unit or a
national currency unit, any reference to a "Business Day"
shall be construed as a reference to a day (other than a
Saturday or Sunday) on which banks are generally open for
business in New York City and prime banks in London generally
provide quotations for deposits denominated in the euro unit
and such national currency unit.
(g) Payments to the Administrative Agent. Those
Sections of this Agreement providing for payment or repayment
in a national currency unit shall be construed so that, in
relation to the payment of any amount of euro units or
national currency units, such amount shall be made available
to the Administrative Agent in immediately available, freely
transferable, cleared funds to such account with each bank (in
such principal financial center) as the Administrative Agent
may from time to time nominate for this purpose.
(h) Payment by the Administrative Agent to the
Lenders. Any amount payable by the Administrative Agent to the
Lenders under this Agreement in the national currency unit of
a participating member state shall be paid in the currency
received by it from the Borrowers.
(i) Payments by the Administrative Agent or
Lenders Generally. With respect to the payment of any amount
denominated in the euro unit or in a national currency unit,
the Administrative Agent shall not be liable to the Borrowers
or any of the Lenders, nor shall any Lender be liable to the
Borrower or the Administrative Agent, in any way whatsoever
for any delay, or the consequences of any delay, in the
crediting to any account of any amount required by this
Agreement to be paid by the Administrative Agent or such
Lender, as the case may be, if the Administrative Agent or
such Lender, as the case may be, has made reasonable effort to
effect all relevant steps to achieve, on the date required by
the Agreement, the payment of such
- 9 -
<PAGE> 10
amount in immediately available, freely transferable, cleared
funds (in the euro unit or, as the case may be, in a national
currency unit) to the account with the bank in the principal
financial center in the participating member state which the
Borrowers or, as the case may be, the Administrative Agent or
any Lender shall have specified for such purpose. In this
paragraph, "all relevant steps" means all such steps as may be
prescribed from time to time by the regulations or operating
procedures of such clearing or settlement system as the
Administrative Agent or any Lender, as the case may be, may
from time to time reasonably believe to be in effect for the
purpose of clearing or settling payment of the euro.
(j) Basis of Accrual. If the basis of accrual of
interest or fees expressed in this Agreement with respect to
the currency of any state that becomes a participating member
state, in Administrative Agent's judgment, shall not be
available because interest rate quotes for a national currency
unit are no longer provided, or shall be inconsistent with any
convention or practice in the London Interbank Market for the
basis of accrual of interest or fees in respect of the euro,
such convention or practice shall replace such expressed basis
effective as of and from the date on which such state becomes
a participating member state; provided, however, if any Loan
in the currency of such state is outstanding immediately prior
to such date, such replacement shall take effect, with respect
to such Loan, at the end of the then current Interest Period.
(k) Rounding and Other Consequential Changes.
Without prejudice and in addition to any method of conversion
or rounding prescribed by any EMU legislation and without
prejudice to the respective liabilities for indebtedness of
the Borrowers to the Administrative Agent and to the Lenders
and the Administrative Agent and the Lenders to the Borrowers
under or pursuant to this Agreement:
(i) each reference in this Agreement to
a minimum amount (or an integral multiple thereof) in
a national currency unit to be paid to or by the
Administrative Agent or Lenders shall be replaced by
a reference to such reasonably comparable amount (or
an integral multiple thereof) in the euro unit as the
Administrative Agent may from time to time specify;
and
(ii) except as expressly provided in
this Agreement, each provision of this Agreement,
including, without limitation, the right to combine
currencies to effect a set off, shall be subject to
such reasonable changes of interpretation as the
Administrative Agent may from time to time specify to
be necessary or appropriate to reflect the
implementation of the EMU to place the parties hereto
in substantially the position they would have
occupied had the EMU not been implemented.
- 10 -
<PAGE> 11
(l) Exchange Indemnification and Increased
Costs. The Borrowers shall upon demand from the Administrative
Agent, pay to the Administrative Agent for the account of each
Lender the amount of (i) any loss or cost or increased cost
incurred by the Administrative Agent or such Lender in respect
of any Loans made hereunder as a result of the Borrowers'
election to borrow in national currency units and repay in
euro units or to borrow in euro units and repay in national
currency units, (ii) any reduction in any amount payable to,
or in the effective return on its capital to, the
Administrative Agent or such Lender in respect of any Loans
made hereunder as a result of the Borrowers' election to
borrow in national currency units and repay in euro units or
to borrow in euro units and repay in national currency units,
(iii) any interest or other return in respect of any Loans
made hereunder, including principal, foregone by the
Administrative Agent or its holding company or any Lender or
its holding company, as a result of the introduction of,
change over to or operation of the euro in any participating
member state, or (iv) any currency exchange loss that the
Administrative Agent or such Lender sustains in respect of any
Loans made hereunder as a result of the Borrowers' election to
borrow in national currency units and repay in euro units or
to borrow in euro units and repay in national currency units.
(m) Further Assurance. Each Borrower agrees, at
the request of the Administrative Agent, at the time of or at
any time following the implementation of the EMU, to enter
into an agreement amending this Agreement in such manner as
the Administrative Agent reasonably shall request in order to
reflect the implementation of the EMU to place the parties
hereto in the position they would have been in had the EMU not
been implemented.
1.13 Amendments to Schedule 1.1. Schedule 1.1 to the Existing
Credit Agreement is hereby amended and restated in its entirety as set forth on
Exhibit A attached hereto and made a part hereof.
SECTION 2. REPRESENTATIONS AND WARRANTIES
Each Borrower hereby represents and warrants to the Lenders as follows:
2.1 Authorization of Amendment, Etc. The Borrower has the right
and power, and has taken all necessary action to authorize it, to execute,
deliver and perform this Agreement in accordance with its terms. This Agreement
has been duly executed and delivered by the Borrower and is a legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its terms.
2.2 Compliance of Amendment with Laws, Etc. The execution,
delivery and performance of this Agreement in accordance with its terms do not
and will not, by the passage of time, the giving of notice or otherwise,
- 11 -
<PAGE> 12
(a) require any governmental approval or violate any
applicable law relating to the Borrower;
(b) conflict with, result in a breach of or constitute a
default under the articles or certificate of incorporation or bylaws of
the Borrower, any material provisions of any indenture, agreement or
other instrument to which the Borrower is a party or by which the
Borrower or any of its properties may be bound or any governmental
approval relating to the Borrower, or
(c) result in or require the creation or imposition of
any Lien upon or with respect to any property now owned or hereafter
acquired by the Borrower.
2.3 Representations in Credit Agreement. Immediately prior to the
effectiveness of this Agreement, all of the representations set forth in the
Existing Credit Agreement were accurate in all material respects as of the date
hereof, except to the extent that such representations and warranties expressly
relate to an earlier date, in which case such representations and warranties
shall have been true and correct on and as of such date. After giving effect to
this Agreement, all of the representations and warranties set forth in the
Amended Credit Agreement, will be accurate in all material respects as of the
date hereof, except to the extent that such representations and warranties
expressly relate to an earlier date, in which case such representations and
warranties shall have been true and correct on and as of such date.
SECTION 3. CONDITIONS TO EFFECTIVENESS
The effectiveness of this Agreement and each of the amendments set
forth in Section 1 hereof is subject to the satisfaction in full of each of the
following conditions precedent:
3.1 Executed Loan Documents. This Agreement shall have been duly
authorized and executed by the parties thereto in form and substance
satisfactory to the Administrative Agent, shall be in full force and effect and
no default shall exist thereunder, and the Borrowers and Lenders party thereto
shall have delivered original counterparts thereof to the Administrative Agent.
3.2 Delivery of New Notes. The Borrowers shall have duly executed
and delivered (a) new Revolving Notes, each dated the date hereof, to each of
the Lenders, and (b) a new Swingline Note and European Swingline Note, each
dated the date hereof, to First Union, in form and substance satisfactory to
each of the Lenders.
SECTION 4. ADDITION OF LENDERS
Each New Lender: (a) confirms that it has received from the Borrowers a
copy of the Existing Credit Agreement, together with copies of the most recent
financial statements and projections of the Borrowers delivered pursuant to
- 12 -
<PAGE> 13
Section 6.1 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Agreement and become a party to the Amended Credit Agreement as a Lender; (b)
agrees that it will, independently and without reliance upon any other Lender or
the Administrative Agent and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Amended Credit Agreement; (c) appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers under the Amended Credit Agreement and the other
Loan Documents as are delegated to such Administrative Agent by the terms
thereof, together with such powers as are reasonably incidental thereto; and (d)
agrees that, as of the effective date of this Agreement and without any further
action, it will become a Lender party to the Amended Credit Agreement and will
perform in accordance with their terms all the obligations which by the terms of
the Amended Credit Agreement and the other Loan Documents are required to be
performed by it as a Lender. The Borrowers and Lenders hereby agree that the
address for each New Lender for purposes of receiving notice and other
communications under the Amended Credit Agreement shall be as set forth on the
signature pages hereto opposite the name of such New Lender.
SECTION 5. MISCELLANEOUS
5.1 Counterparts. This Agreement may be executed by each party to
this Agreement upon a separate copy, and in such case one counterpart of this
Agreement shall consist of enough of such copies to reflect the signature of all
of the parties to this Agreement. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement or its terms to produce or account
for more than one of such counterparts.
5.2 Section References. The references in this Agreement to any
section are, unless otherwise specified, to such section of this Agreement.
5.3 Construction. This Agreement is a Loan Document executed
pursuant to the Existing Credit Agreement and shall be construed, administered
and applied in accordance with all of the terms and provisions of the Existing
Credit Agreement.
5.4 Governing Law. This Agreement shall be governed by, construed
and enforced in accordance with the laws of the State of Georgia, without
reference to the conflicts or choice of law principles thereof.
5.5 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns.
- 13 -
<PAGE> 14
5.6 Effectiveness. The amendments set forth in Section 1 hereof
shall become effective as of the date of this Agreement (and shall not apply to
any period prior to the date of this Agreement), upon the satisfaction of all of
the conditions precedent set forth in Section 3 hereof. Notwithstanding anything
in the immediately preceding sentence to the contrary, the Lenders hereby agree
that, as between the Lenders, (i) with respect to any outstanding Revolving
Loans made prior to the date of this Agreement, the new Lender allocations as
set forth in Exhibit A attached hereto take effect on the date which is two (2)
Business Day after the date of this Agreement, and (ii) with respect to any
Revolving Loans made on or after the date of this Agreement, the new Lender
allocations as set forth in Exhibit A attached hereto will take effect on the
date of this Agreement.
[Signatures appear on following pages]
- 14 -
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers hereunder duly authorized as of the day
and year first written above.
BORROWERS:
AHL SERVICES, INC.
By: /s/ David L. Gamsey
--------------------------------------
Title: Chief Financial Officer
-----------------------------------
[CORPORATE SEAL]
ARGENBRIGHT SECURITY, INC.
By: /s/ David L. Gamsey
--------------------------------------
Title: Chief Financial Officer
-----------------------------------
[CORPORATE SEAL]
ARGENBRIGHT, INC.
By: /s/ David L. Gamsey
--------------------------------------
Title: Chief Financial Officer
-----------------------------------
[CORPORATE SEAL]
ADI U.K. LIMITED
By: /s/ David L. Gamsey
--------------------------------------
Title: Director
-----------------------------------
[CORPORATE SEAL]
<PAGE> 16
AVIATION DEFENCE INTERNATIONAL
GERMANY LIMITED
By: /s/ David L. Gamsey
--------------------------------------
Title: Director
-----------------------------------
[CORPORATE SEAL]
ARGENBRIGHT HOLDINGS LIMITED
By: /s/ David L. Gamsey
--------------------------------------
Title: Chief Financial Officer
-----------------------------------
[CORPORATE SEAL]
THE ADI GROUP LIMITED
By: /s/ David L. Gamsey
--------------------------------------
Title: Director
-----------------------------------
[CORPORATE SEAL]
ADI ALPHA HOLDING GMBH
By: /s/ E. Patterson
--------------------------------------
Title: Managing Director
-----------------------------------
<PAGE> 17
LENDERS:
FIRST UNION NATIONAL BANK, as
Administrative Agent and Lender
By: /s/ Grace R. Jackson
--------------------------------------
Title: Vice President
-----------------------------------
<PAGE> 18
FIRST UNION NATIONAL BANK,
LONDON BRANCH, as European
Swingline Lender
By: /s/ Claire Hatherley
--------------------------------------
Title: AVP Corporate Banking
-----------------------------------
<PAGE> 19
WACHOVIA BANK, N.A., as Lender
By: /s/ Gary C. Gaskill
--------------------------------------
Title: Vice President
-----------------------------------
<PAGE> 20
SUNTRUST BANK, ATLANTA, as Lender
By: /s/ Jessica Wilkerson
--------------------------------------
Title: Associate
-----------------------------------
By: /s/ Daniel S. Komitor
--------------------------------------
Title: Vice President
-----------------------------------
<PAGE> 21
NATIONSBANK, N.A., as Lender
By: /s/ Melinda M. Bergbom
--------------------------------------
Title: Senior Vice President
-----------------------------------
<PAGE> 22
FLEET NATIONAL BANK, as Lender
By: /s/ Thomas Engels
--------------------------------------
Title: Vice President
-----------------------------------
<PAGE> 23
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
AG CAYMAN ISLAND BRANCH, as Lender
By: /s/ J.W. Somers
--------------------------------------
Title: Senior Vice President
-----------------------------------
By: /s/ Kurt A. Morris
--------------------------------------
Title: Vice President
-----------------------------------
Address: 303 Peachtree Road
Atlanta, Georgia 30308
Telecopier: 404-524-4006
<PAGE> 24
DRESDNER BANK AG, NEW YORK AND GRAND
CAYMAN BRANCHES, as Lender
By: /s/ Deborah Slusarczyk
--------------------------------------
Title: Vice President
-----------------------------------
By: /s/ Ken Hamilton
--------------------------------------
Title: Senior Vice President
-----------------------------------
<PAGE> 25
THE BANK OF NOVA SCOTIA, as Lender
By: /s/ W. J. Brown
--------------------------------------
Title: Vice President
-----------------------------------
Address: 600 Peachtree Street
Suite 2700
Atlanta, Georgia 30308
Telecopier: 404-888-8998
<PAGE> 26
SCOTIABANK EUROPE plc, as Lender for
Revolving Loans made in
Alternative Currencies
By: /s/ Barry Hodges
--------------------------------------
Title: Relationship Manager
-----------------------------------
Address: 33 Finsbury Square
---------------------------------
London
---------------------------------
EC2A1 BB
---------------------------------
Telecopier: (44) 171 826 5987
------------------------------
<PAGE> 27
EXHIBIT A
SCHEDULE 1.1: LENDERS AND COMMITMENTS
<TABLE>
<CAPTION>
Lenders Commitment Commitment
------- ----------
(Dollars) Percentage
----------
<S> <C> <C>
First Union National $47,000,000.00 22.3809523810%
Bank and its Lender
Affiliates
NationsBank, N.A. $40,000,000.00 19.0476190476%
SunTrust Bank, $33,000,000.00 15.7142857143%
Atlanta
Wachovia Bank N.A. $25,000,000.00 11.9047619048%
Fleet National Bank $25,000,000.00 11.9047619048%
Dresdner Bank AG, $15,000,000.00 7.1428571429%
New York and Grand
Cayman Branches
The Bank of Nova $15,000,000.00 7.1428571429%
Scotia and its Lender
Affiliates
DG Bank Deutsche $10,000,000.00 4.7619047619%
Genossenschaftsbank
Cayman Islands
Branch
TOTAL: $210,000,000.00 100.0000000000%
</TABLE>
<PAGE> 1
EXHIBIT 10.10
STOCK PURCHASE AGREEMENT
FOR THE ACQUISITION OF
UNICCO SECURITY SERVICES, INC.
DATED AS OF OCTOBER 26, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE 1. Closing...............................................................................................1
1.1 Sale and Purchase of Capital Stock..............................................................1
1.2 Purchase Price..................................................................................1
1.3 Transfer of Shares..............................................................................1
1.4 Closing.........................................................................................2
ARTICLE 2. Representations and Warranties of Purchaser...........................................................2
2.1 Organization and Standing.......................................................................2
2.2 Authorization...................................................................................2
2.3 Consents and Approvals..........................................................................3
2.4 Brokers' and Finders' Fees......................................................................3
2.6 Disclosure......................................................................................3
ARTICLE 3. Representations and Warranties of Seller and Shareholder..............................................3
3.1 Organization, Good Standing, Power and Authority................................................4
3.2 Authorization...................................................................................4
3.3 Consents and Approvals..........................................................................4
3.4 Ownership of the Shares.........................................................................4
3.5 Litigation......................................................................................5
3.6 Power, Authority and Ownership of Shareholder...................................................5
ARTICLE 4. Representations and Warranties of Shareholder, Seller and the Company.................................5
4.1 Organization, Good Standing, Power and Authority................................................6
4.2 Authorization...................................................................................6
4.3 Consents and Approvals..........................................................................6
4.4 Charter and Bylaws; Corporate Records...........................................................6
4.5 Capitalization..................................................................................6
4.6 Subsidiaries....................................................................................7
4.7 Financial Statements............................................................................7
4.8 Undisclosed Liabilities.........................................................................8
4.9 Absence of Certain Changes and Events...........................................................8
4.10 Tax Matters.....................................................................................9
4.11 Title to Personal Property and Condition of Assets.............................................11
4.12 Material Contracts.............................................................................12
4.13 Intellectual Property..........................................................................13
4.14 Employee Matters...............................................................................14
4.15 Labor Matters..................................................................................16
4.16 Environmental Matters..........................................................................18
4.17 Insurance......................................................................................19
4.18 Permits; Compliance With Law...................................................................19
4.19 Litigation.....................................................................................19
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
4.20 List of Personnel..............................................................................20
4.21 Transactions With Affiliates...................................................................20
4.22 Brokers and Finders' Fees......................................................................20
4.23 Books and Records; Internal Controls...........................................................20
4.24 Customers......................................................................................21
4.25 Disclosure.....................................................................................21
ARTICLE 5. Pre-Closing Covenants................................................................................21
5.1 Access to Information..........................................................................21
5.2 Conduct of Business............................................................................21
5.3 Pre-Closing Activities.........................................................................22
5.4 Efforts to Consummate..........................................................................23
5.5 No Shop........................................................................................24
5.6 Notice.........................................................................................24
5.7 Performance Bonds..............................................................................24
5.8 Use of the Name................................................................................25
5.9 Termination of Certain Vehicles................................................................25
5.10 Use of Office Space............................................................................25
5.11 Assumption of Liabilities......................................................................25
5.12 Releases.......................................................................................25
5.13 Vesting of Retirement Plans....................................................................26
5.14 Assignment of Certain Contracts................................................................26
5.15 Employee Payments..............................................................................26
5.16 Employment Agreements..........................................................................26
5.17 Employment Policies............................................................................26
5.18 Adverse Changes in Condition...................................................................27
5.19 Supplements to Schedules.......................................................................27
ARTICLE 6. Conditions to Closing................................................................................27
6.1 Conditions to Purchaser's Obligations..........................................................27
6.2 Conditions to Seller's Obligations.............................................................29
6.3 Materiality Defined............................................................................30
ARTICLE 7. Additional Agreements................................................................................31
7.1 Further Assurances.............................................................................31
7.2 Certain Tax Matters............................................................................31
7.3 Litigation Support.............................................................................32
7.4 Noncompetition and Confidential Information....................................................32
ARTICLE 8. Indemnification......................................................................................35
8.1 Seller and Shareholder.........................................................................35
8.2 Purchaser......................................................................................37
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
ARTICLE 9. Modification, Waivers and Termination................................................................39
9.1 Modification...................................................................................39
9.2 Waivers........................................................................................39
9.3 Termination....................................................................................39
9.4 Effect of Termination..........................................................................40
ARTICLE 10. Miscellaneous.......................................................................................40
10.1 Notices........................................................................................40
10.2 Entire Agreement...............................................................................41
10.3 Benefits; Binding Effect; Assignment...........................................................41
10.4 Waiver.........................................................................................41
10.5 No Third Party Beneficiary.....................................................................41
10.6 Severability...................................................................................41
10.7 Expenses.......................................................................................41
10.8 Headings.......................................................................................42
10.9 Counterparts...................................................................................42
10.10 Governing Law..................................................................................42
10.11 Equitable Remedies.............................................................................42
10.12 Construction...................................................................................42
10.13 Knowledge Defined..............................................................................43
</TABLE>
(iii)
<PAGE> 5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), made and entered into
this 26th day of October, 1998 by and among ARGENBRIGHT SECURITY, INC., a
Georgia corporation (referred to herein as "Purchaser"); UNICCO SECURITY
SERVICES, INC., a Delaware corporation (the "Company"), USC, INC., a
Massachusetts corporation ("Seller"), and UNICCO SERVICE COMPANY, a
Massachusetts business trust ("Shareholder");
W I T N E S S E T H:
WHEREAS, Seller owns all of the issued and outstanding shares of
capital stock of the Company;
WHEREAS, Shareholder owns all of the issued and outstanding shares of
capital stock of Seller;
WHEREAS, subject to the terms and conditions of this Agreement, Seller
desires to sell, and Purchaser desires to purchase, all of the issued and
outstanding shares of capital stock of the Company; and
WHEREAS, Purchaser, Seller and Shareholder desire to make certain
representations, warranties and agreements in connection with the sale of
capital stock of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
promises and agreements contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
ARTICLE 1.
Closing
1.1 Sale and Purchase of Capital Stock. On the "Closing Date" (as
defined herein), Seller shall sell, transfer, convey and deliver to Purchaser,
and Purchaser shall purchase and accept delivery of, 100 shares of common stock
of the Company, par value $1.00 per share (collectively, the "Shares"), which
Shares constitute all of the issued and outstanding shares of capital stock of
the Company, for a purchase price determined as provided in Section 1.2 hereof.
1.2 Purchase Price. The aggregate purchase price (the "Purchase
Price") for the Shares will be Twelve Million Dollars ($12,000,000), payable in
cash to Seller at the Closing, by wire transfer of immediately available funds
to the account or accounts designated by Seller to Purchaser in writing prior to
the Closing, or by such other method of payment as is acceptable to the parties.
1.3 Transfer of Shares. At the Closing, in consideration of
Purchaser's delivery of the Purchase Price pursuant to Section 1.2 hereof,
Seller shall deliver to Purchaser certificates
<PAGE> 6
representing the Shares, duly endorsed in blank for transfer or accompanied by
stock powers duly executed in blank, sufficient in form and substance to convey
to Purchaser good title to all of the Shares, free and clear of all liens,
charges, claims, restrictions, encumbrances, security interests or pledges of
any kind whatsoever or any obligations or liabilities (absolute or contingent)
(a "Lien").
1.4 Closing. Subject to the fulfillment or waiver of the
conditions precedent set forth in Article 6 hereof, and subject to any extension
permitted under clause (y) of Section 9.3(b) hereof, the closing of the
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of Posternak, Blankstein & Lund, L.L.P., at 100 Charles River Plaza,
Boston, Massachusetts 02114-2723, on such date as may be agreed upon by the
parties; provided that such date shall be no later than ten days after the
receipt by the parties of confirmation that the waiting periods, if any,
required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), have expired or been terminated (such date, the "Closing
Date"); provided further, however, that at or prior to the Closing, the parties
shall make such adjustments as may be necessary to account for the mid-period
transfer of payroll, customer receipts and similar items. Except as otherwise
provided herein, all proceedings to be taken and all documents to be executed at
the Closing shall be deemed to have been taken, delivered and executed
simultaneously, and no proceeding shall be deemed taken nor documents deemed
executed or delivered until all have been taken, delivered and executed.
ARTICLE 2.
Representations and Warranties of Purchaser
In order to induce Seller, the Company and Shareholder to enter into
this Agreement and to consummate the transactions contemplated hereby, Purchaser
represents and warrants to Seller and the Shareholder as follows:
2.1 Organization and Standing. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Georgia. Purchaser has all requisite corporate right, power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. Purchaser is not in default under any provisions of its Articles of
Incorporation or bylaws. Purchaser has all requisite corporate power and
authority to own, lease and operate its properties and to conduct its business
in the manner as now conducted and is duly licensed or qualified to do business
as a foreign corporation and is in good standing in each jurisdiction in which
the nature of its properties and assets or the conduct of its business requires
it to be so licensed or qualified, except where the failure to be so qualified
would not have a material adverse effect on the business, assets, properties,
results of operation, financial condition or prospects of Purchaser.
2.2 Authorization. Except as set forth on Schedule 2.2 hereto,
this Agreement and its execution, delivery and performance have been duly
authorized by all necessary corporate action on the part of Purchaser and are
within its corporate power. This Agreement has been duly executed
- 2 -
<PAGE> 7
and delivered by Purchaser and constitutes the legal, valid and binding
agreement of Purchaser, enforceable against it in accordance with its terms.
2.3 Consents and Approvals. The execution, delivery and
performance by Purchaser of this Agreement and the consummation of the
transactions contemplated hereby will not, with or without the giving of notice
or the lapse of time, or both, (i) violate any provision of law, statute, rule
or regulation (each, a "Law") to which Purchaser is subject, (ii) violate any
order, judgment or decree applicable to Purchaser, or (iii) violate, conflict
with, or result in a breach or default under, or cause the termination of, any
term or condition of any agreement, document or other instrument to which
Purchaser is a party or by which Purchaser or Purchaser's properties may be
bound which would have a material adverse effect on Purchaser's business,
assets, properties, results of operation, financial condition or prospects of
Purchaser, or the ability of the Purchaser to consummate the transactions
contemplated by this Agreement. Except as set forth on Schedule 2.3 hereto, no
filing with, and no permit, authorization, consent or approval of, any federal,
state, local or foreign governmental regulatory agency, commission, bureau,
authority, court or arbitration tribunal (each, an "Authority") or any other
person, corporation, limited liability company, unincorporated organization,
partnership, association, joint-stock company, joint venture, trust or
government or any agency or political subdivision of any government (each, a
"Person") is necessary for the consummation by Purchaser of the transactions
contemplated by this Agreement, other than (x) compliance with any applicable
requirements of the HSR Act; (y) compliance with any applicable requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"); and (z)
compliance with any applicable requirements of state blue sky laws.
2.4 Brokers' and Finders' Fees. Except as set forth on Schedule
2.4 hereto, neither Purchaser nor anyone acting on its behalf has done anything
to cause or incur any liability which would be payable by Seller or the Company
to any party for any brokers' or finders' fees or the like in connection with
this Agreement or any transaction contemplated hereby.
2.5 Purchase for Own Account. Purchaser is purchasing and
acquiring the Shares for its own account and without a view to their
distribution or resale.
2.6 Disclosure. None of the representations and warranties by
Purchaser in this Agreement and no statement on the part of Purchaser contained
in any of the Schedules hereto contains or will contain as to the applicable
representation and warranty any untrue statement of material fact or omits or
will omit to state any material fact necessary in order to make any of the
statements herein or therein, in light of the circumstances under which it was
made, not misleading.
ARTICLE 3.
Representations and Warranties of Seller and Shareholder
In order to induce Purchaser to enter into this Agreement and to
consummate the transactions contemplated hereby, Seller and Shareholder hereby
jointly and severally represent and warrant (other than in the case of Section
3.6 hereof) to Purchaser that, as of the date hereof:
- 3 -
<PAGE> 8
3.1 Organization, Good Standing, Power and Authority. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Massachusetts. Seller has all requisite corporate right,
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. Seller is not in default under any provisions
of its Articles of Organization or bylaws. Seller has all requisite corporate
power and authority to own, lease and operate its properties and to conduct its
business in the manner as now conducted and is duly licensed or qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the nature of its properties and assets or the conduct of its business
requires it to be so licensed or qualified, except where the failure to be so
qualified would not have a material adverse effect on the business, assets,
properties, results of operation, financial condition or prospects of Seller.
3.2 Authorization. This Agreement and its execution, delivery and
performance have been duly authorized by all necessary corporate action on the
part of Seller and are within its corporate power. This Agreement has been duly
executed and delivered by Seller and constitutes the legal, valid and binding
agreement of Seller, enforceable against it in accordance with its terms.
3.3 Consents and Approvals. Except as set forth on Schedule 3.3
hereto, the execution, delivery and performance by Seller of this Agreement and
the consummation of the transactions contemplated hereby will not, with or
without the giving of notice or the lapse of time, or both, (i) violate any
provision of Law to which Seller is subject, (ii) violate any order, judgment or
decree applicable to Seller, or (iii) violate, conflict with, or result in a
breach or default under, or cause the termination of, any term or condition of
any agreement, document or other instrument to which Seller is a party or by
which Seller or Seller's properties may be bound. Except as set forth on
Schedule 3.3 hereto, no filing with, and no permit, authorization, consent or
approval of, any Authority or any other Person is necessary for the consummation
by Seller of the transactions contemplated by this Agreement, other than (x)
compliance with any applicable requirements of the HSR Act; (y) compliance with
any applicable requirements of the Exchange Act; and (z) compliance with any
applicable requirements of state blue sky laws.
3.4 Ownership of the Shares.
(a) Seller owns good and marketable record title to, and
all beneficial interest in, the Shares, and such Shares (i) are validly
issued, fully paid and nonassessable, and (ii) except as set forth on
Schedule 3.4 hereto, are owned by Seller free and clear of any Liens,
with no defects of title whatsoever. Other than the Shares described in
the foregoing sentence, Seller owns no shares of capital stock of the
Company or any other equity security of the Company or any right of any
kind to have any such equity security issued.
(b) Except as set forth on Schedule 3.4 hereto, Seller
has the exclusive right, power and authority to vote the Shares, and is
not party to or bound by any agreement affecting or relating to
Seller's right to transfer or vote the Shares. There are no proxies
outstanding or powers of attorney granted by Seller with respect to any
of the Shares.
- 4 -
<PAGE> 9
3.5 Litigation. There are no actions, suits, claims or proceedings
pending or, to the best knowledge of Seller, threatened against or involving
Seller or any of Seller's assets or properties by or before any Authority that
question the validity of this Agreement or seek to prohibit, enjoin or otherwise
challenge the consummation of the transactions contemplated hereby. There are no
outstanding orders, judgments, injunctions, stipulations, awards or decrees of
any Authority against Seller or any of Seller's assets or properties that
prohibit or enjoin the consummation of the transactions contemplated hereby.
3.6 Power, Authority and Ownership of Shareholder. Shareholder
represents and warrants that:
(a) Shareholder has the right, power and capacity to
execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by Shareholder and constitutes the
legal, valid and binding obligation of Shareholder, enforceable against
it in accordance with its terms.
(b) Except as set forth on Schedule 3.6 hereto, the
execution, delivery and performance by Shareholder of this Agreement
and the consummation of the transactions contemplated hereby will not,
with or without the giving of notice or the lapse of time, or both, (i)
violate any provision of Law to which Shareholder is subject, (ii)
violate any order, judgment or decree applicable to Shareholder, or
(iii) violate, conflict with, or result in a breach or default under,
or cause the termination of, any term or condition of any agreement,
document or other instrument to which Shareholder is a party or by
which Shareholder or its properties may be bound.
(c) Shareholder owns good and marketable record and
beneficial title to all of the outstanding capital stock of Seller (the
"Seller Stock"), all of which is (i) validly issued, fully paid and
nonassessable, and (ii) except as set forth on Schedule 3.6 hereto,
free and clear of any Liens, with no defects of title whatsoever.
Except as set forth on Schedule 3.6 hereto, Shareholder has the
exclusive right, power and authority to vote the Seller Stock.
ARTICLE 4.
Representations and Warranties of Shareholder, Seller and the Company
In order to induce Purchaser to enter into this Agreement and to
consummate the transactions contemplated hereby, Shareholder, Seller and the
Company jointly and severally represent and warrant to Purchaser as follows:
- 5 -
<PAGE> 10
4.1 Organization, Good Standing, Power and Authority. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company has all requisite corporate right,
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The Company is not in default under any
provisions of its Certificate of Incorporation or bylaws. The Company has all
requisite corporate power and authority to own, lease and operate its properties
and to conduct its business in the manner as now conducted and is duly licensed
or qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the nature of its properties and assets or the
conduct of its business requires it to be so licensed or qualified, except where
the failure to be so qualified would not have a material adverse effect on the
business, assets, properties, results of operation, financial condition or
prospects of the Company.
4.2 Authorization. This Agreement and its execution, delivery and
performance have been duly authorized by all necessary corporate action on the
part of the Company, and are within its corporate power. The Agreement has been
duly executed and delivered by the Company, and constitutes the legal, valid and
binding obligation of the Company, enforceable in accordance with its terms.
4.3 Consents and Approvals. Except as set forth on Schedule 4.3
hereto, and subject to the exception set forth below, the execution, delivery
and performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby will not, with or without the giving of notice
or the lapse of time, or both, (i) violate any provision of Law to which the
Company is subject, (ii) violate any order, judgment or decree applicable to the
Company, or (iii) violate, conflict with, or result in a breach or default
under, or cause the termination of, any term or condition of any agreement,
document or other instrument to which the Company is a party or by which the
Company or its properties may be bound. Except as set forth on Schedule 4.3
hereto, and subject to the exception set forth below, no filing with, and no
permit, authorization, consent or approval of, any Authority or any other Person
is necessary for the consummation by the Company of the transactions
contemplated by this Agreement, other than (x) compliance with any applicable
requirements of the HSR Act; (y) compliance with any applicable requirements of
the Exchange Act; and (z) compliance with any applicable requirements of state
blue sky laws. Notwithstanding the foregoing, no representation or warranty is
given regarding the requirement of any consents or approvals with respect to the
ongoing validity or effectiveness of any agreement, document or other instrument
or Permit (as defined in Section 4.18 hereof) to which the Company will be a
party after the Closing (other than this Agreement and the agreements executed
in connection herewith).
4.4 Charter and Bylaws; Corporate Records. Copies of the
Certificate of Incorporation and bylaws of the Company and all amendments
thereto as in effect on the date hereof have been delivered to Purchaser and are
complete and correct as of the date hereof. The corporate minutes and stock
records of the Companies from and after June 28, 1996 have been made available
to Purchaser and are complete and correct in all material respects as of the
date hereof.
4.5 Capitalization. The authorized capital stock of the Company
consists of 5,000 shares
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<PAGE> 11
of common stock, par value $1.00 per share, of which 100 shares are issued and
outstanding, and 5,000 shares of preferred stock, par value $1.00 per share, of
which no shares are issued and outstanding. All of the issued and outstanding
shares of capital stock of the Company (x) are duly authorized, validly issued,
fully paid and nonassessable, (y) are held of record by Seller, and (z) were not
issued in violation of the preemptive rights of any Person or any agreement or
Law by which the Company at the time of issuance was bound. Except as disclosed
on Schedule 4.5 hereto, (i) no shares of capital stock of the Company are
reserved for issuance or are held as treasury shares, (ii) there are no
outstanding options, warrants, rights, calls, commitments, conversion rights,
rights of exchange, subscriptions, claims of any character, agreements,
obligations, convertible or exchangeable securities or other plans or
commitments, contingent or otherwise, relating to the capital stock of the
Company; (iii) there are no outstanding contracts or other agreements of Seller,
the Company or any other person to purchase, redeem or otherwise acquire any
outstanding shares of the capital stock of the Company, or securities or
obligations of any kind convertible into any shares of the capital stock of the
Company; (iv) there are no dividends that have accrued or been declared but are
unpaid on the capital stock of the Company; and (v) there are no outstanding or
authorized stock appreciation, phantom stock, stock plans or similar rights with
respect to the Company.
4.6 Subsidiaries. There is no corporation, association,
subsidiary, partnership, limited liability company or other entity of which the
Company owns or controls, or has since June 28, 1996 owned or controlled,
directly or indirectly, more than 50% of the outstanding equity interests.
4.7 Financial Statements. Attached hereto as Schedule 4.7 are
copies of (i) the unaudited balance sheets and statements of income of the
Company for the three months ended September 30, 1998 (the "Interim Financial
Statements"), and (ii) the unaudited balance sheets and related statements of
operations, retained earnings and cash flows of the Company for the years ended
June 29, 1997 and June 28, 1998 (the "Annual Financial Statements"). Except as
described below, the Interim Financial Statements and the Annual Financial
Statements (collectively, the "Financial Statements") (x) are complete and
correct in all material respects and have been prepared in accordance with the
books and records of the Company, (y) present fairly in all material respects
the financial condition of the Company, the results of its operations, and the
changes in shareholders' equity and cash flows, as the case may be, as at and
for the respective periods then ended, (z) have been extracted from, and are a
material component of, the audited financial statements for the consolidated
group of which the Company is a member, which such financial statements have
been prepared in compliance with generally accepted accounting principles in
effect in the United States of America at the time of application thereof
applied on a basis consistent with the prior applications of those principles in
the financial statements of the Company ("GAAP"), subject to year end
adjustments in the case of any interim financial statements. Seller further
represents, and Purchaser acknowledges that, due to the fact that the Company is
a wholly-owned, indirect subsidiary of Shareholder, the Financial Statements do
not reflect (a) allocations for the Company's portion of certain expenses, such
as executive management and corporate overhead, information systems (including,
without limitation, use of the J. D. Edwards software), litigation support
services and other corporate support functions, and (b) use of the Seller Space
(as such term is defined in Section
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<PAGE> 12
5.10(a) hereof) on a rent-free basis.
4.8 Undisclosed Liabilities. Except as and to the extent reflected
on the Interim Balance Sheet or in Schedule 4.8 hereto, the Company has no
material liabilities, commitments or obligations of any nature (whether
absolute, accrued, contingent or otherwise) other than those incurred in the
ordinary course of business consistent with past practice since the date of the
Interim Balance Sheet.
4.9 Absence of Certain Changes and Events. Except as contemplated
by this Agreement or as set forth on Schedule 4.9 hereto, since September 30,
1998:
(a) the business of the Company has been operated only in
the usual and ordinary course and there has not been:
(i) any material adverse change in the financial
condition, business, results of operations or prospects of the Company;
(ii) any damage, destruction or loss (whether or
not covered by insurance) materially and adversely affecting the
properties, business or business prospects of the Company;
(iii) any distribution, declaration, setting aside
or payment of any dividend, or any other distribution with respect to
the capital stock of the Company or any direct or indirect redemption,
purchase or other acquisition of any such stock or sale of any such
stock by the Company;
(iv) any material or unusual increase in the
fixed compensation payable to or to become payable by the Company to
any officer, key employee or agent of the Company, or in any insurance,
pension or other benefit plan, payment, or arrangement made to, for or
with any such officers, key employees or agents of the Company;
(v) any commission or bonus paid to any such
officers, key employees or agents, other than commissions and bonuses
paid in the ordinary course of business;
(vi) any material change in the operation of the
business of the Company or any material transactions entered into,
except such changes and transactions occurring in the ordinary course
of business and not otherwise required to be disclosed pursuant to this
Section 4.9; or
(vii) any agreement to do any of the foregoing;
and
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<PAGE> 13
(b) the Company has not:
(i) purchased, sold or transferred any asset
except in the ordinary course of its business;
(ii) canceled any debts or waived any claims or
rights of substantial value, or sold, transferred or otherwise disposed
of, any properties or assets (real, personal or mixed, tangible or
intangible) of substantial value, except, in each such case, in
transactions in the ordinary course of business and consistent with
past practice and which in any event, do not exceed $25,000
individually;
(iii) made any capital expenditures or commitments
in the ordinary course of business in excess of $50,000 individually,
or $100,000 in the aggregate; or
(iv) been the subject of or experienced any
strike or other work stoppage or concerted slow down or threat thereof,
union election or attempted collective bargaining of employees.
4.10 Tax Matters.
(a) For purposes of this Agreement, (i) "Taxes" shall
mean all taxes, assessments, charges, duties, fees, levies or other
governmental charges (including interest, penalties or additions
associated therewith), including federal, state, city, county, foreign
or other income, franchise, capital stock, real property, personal
property, tangible, withholding, FICA unemployment compensation,
disability, transfer, sales, use, excise, gross receipts and all other
taxes of any kind for which the Company may have any liability imposed
by the United States or any state, county, city, country or government
or subdivision thereof whether disputed or not, and any charges,
interest or penalties imposed by any taxing authority as the result of
the failure to file any Tax Return; and (ii) "Tax Return" shall mean
any report, return, declaration or other information required to be
supplied to a taxing authority, including estimated returns and reports
of every kind, in connection with Taxes.
(b) Except as otherwise disclosed on Schedule 4.10
hereto: (i) all Tax Returns required to be filed by the Company have
been timely and properly filed in accordance with any applicable Law or
any applicable extensions, and all such Tax Returns were correct and
complete in all respects; (ii) all Taxes, deposits or other payments
for which the Company has any liability through the date hereof
(whether or not shown on any Tax Return), have been paid in full or are
accrued or will be accrued as of Closing as liabilities for Taxes on
the books and records of the Company; (iii) the amounts so paid on or
before the date hereof, together with any amounts accrued as
liabilities for Taxes (including Taxes accrued as currently payable) on
the books of the Company and reflected in the Financial Statements
(excluding any such liabilities for deferred Taxes established to
reflect timing differences between book and tax income) will be
adequate based on the tax rates, Laws and regulations in effect on the
date hereof to satisfy all liabilities for Taxes of the Company in any
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<PAGE> 14
jurisdiction through the Closing Date, including Taxes accruable upon
income earned through the Closing Date; (iv) there are not now any
extensions of time in effect with respect to the dates on which any Tax
Returns were or are due to be filed; (v) all deficiencies asserted as a
result of any examination of any Tax Return have been paid in full,
accrued on the books of the Company, or finally settled, and no issue
has been raised in any such examination that, by application of the
same or similar principles, reasonably could be expected to result in a
proposed deficiency for any other period not so examined; (vi) no
claims have been asserted and no proposals or deficiencies for any
Taxes are being asserted, proposed or threatened, and no audit or
investigation of any Tax Return is currently underway, pending or
threatened; (vii) no Tax Return relating to taxable periods ending on
or after December 31, 1996 has been examined or audited by any
governmental authorities; (viii) there are no outstanding waivers or
agreements by Seller or the Company for the extension of time for the
assessment of any Taxes or deficiency thereof, nor are there any
requests for rulings, outstanding subpoenas or requests for
information, notice of proposed reassessment of any property owned or
leased by the Company or any other matter pending between the Company
and any taxing authority; and (x) to the best of Seller's and the
Company's knowledge, there are no liens for Taxes not yet due, nor are
there any liens that are pending or threatened.
(c) The Company has delivered to Purchaser true and
complete copies of all income Tax Returns for the three most recent
years for which Tax Returns are due to have been filed.
(d) Neither Seller nor the Company has filed a consent
pursuant to Section 341(f) of the Internal Revenue Code of 1986, as
amended (the "Code").
(e) No assets of the Company or of any "Related Person,"
as that term is defined in Section 144(a)(3) of the Code (or Section
103(b)(6)(c) of the Internal Revenue Code of 1954, as amended (the
"1954 Code"), whether owned or leased pursuant to a capital lease, have
been financed by private activity bonds within the meaning of Section
141 of the Code (or industrial development bonds within the meaning of
Section 103(b) of the 1954 Code), and neither the Company nor any
Related Person is a "principal user," as that term is used in the
context of Section 144(a) of the 1986 Code (or Section 103(b) of the
1954 Code) of any building which has been so financed.
(f) Except as disclosed on Schedule 4.10 hereto, the
Company is not a party to any written agreement providing for the
allocation or sharing of Taxes.
(g) Except as disclosed on Schedule 4.10 hereto, the
Company has never filed or been included in any combined or
consolidated Tax Return with any Person or been a member of an
affiliated group, within the meaning of Section 1504 of the Code,
filing a consolidated federal income Tax Return, other than a group the
common parent of which is Seller.
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<PAGE> 15
(h) The Company does not have any liability for the Taxes
of any person (other than the Company under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local or foreign law),
except as may be assumed by Seller under the Assumption of Liabilities
(as defined in Section 5.11 hereof).
4.11 Title to Personal Property and Condition of Assets.
(a) The Interim Balance Sheet of the Company reflects all
the real and personal properties presently owned by the Company and
used in its business, except for (a) assets acquired or disposed of by
the Company in the ordinary course of its business since the date of
the Interim Balance Sheet, (b) properties that have been fully
depreciated or the cost of which has been expensed by the Company and
(c) properties leased by the Company. Except as disclosed on Schedule
4.11 hereto, the Company has good and marketable title to all of its
properties, including, without limitation, all properties and assets
that are reflected in the Interim Balance Sheet (except properties and
assets sold or otherwise disposed of in the ordinary course of business
subsequent to the dates of the Interim Balance Sheet), free and clear
of all Liens, except liens of current state and local property Taxes
not yet due and payable. Except as disclosed on Schedule 4.11 hereto,
all properties and assets of the Company are in the possession and
control of the Company. To the best knowledge of the Company and
Seller, all properties and assets owned, used or occupied by the
Company have been used and maintained in a manner consistent with
industry practices. To the best knowledge of the Company and Seller,
the Company is not in violation of any applicable zoning regulation,
ordinance or other Law, order, regulation, restriction or requirement
relating to its operations or properties, whether such properties are
owned or leased.
(b) To the best knowledge of the Company and Seller, the
Company enjoys peaceful and undisturbed possession under all leases of
personal property under which it operates. There are no existing
material defaults, or events that with the passage of time or the
giving of notice, or both, would constitute material defaults under any
such lease by the Company or, to the best knowledge of the Company and
Seller, by any other party to any such lease.
(c) Except for leasehold interests and other leased
properties and the personal property identified on Schedule 4.11
hereto, and except for assets owned by Shareholder that are not
material, either individually or in the aggregate, to the business or
financial condition of the Company, there are no assets owned by any
third party that are used in the operations of the business of the
Company.
(d) Without limiting Purchaser's rights under this
Agreement, and after taking into account Seller's and Shareholder's
disclosures in, and the conveyances by the Company to Seller or
Shareholder contemplated by, this Agreement, Seller acknowledges that,
upon the Closing, the Company will own, lease or license (and Purchaser
thus will indirectly acquire) the furniture, fixtures, equipment
(including computer hardware and software,
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<PAGE> 16
vehicles, office supplies, deposits, prepaids, names, customer lists,
contracts, personnel and marketing databases, other intangible assets
and other assets used in the ordinary course of business.
4.12 Material Contracts. Except as set forth on Schedule 4.12
hereto, and except for oral agreements and understandings with Shareholder
regarding the matters described in the last sentence of Section 4.7 hereof, the
Company is not a party to, or otherwise bound by, any contract or other
agreement (whether oral or written):
(a) involving amounts payable by or to the Company during
any 12-month period of $50,000 or more;
(b) that is a management, consultant or employment
contract, collective bargaining or other labor or union agreement;
(c) that is a license or franchise contract or agreement;
(d) with Seller, with any director or officer of the
Company, with any person related to Seller or with any company or other
organization in which Seller, any director or officer of the Company,
or any person related to Seller has a direct or indirect financial
interest;
(e) that is a loan, factoring, credit line or
subordination agreement or other agreement relating to borrowing of
money, extension of credit, or granting of liens or encumbrances;
(f) that is a lease of real, personal or mixed property
under which the Company is a lessor or lessee;
(g) that is a joint venture or other agreement involving
sharing of profits;
(h) creating a power of attorney empowering any Person to
act on behalf of the Company;
(i) constituting an offer, bid or proposal binding on the
Company that, if accepted, would result in a contract requiring the
Company to pay, or by which the Company would receive, in the
aggregate, $500,000 or more to or from a single source in any 12- month
period;
(j) constituting a guaranty, subordination or other
similar type of agreement, whether or not entered into in the ordinary
course of business;
(k) not made in the ordinary course of business;
(l) that is a minority or set-aside contract;
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<PAGE> 17
(m) creating a bonus plan or profit sharing plan for any
officer, employee or agent of the Company (including, without
limitation, any such plans maintained by Seller or Shareholder that
cover any employees of the Company);
(n) that limits the ability of the Company or any
material employee of the Company from engaging in any business in any
jurisdiction, or that limits others from competing with the Company;
(o) that is an employment or consulting agreement, or
that provides for the payment of commissions or royalties of any type;
or
(p) that is a service, supply or maintenance agreement,
open purchase order or other arrangement requiring notice prior to
termination.
True and complete copies of all such contracts, agreements and other documents
listed on Schedule 4.12 hereto (such contracts, agreements and other documents
are hereinafter referred to as "Material Contracts") have been furnished to
Purchaser. The Company has complied in all material respects with all its
material obligations under each Material Contract and the Company is not in
default in any material respect as to any Material Contract. To the best
knowledge of the Company and Seller, no condition or state of facts exists that,
with notice or the passage of time, or both, would constitute a default under
any Material Contract, and all Material Contracts are in full force and effect
and are enforceable by the Company against all other parties thereto in all
material respects.
4.13 Intellectual Property.
(a) Except as set forth on Schedule 4.13(a) hereto, the
Company does not own or license any United States and foreign patents,
trademarks, trade names, service marks, copyrights and applications
therefor (hereinafter the "Patent and Trademark Rights"). The business
of the Company as now conducted, to the best knowledge of the Company
and Seller, does not conflict with and has not been alleged to conflict
with any patents, trademarks, trade names, service marks or copyrights
of others. The Company does not know of any use by others of any of the
Patent and Trademark Rights set forth on Schedule 4.13(a) that would be
material to the business of the Company as presently conducted.
(b) Schedule 4.13(b) hereto sets forth a true and correct
list of (i) all computer software programs licensed to the Company that
are material to the conduct of the business of the Company other than
"off-the-shelf" software owned by or licensed to the Company (the
"Software"); (ii) all agreements relating to Software that is owned by
a third party and that the Company is licensed or otherwise authorized
to use; and (iii) all agreements relating to the use by third parties
of Software that is owned by the Company. The Company owns, or
possesses valid license rights to, all Software. There are no
infringement suits, actions or proceedings pending or, to the best
knowledge of the Company and Seller, threatened against the Company
with respect to any Software. To the best knowledge of the Company and
Seller, there are no infringement suits, actions or proceedings pending
or threatened against
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<PAGE> 18
the owner of any Software that is owned by a third-party. With respect
to Software that is owned by a third-party and that the Company is
licensed or otherwise authorized to use, the license, sublicense,
agreement or permission covering such Software is (i) legal, valid,
binding and enforceable and is in full force and effect and (ii) has
not, to the best knowledge of the Company and Seller been breached by
the Company or the third-party. The consummation of the transactions
contemplated hereby will not result in the loss or impairment of the
Company's right to use any Software that is owned by a third-party and
that the Company is licensed or otherwise authorized to use.
4.14 Employee Matters.
(a) Schedule 4.14(a) hereto contains a true and complete
list of each bonus, deferred compensation, incentive compensation,
stock purchase, stock option, phantom stock, severance or termination
pay, hospitalization or other health, life, disability or other
insurance, supplemental unemployment benefits, profit-sharing, pension,
or retirement plan, program, agreement or arrangement, and each other
employee benefit plan, program, agreement or arrangement, sponsored,
maintained or contributed to or required to be contributed to for the
benefit of any officer, director, employee or former officer, director
or employee of the Company, whether formal or informal and whether
legally binding or not (the "Plans"). Schedule 4.14(a) identifies each
of the Plans that is an "employee welfare benefit plan," or "employee
pension benefit plan" as such terms are defined in Sections 3(1) and
3(2) of the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder ("ERISA")
(such plans being hereinafter referred to collectively as the "ERISA
Plans").
(b) With respect to each of the Plans, the Company has
heretofore delivered or made available to Purchaser true and complete
copies of each of the following documents:
(i) a copy of the Plans and related summary plan
descriptions (including all amendments thereto and any trust
agreements or other contracts or agreements that are a part of
such Plans);
(ii) a copy of the annual report, if required
under ERISA, with respect to each such Plan for the last three
years;
(iii) a copy of the actuarial report, if required
under ERISA, with respect to each such Plan for the last three
years; and
(iv) the most recent determination letter
received from the Internal Revenue Service with respect to
each Plan that is intended to be qualified under Section 401
of the Code and copies of all other Internal Revenue Service,
Department of Labor and Pension Benefit Guaranty Corporation
("PBGC") rulings or determinations with respect to each Plan.
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<PAGE> 19
(c) No liability under Title IV of ERISA has been
incurred by the Company or any trade or business, whether or not
incorporated, that together with the Company would be deemed a "single
employer" within the meaning of Section 4001(b)(1) of ERISA (an "ERISA
Affiliate") since the effective date of ERISA that has not been
satisfied in full, and no condition exists that presents a risk to the
Company or an ERISA Affiliate of incurring a liability under such
title, other than liability for premiums due the PBGC, which payments
have been or will be made when due.
(d) Neither the Company, any of the ERISA Plans, any
trust created thereunder nor any trustee or administrator thereof has
engaged in a transaction or has taken or failed to take any action in
connection with which the Company, any of the ERISA Plans, any such
trust, any trustee or administrator thereof, or any party dealing with
the ERISA Plans or any such trust could be subject to either any
liability under Section 409 or 502(i) or 502(l) of ERISA or a Tax
imposed pursuant to Section 4975, 4976 or 4980B of the Code.
(e) Each of the ERISA Plans that is intended to be
"qualified" within the meaning of Section 401(a) of the Code is so
qualified.
(f) All of the assets that have been set aside in a trust
or insurance company separate account to satisfy any obligations under
any Plan are shown on the books and records of each such trust and each
such account at their current fair market value as of the most recent
valuation date for such trust or account, the fair market value of all
the assets so set aside for a Plan as of each such valuation date
equals or exceeds the present value of any obligation under such Plan,
and the liabilities for all other obligations under any Plan are
accurately set forth in the Company's most recent financial statement.
(g) Except as disclosed on Schedule 4.14(g), each Plan
has been established, maintained and administered in compliance with
the terms of such Plan and all applicable laws, and all applicable
reporting and disclosure requirements with respect to each Plan have
been satisfied on a timely basis, including all such requirements under
the Code and ERISA. Except as set forth on Schedule 4.15, no Plan is
described in ERISA Sections 3(37), 4(b)(4), 4063 or 4064 or is subject
to Code Section 412, and the Company has never maintained or
contributed directly or indirectly to (or had an obligation to
contribute directly or indirectly to) such a plan. No ERISA Plan that
is described in ERISA Section 3(1) provides any benefits after a
termination of employment except to the extent such benefits are
required to satisfy the minimum requirements under Part 6 of Subtitle B
of Title I of ERISA.
(h) Except as provided in Schedule 4.14(h) hereto, there
are no pending or threatened claims with respect to a Plan (other than
routine and reasonable claims for benefits made in the ordinary course
of a Plan's operations) or with respect to the terms and conditions of
employment or termination of employment of any employee or former
employee of the Company, which claims could reasonably be expected to
result in any liability to the Company, and no audit or investigation
by any domestic or foreign
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<PAGE> 20
governmental or other law enforcement agency is pending or, to the
Company's knowledge, has been proposed with respect to any Plan.
(i) Except as set forth on Schedule 4.15, the Company has
the right pursuant to the terms of each Plan and all agreements related
to such Plan unilaterally to terminate such Plan (or its participation
in such Plan) or to amend the terms of such Plan at any time without
triggering a penalty or an obligation to make any additional
contributions to such Plan, and the Company immediately after the
Closing shall have the right to unilaterally terminate its
participation in each Plan without triggering any penalty or any
obligation to make any additional contributions to such Plan.
(j) Except as provided in Schedule 4.14(j) hereto, the
transactions contemplated by this Agreement will not result in any
additional payments, including severance payments, to or benefit
accruals for, or any increase in the vested interest of, any current or
former officer, employee or director or their dependents under any
Plan. The transactions contemplated by this Agreement will not result
in any payments to any current or former officer, employee or director
of the Company or an ERISA Affiliate that will be subject to Section
280G of the Code.
(k) The Company has provided Purchaser with a copy of the
Company's policy for providing leaves of absence under the Family and
Medical Leave Act ("FMLA") and has complied with the FMLA in all
material respects.
(l) The Company possess proper verification and
authorization documentation on each and every employee of the Company
as required by the Immigration and Reform Control Act of 1986.
(m) Seller has conducted, or has had conducted in
accordance with applicable state law, a thorough criminal conviction
check of all employees of the Company (based on the employee's
then-present state of residence), and none of such employees had
criminal convictions that would prohibit hiring under applicable state
law as of the date of such check; provided, however, that where a
Material Contract may have a different standard regarding criminal
background checks, the Company has complied, in all material respects,
with the provisions of such Material Contracts regarding criminal
checks.
4.15 Labor Matters. Except to the extent set forth in Schedule 4.15
hereto: (a) none of the Company's employees are or have been represented by a
labor organization that was either National Labor Relations Board ("NLRB")
certified or voluntarily recognized or recognized under foreign law; (b) the
Company has not been and is not a signatory to a collective bargaining agreement
with any labor organization; (c) the Company is not obligated, by any collective
bargaining agreement or other agreement, to contribute to any multiemployer
pension benefit plan covering employees, retirees and/or beneficiaries; (d) the
Company has not conducted negotiations with respect to any future contract with
or commitment to any labor union or association and, to the best knowledge of
the Company and Seller, there are no current or threatened attempts to organize
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<PAGE> 21
or establish any labor union or association, (e) no representation election
petition filed by employees of the Company is pending with the NLRB and, to the
best knowledge of the Company and Seller, no union organizing campaign involving
employees of the Company is in progress; (f) no NLRB unfair labor practice
charges or litigation are presently pending against the Company or any labor
organization representing any of their employees; (g) no grievance or
arbitration demand, whether or not filed pursuant to a collective bargaining
agreement, is pending against the Company; (h) no labor dispute, walkout,
strike, slowdown, handbilling, picketing, work stoppage (sympathetic or
otherwise), or other "concerted action" involving the employees of the Company
is in progress and none of the Company's employees have engaged in any such
actions at any time since June 28, 1996; (i) no breach of contract and/or denial
of fair representation claim is pending against the Company and/or, to the best
knowledge of the Company and Seller, any labor organization representing any of
its employees; (j) no claim for unpaid wages or overtime or for child labor or
record-keeping violations has been filed, threatened, or is pending against the
Company under the Fair Labor Standards Act, Davis-Bacon Act, Walsh-Healey Act,
or Service Contract Act or any other Federal, state, local or foreign Law; (k)
no discrimination and/or retaliation claim is pending, or to the best knowledge
of the Company and Seller, threatened against the Company under the 1866, 1877,
1964 or 1991 Civil Rights Acts, the Equal Pay Act, the Age Discrimination in
Employment Act, as amended, the Americans with Disabilities Act, the Family and
Medical Leave Act, the Fair Labor Standards Act, ERISA or any other Federal Law
or any comparable state or local fair employment practices act or foreign Law
regulating discrimination in the workplace and no wrongful discharge, liable,
slander or other claim under any state law is pending or threatened which arises
out of the employment relationship with respect to any person or the termination
of any such relationship; (l) if the Company is a Federal, state or provincial
contractor obligated to develop and maintain an affirmative action plan, no
discrimination claim, show cause notice, conciliation proceeding, sanctions or
debarment proceeding is pending or has been threatened against the Company with
the Office of Federal Contract Compliance Programs ("OFCCP") or any other
Federal agency or any comparable state or foreign agency or court and no desk
audit or on-site review is in progress; (m) no citation has been issued or is
pending before the Occupational Safety and Health Administration ("OSHA") or
applicable state plans against the Company, and no notice of contest or OSHA
administrative enforcement proceeding involving the Company has been filed or is
pending; (n) no material workers' compensation or retaliation claim is pending
against the Company, and the Company maintains adequate insurance with respect
to workers compensation claims pursuant to insurance policies that are currently
in force, or has accrued an adequate liability for such obligations, including,
without limitation, adequate accruals with respect to accrued but not reported
claims and retroactive insurance premiums, which is accurately set forth in the
Financial Statements; (o) no investigation or citation of the Company is
outstanding and no enforcement proceeding has been initiated or is pending under
Federal or foreign immigration law; (p) the Company has not taken any action
that would constitute a "Mass Layoff" or "Plant Closing" within the meaning of
the Worker Adjustment and Retraining Notification ("WARN") Act or would
otherwise trigger notice requirements or liability under any state, provincial,
local or foreign plant closing notice Law, and to the extent any liability
arises between the date of this Agreement and the Closing Date as a result of
employment actions of the Company, the Company will be solely responsible
therefor; and (q) the Company has not entered into, nor is it otherwise bound
by, any employment contract or
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<PAGE> 22
severance agreement with any employee of the Company. The proposed terms of the
renewal of the collective bargaining contracts between the Company and The
General Service Employees Union, Local 73, SEIU, AFL-CIO, CLC (the "Union
Contracts") are as set forth on Schedule 4.15 hereto. Except as set forth on
Schedule 4.15 hereto, the Company is in material compliance with all Federal,
state, provincial, local and foreign laws respecting employment and employment
practices, terms and conditions of employment, wages and hours, is not liable
for any arrears or wages or penalties for failure to comply with any of the
foregoing, and is not engaged in any unfair labor or unlawful employment
practice.
4.16 Environmental Matters.
(a) The Company has not received any written
communication from any Person (including any Authority) stating that
the Company may be a potentially responsible party under any
Environmental Law (as defined in Section 4.16(c) hereof) with respect
to any actual or alleged environmental contamination; neither the
Company nor, to the best knowledge of the Company and Seller, any
Authority, is conducting or has conducted any environmental remediation
or environmental investigation that could reasonably be expected to
result in liability for the Company under any Environmental Law,
including without limitation with relation to properties that are not
owned or leased by the Company; and the Company has not received any
request for information under any Environmental Law from any Authority
with respect to any actual or alleged environmental contamination.
(b) Since June 28, 1996, the Company has not received any
written communication from any person or entity (including any
Authority) stating or alleging that the Company may have violated any
Environmental Law, or any permit issued pursuant to any Environmental
Law, or that the Company has caused or contributed to any environmental
contamination that has caused any property damage or personal injury
under any Environmental Law.
(c) The Company has provided Purchaser with copies of (i)
any material environmental investigation, study, audit, test, review
and other analysis in the possession of the Company conducted in
relation to the business of the Company or any property or facility now
or previously owned, operated or leased by the Company; and (ii) any
consent decree, consent order or similar document in force and to which
it is a party relating to any property currently owned, leased or
operated by the Company.
(d) For purposes of this Section 4.16, "Environmental
Law" means all applicable state, federal and local laws, regulations
and rules, including common law, judgment, decrees and orders relating
to pollution, the preservation of the environment, and the release of
hazardous substances, toxic or hazardous waste or petroleum or
petroleum products as those terms are defined by Environmental Laws.
(e) To the best knowledge of the Company and Seller (i)
no release of any hazardous substance has occurred on any property
owned or leased by the Company, (ii) no
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<PAGE> 23
underground storage tanks or asbestos containing materials exist on any
property owned or leased by the Company, (iii) the Company has all
permits and approvals and has filed all notices required to comply with
applicable environmental laws, and (iv) the Company has not entered
into any consent decree, consent order or other type of agreement with
any Person, including any Authority, resulting in any alleged violation
of any Environmental Law or any permit issued pursuant to any
Environmental Law or to remediate any environmental condition pursuant
to any Environmental Law.
4.17 Insurance. Schedule 4.17 hereto sets forth a complete and
correct list of all insurance policies currently in effect that are owned or
held by the Company (or that are owned or held by Seller or Shareholder for the
benefit of the Company), insuring the products, properties, assets, business and
operations of the Company and its potential liabilities to third parties, and
all general liability policies maintained by the Company. All such policies are
in full force and effect and all premiums due and payable in respect thereof
have been paid. Since the respective dates of such policies, no notice of
cancellation or non-renewal with respect to any such policy has been received by
the Company. Schedule 4.17 sets forth a list of all pending claims and the
status as of the date of this Agreement of all deductibles with respect to all
such policies, and all loss runs, as of the date of this Agreement, with respect
to such policies.
4.18 Permits; Compliance With Law. The Company holds and is in
material compliance with all permits, orders, approvals, registrations,
authorizations, consents and qualification filings with all Authorities required
under applicable Laws in connection with the operation of the business of the
Company (collectively, "Permits") and is in material compliance with all
material requirements of all applicable Laws. No notice, citation, summons or
order has been received by the Company, no complaint has been filed and served
on the Company, no penalty has been assessed and no investigation, proceeding or
review is pending or, to the best knowledge of the Company and Seller,
threatened (i) with respect to any alleged material violation by the Company of
any Law or Permit, or (ii) with respect to any alleged failure by the Company to
have any Permit. True and correct copies of all Permits relating to Company
Activities (as defined in Section 7.4 hereof) is set forth on Schedule 4.18
hereto. No event has occurred or circumstance exists that will (with or without
notice or lapse of time) (x) constitute or result in a violation of or a failure
to comply with any material term or requirement of any Permit or, to the best
knowledge of the Company and Seller, any Law in any material respect, or (y)
result in the revocation, withdrawal, suspension, cancellation or termination
of, or modification to, any Permit.
4.19 Litigation. Schedule 4.19 hereto sets forth a list and brief
description of all material actions, suits, claims or proceedings pending or, to
the best knowledge of the Company and Seller, threatened against or involving
the Company, or any of its assets or properties, by or before any Authority
(including but not limited to all actions involving workers' compensation,
employment discrimination, wrongful termination, the Equal Employment
Opportunity Commission and general liabilities). There are no outstanding
orders, judgments, injunctions, stipulations, awards or decrees of any Authority
against the Company, or any of its assets or properties that prohibit or enjoin
the consummation of the transactions contemplated hereby. To the best knowledge
of the Company and
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<PAGE> 24
Seller, no event has occurred or circumstance exists that may (with or without
notice or lapse of time) give rise to or serve as the basis for any material
action, suit, claim or proceeding against or involving the Company.
4.20 List of Personnel. Schedule 4.20 hereto sets forth (i) the
name and total base compensation of each officer and director of the Company and
each other salaried or hourly administrative employee of the Company, (ii) all
commitments or agreements by the Company to increase the wages or modify the
conditions or terms of employment of any of its employees, and (iii) a detailed
listing of commissions and bonuses paid by, or due from, the Company since June
28, 1998, including amounts accrued through the Closing Date.
4.21 Transactions With Affiliates. Except as set forth on Schedule
4.21 hereto, and except for oral agreements and understandings with Shareholder
regarding the matters described in the last sentence of Section 4.7 hereof, the
Company has not purchased, acquired or leased any property or services from, or
sold, transferred or leased any property or services to, or loaned or advanced
any money to, or borrowed any money from or entered into or been subject to any
management, consulting or similar agreement with, any officer, director or
shareholder of the Company or any of their respective Affiliates (as hereinafter
defined). Except as set forth on Schedule 4.21, no Affiliate of the Company is
indebted to the Company for money borrowed or other loans or advances, and the
Company is not indebted to any such Affiliate. For purposes of this Section
4.21, an "Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such specified Person. For purposes of this Agreement, (i) "control", when used
with respect to any specified Person, means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise, and (ii) "controlling"
and "controlled" have meanings correlative to the foregoing.
4.22 Brokers and Finders' Fees. Except as set forth on Schedule
4.22 hereto, neither Seller nor the Company has employed any broker or finder
nor incurred nor will incur any broker's, finder's or similar fees, commissions
or expenses payable by Seller or the Company in connection with the transactions
contemplated by this Agreement.
4.23 Books and Records; Internal Controls. Subject to the
qualifications set forth in Section 4.7 hereof, the books and records of the
Company accurately and fairly reflect the transactions and dispositions of
assets of the Company. The Company's system of internal accounting controls is
sufficient to provide reasonable assurances that transactions are executed in
accordance with management's general or specific authorization and that
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain accountability for assets.
4.24 Customers. Schedule 4.24 hereto lists the customers of the
Company as of the date hereof that (i) are parties to written contracts with the
Company that have a remaining term in excess of one year and that do not permit
the customer to terminate its obligations to the Company without
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<PAGE> 25
cause upon the provision of notice to the Company or (ii) the Company's 25
largest current customers (measured in terms of annualized revenues to the
Company). All of the aforementioned contracts are included in the Company's
Material Contracts. Except as set forth on Schedule 4.24, (i) the Company has
not received notice of termination of its agreement with any such customer or
the occurrence of an event of default under its agreement that would allow such
customer to terminate such agreement, and (ii) there has not been, to the best
knowledge of Seller and the Company, with respect to any such customer, a
material adverse change in the business relationship with any such customer.
4.25 Disclosure. None of the representations and warranties by the
Company, Seller or Shareholder in this Agreement and no statement on the part of
any of the foregoing contained in any of the Schedules hereto contains or will
contain as to the applicable representation and warranty any untrue statement of
material fact or omits or will omit to state any material fact necessary in
order to make any of the statements herein or therein, in light of the
circumstances under which it was made, not misleading.
ARTICLE 5.
Pre-Closing Covenants
5.1 Access to Information. From and after the date hereof and
until the Closing, Seller will cause the Company (a) to give to Purchaser and
Purchaser's authorized representatives reasonable access during normal business
hours to its books and records, officers, managers, supervisors, facilities,
personnel and accountants, (b) to furnish and make available to Purchaser and
its authorized representatives all such documents and copies of documents and
all such additional financial and operating data and other information
pertaining to the affairs of the Company as Purchaser and its authorized
representatives may reasonably request and which is reasonably available to
Seller, Shareholder or the Company, and (c) to give Purchaser permission (acting
together with a representative of the Company) to contact management and those
clients of the Company identified on Schedule 5.1 hereto, and to visit the
Company's operating locations and the locations of such clients; provided,
however, that the activities of Purchaser and its representatives shall be
conducted in such a manner as not to interfere unreasonably with the operation
of the business of the Company.
5.2 Conduct of Business. During the period from the date hereof to
the Closing Date, and subject to the provisions of this Agreement, Seller will
cause the Company to (a) continue to conduct its business affairs only in the
usual and ordinary course of business and in substantially the same manner as
previously conducted, (b) maintain, or cause to be maintained in full force and
effect, all of its Permits, insurance policies and bank accounts currently held
or maintained by the Company, and (c) keep its business and properties
substantially intact, including its present operations, physical facilities and
relationships with lessors, licensors, suppliers, customers and employees, in a
manner consistent with the conduct of business in the ordinary course.
5.3 Pre-Closing Activities. Except as otherwise required or
permitted by this Agreement,
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<PAGE> 26
as agreed to by Purchaser in writing or as set forth on Schedule 5.3 hereto,
prior to the Closing Date, the Company shall not, and Seller shall not take any
action to cause the Company, and shall not permit the Company, to:
(a) declare or pay any dividend or other distribution on
or with respect to any shares of its capital stock or make any direct
or indirect redemption, retirement, purchase or other acquisition of
any shares of its capital stock;
(b) create, incur or assume any indebtedness for borrowed
money, assume or become subject to, whether directly or indirectly, by
way of guaranty or otherwise, any obligation or liability (whether
absolute, accrued, contingent or otherwise and whether due or to become
due);
(c) cause or permit any material damage, destruction or
other casualty loss (whether or not covered by insurance) to or
affecting the business or assets of the Company;
(d) fail to discharge or to satisfy any Lien on any
property of the Company or pay or satisfy any claim, obligation or
liability (whether absolute, accrued, contingent or otherwise) of the
Company when the same shall become due and payable;
(e) sell, lease, assign, transfer or otherwise dispose of
any property or asset;
(f) permit or allow any property or asset of the Company
to be subjected to any Lien, or enter into any conditional sale or
other title retention agreement with respect to any property or asset;
(g) change in any respect the accounting methods or
practices followed by the Company;
(h) amend or modify in any way its Certificate of
Incorporation or bylaws;
(i) reclassify, combine, split, subdivide or redeem or
otherwise repurchase any capital stock of the Company, or create,
authorize, issue, sell, deliver, pledge or encumber any additional
capital stock (whether authorized but unissued or held in treasury) or
other securities equivalent to or exchangeable for capital stock, or
grant or otherwise issue any options, warrants or other rights with
respect thereto;
(j) acquire or agree to acquire by merging or
consolidating with, or by purchasing any portion of the capital stock,
partnership interests or assets of, or by any other manner, any
business or any corporation, limited liability company, partnership,
association or other business organization or division thereof;
(k) make any loan or advance (whether in cash or other
property), or make any investment in or capital contribution to, or
extend any credit to, any Person, except
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<PAGE> 27
short-term investments pursuant to customary cash management policies;
(l) enter into any agreement with any labor union or
association representing any employee (other than the Union Contracts
with substantially the terms disclosed to the Company in Schedule
4.15), or, other than in the ordinary course consistent with the past
practices of the Company, make any wage or salary increase or bonus,
agree to the payment of severance to any employee, or increase in any
other direct or indirect compensation, for or to any of its officers,
directors or employees;
(m) enter into, amend, terminate or fail to renew any
Material Contract except in the ordinary course of business consistent
with past practices;
(n) make any payment to Seller or any affiliate of any
Seller or forgive any indebtedness due or owing from Seller or any
affiliate of Seller to the Company;
(o) make any tax election or settle or compromise any tax
liability other than in the ordinary course of business, consistent
with past practices, and other than an election under Section
338(h)(10) of the Code with respect to the transactions contemplated by
this Agreement in accordance with Section 7.2 hereof;
(p) fail to perform in all material respects all of its
obligations under all Material Contracts (except those being contested
in good faith);
(q) fail to use all commercially reasonable efforts to
maintain in full force and effect and in the same amounts policies of
insurance comparable in amount and scope of coverage to that now
maintained by the Company;
(r) fail to use all commercially reasonable efforts to
continue to collect its accounts receivable in the ordinary course of
business and consistent with past practice;
(s) fail to prepare and file all Tax Returns or
extensions required to be filed by it;
(t) institute or amend any employee benefit plan except
as may be required by Law, or enter into or modify any written
employment arrangement with any individual; or
(u) enter into any agreement or commitment to do any of
the foregoing.
5.4 Efforts to Consummate. Subject to the terms and conditions of
this Agreement, each party hereto shall use reasonable efforts to take or cause
to be taken all actions and do or cause to be done all things required under
applicable Laws in order to consummate the transactions contemplated hereby,
including, without limitation, (a) obtaining all authorizations, consents and
approvals of any Person or Authority that are required for or in connection with
the consummation of the transactions contemplated hereby and by the other
documents describing the transactions
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<PAGE> 28
contemplated hereby (collectively, the "Transaction Documents"), including,
without limitation, approvals required under the HSR Act, but not including any
consents or approvals required by any agreement, document or other instrument or
Permit that is excluded from Section 4.3 hereof pursuant to the last sentence
thereof, (b) taking any and all reasonable actions necessary to satisfy all of
the conditions to such party's obligations hereunder as set forth in Article 6,
and (c) executing and delivering all agreements and documents required by the
terms hereof to be executed and delivered by such party on or prior to the
Closing. Nothing in this Agreement shall be construed as an attempt or an
agreement by the Company to assign or cause the assignment of any contract or
agreement which is by Law nonassignable without the consent of the other party
or parties thereto, unless such consent shall have been given. Without limiting
the generality of the foregoing, on or prior to the Closing Date, Seller and the
Company shall have taken all reasonable steps necessary to cause the assignment
or transfer to Purchaser (or, if applicable, to the Company as the wholly-owned
subsidiary of Purchaser) of those contracts, agreements and other rights listed
on Schedule 5.4 hereto.
5.5 No Shop. From the date of this Agreement until the earlier of
(i) the Closing Date, or (ii) the termination of this Agreement, Seller shall
not, and shall cause the Company and its officers, directors, employees,
affiliates and other agents not to, directly or indirectly, take any action to
solicit, initiate or encourage any offer or proposal or indication of interest
in a sale, merger, consolidation or other business combination involving any
equity interest in, or a substantial portion of the assets of the Company, other
than in connection with the transactions contemplated by this Agreement. Seller
shall immediately advise Purchaser of the terms of any written offer, proposal
or indication of interest that it or the Company receives or of which it
otherwise becomes aware after the date of this Agreement. If either Seller or
the Company, its officers, directors, employees, affiliates or agents violate
any of the provisions of this Section 5.5, and the transactions contemplated by
this Agreement do not close, in addition to other remedies available to
Purchaser, Seller shall promptly, on demand, pay and reimburse Purchaser all
out-of-pocket and professional fees and expenses incurred by Purchaser or any of
its affiliates in connection with this Agreement or any of the transactions
contemplated hereby.
5.6 Notice. The Company shall promptly notify Purchaser of any
material change in the normal course of the Company's businesses or in the
operation of its properties and of the receipt by the Company of notice of any
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated) or the receipt by the Company of a
notice of the institution or the threat of litigation involving the Company, and
will keep Purchaser fully informed with respect to such events.
5.7 Performance Bonds. Seller, Shareholder, the Company and
Purchaser shall use their reasonable best efforts to cause the issuer thereof to
transfer to Purchaser the performance bonds listed on Schedule 5.7 hereto (the
"Performance Bonds"); provided, however, that, at the Closing, Purchaser shall
take all steps necessary to substitute its own collateral for any collateral of
Seller or Shareholder securing the Performance Bonds.
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<PAGE> 29
5.8 Use of the Name. Seller, Shareholder and the Company will
permit Purchaser to use the name "UNICCO Security Services, Inc." in the conduct
of its business and the business of the Company through December 31, 1999, all
in accordance with the Tradename License Agreement substantially in the form of
Exhibit A hereto (the "Tradename License").
5.9 Termination of Certain Vehicles. Effective no later than the
Closing Date, (a) Seller shall have caused the Company to terminate any
responsibilities of the Company under the GE Fleet Service Master Lease
Agreement (the "Master Lease") with respect to certain vehicles used for
personal use, a complete list of which is set forth on Schedule 5.9 hereto (the
"Terminated Vehicles"), and (b) Purchaser shall have entered into a new lease
agreement for the continued lease by the Company of the remaining Company
vehicles under the Master Lease (the "Retained Vehicles"). As of the Closing
Date, the Company shall have no obligation or liability with respect to any of
the Terminated Vehicles.
5.10 Use of Office Space.
(a) Subject to Seller's receipt of the consent of the
applicable landlord, commencing on the Closing Date and continuing
through December 31, 1999, Seller will permit the Company to use the
office space described in greater detail on Schedule 5.10(a) hereto
(the "Seller Space"), on the terms and conditions set forth in a letter
agreement substantially in the form of Exhibit B hereto (the "Seller
Space Agreement"). Seller shall use its best efforts to (i) obtain the
required consents of the applicable landlords, and (ii) continue to
lease the Seller Space through December 31, 1999.
(b) Commencing on the Closing Date and continuing for a
period of 60 days after the Closing Date, the Company will permit
Seller to use the office space described in greater detail on Schedule
5.10(b) hereto (the "Company Space"), on the same terms and conditions
on which Seller has used the Company Space immediately prior to the
date hereof; provided, however, that Seller shall be permitted to use
the Company Space free of charge. Seller will use commercially
reasonable efforts to vacate the Company Space as soon as possible.
5.11 Assumption of Liabilities. On or prior to the Closing, Seller
shall take all steps necessary to assume or otherwise discharge all outstanding
liabilities and obligations of the Company arising or attributable to events
occurring prior to the Closing (including, without limitation, those certain
letter agreements listed on Schedule 4.20 hereto) (the "Excluded Liabilities").
In connection with the foregoing, at the Closing, Seller shall execute an
Assumption of Liabilities Agreement substantially in the form of Exhibit C
hereto (the "Assumption of Liabilities").
5.12 Releases. On or prior to the Closing, Seller shall take all
steps necessary to obtain releases on behalf of Seller, Shareholder and the
Company in respect of those obligations identified on Schedule 4.3 hereto. In
connection with the foregoing, at the Closing, Seller shall deliver copies of
such releases (collectively, the "Releases") in form and substance reasonably
acceptable to Purchaser.
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<PAGE> 30
5.13 Vesting of Retirement Plans. On or prior to the Closing,
Seller agrees to take whatever action is necessary to cause employees of the
Company who are participants in Shareholder's 401(k) Plan to terminate their
active participation in Shareholder's 401(k) Plan, and to cause Shareholder's
401(k) Plan to permit a distribution to participants of their vested account
balances in accordance with Section 401(k)(10)(A)(iii) of the Code in connection
with the transactions contemplated by this Agreement (subject to the repayment
of any loans from such plans to any such participants to the extent required to
be repaid under the terms of Shareholder's 401(k) Plan).
5.14 Assignment of Certain Contracts. On or prior to the Closing,
Seller shall have caused the assignment from the Company or, at the option of
Seller, the termination of, those contracts listed on Schedule 5.14 hereto (the
"Terminated Contracts"). As of the Closing Date, the Company shall have no
obligation or liability with respect to any of the Terminated Contracts.
5.15 Employee Payments. As soon as is reasonably practicable after
the Closing (but in no event later than 30 days after the Closing Date), Seller
shall estimate the total amount of vacation pay, sick leave pay and other
amounts accrued by, but not paid to (or assumed by Seller under the Assumption
of Liabilities), employees of the Company on or prior to the Closing Date
(collectively, the "Accrued Pay"), and shall pay to Purchaser, in cash, an
amount equal to 50% of such estimated amount (the "Estimated Payment"). On the
date one year after the Closing Date, Seller shall pay to Purchaser, in cash, an
amount equal to the excess, if any, of (i) any Accrued Pay that has been paid by
Purchaser, over (ii) the Estimated Payment; provided, however that Purchaser
shall provide Seller with such reasonable documentation as is requested by
Seller in connection with such payments by Purchaser. Notwithstanding the
foregoing, if Purchaser is not obligated to pay all of the Estimated Payment to
employees of the Company (whether because of early termination of such employees
or otherwise), Purchaser shall pay to Seller, in cash, on the date one year
after the Closing Date, an amount equal to the excess of (x) of the Estimated
Payment, over (y) any Accrued Pay that has been paid by Purchaser.
5.16 Employment Agreements. Each of Seller and Purchaser shall use
commercially reasonable efforts to cause each of Stephen P. Ahern, Richard A.
Marinaro and David S. Dulaney to enter into employment agreements with the
Company (or Purchaser, if applicable), in form and substance reasonably
satisfactory to Purchaser.
5.17 Adverse Changes in Condition. Seller agrees to give written
notice promptly to Purchaser upon becoming aware of the occurrence or impending
occurrence of any event or circumstance relating to it or any of its affiliates
which (i) is reasonably likely to have, individually or in the aggregate, a
material adverse effect on the business, properties or financial condition of
the Company, (ii) would cause or constitute a material breach of any of its
representations, warranties or covenants contained in Section 3 or 4 hereof, or
(iii) which is reasonably likely to result in Seller's, Shareholder's or the
Company's inability to perform its obligations under this Agreement. Purchaser
agrees to give written notice promptly to Seller upon becoming aware of the
occurrence of any event or circumstance which is reasonably likely to result in
Purchaser's inability to perform
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<PAGE> 31
its obligations under this Agreement.
5.18 Supplements to Schedules. From time to time prior to the
Effective Time, the Company, Seller, Shareholder and Purchaser will each
promptly supplement or amend the respective Schedules that they have delivered
pursuant to this Agreement with respect to any matter arising after the date of
this Agreement that, if existing or occurring at the date of this Agreement,
would have been required to be set forth or described in any such Schedules or
that is necessary to correct any information in any such Schedules that has been
rendered inaccurate by such matter. No supplement or amendment to any such
Schedules shall have any effect for the purpose of determining satisfaction of
the conditions set forth in Sections 6.1(a) or 6.2(a); provided, however that
the disclosure in any such supplement or amendment to the Schedules with respect
to any matter occurring after the date hereof (which did not exist on the date
hereof) shall not form the basis of a claim for misrepresentation or breach of a
representation, warranty, covenant or agreement hereunder.
ARTICLE 6.
Conditions to Closing
6.1 Conditions to Purchaser's Obligations. The obligations of
Purchaser to consummate the transactions contemplated by this Agreement are
subject to the satisfaction at or prior to the Closing of each of the following
conditions precedent, any one or more of which may be waived by Purchaser:
(a) Each of the representations and warranties of
Shareholder, Seller and the Company set forth in Articles 3 and 4
hereof shall be true and correct in all materials respects on and as of
the date of this Agreement and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date;
provided, however, that any such representation or warranty that is
already qualified by "materiality" shall be true in all respects.
(b) Seller and the Company shall have performed and
complied in all material respects with the agreements, covenants and
obligations required under this Agreement to be performed or complied
with by Seller prior to or at the Closing.
(c) Each of Seller and the Company shall furnish
Purchaser with a certificate of its appropriate officers as to
compliance with the conditions set forth in Sections 6.1(a) and (b)
hereof.
(d) Purchaser shall have received an opinion, dated the
Closing Date, of Posternak, Blankstein & Lund, L.L.P., counsel to the
Company and Seller, substantially in the form of Exhibit D hereto.
(e) The Company shall not have suffered any material
adverse change after
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<PAGE> 32
August 23, 1998 in its businesses, prospects, customer contracts,
financial condition, working capital, assets, liabilities (absolute,
accrued, contingent or otherwise), reserves, operations or results of
operations, taken as a whole.
(f) Each of the officers and directors of the Company
shall have tendered to Purchaser resignation letters in form and
substance reasonably acceptable to Purchaser on or prior to the Closing
Date, such resignations to be effective at the Effective Time.
(g) Seller and the Company shall have obtained all
authorizations, consents, waivers and approvals identified on Schedule
5.4 hereto.
(h) All filings that are required to have been made by
Seller or the Company with any Authority in order to carry out the
transactions contemplated by this Agreement shall have been made; all
authorizations, consents and approvals from all Authorities required
for Seller or the Company to carry out the transactions contemplated by
this Agreement shall have been received; provided, however that nothing
herein shall be deemed a requirement that Seller obtain any approvals
with respect to the Permits; and all statutory waiting periods in
respect thereof shall have expired. There shall be in force no claim,
proceeding, action, order or decree by or before any Authority of
competent jurisdiction restraining, enjoining, prohibiting,
invalidating or otherwise preventing (or seeking to prevent) the
consummation of the transactions contemplated hereby.
(i) No proceeding in which Seller or the Company shall be
a debtor, defendant or party seeking an order for his or its own relief
or reorganization shall have been brought or be pending by or against
such person or entity under any United States or state bankruptcy or
insolvency Law.
(j) Purchaser shall have received a certificate issued by
the Secretary of State of the state in which the Company is
incorporated and of each state in which the Company is qualified as a
foreign corporation, as of a recent date, as to the good standing,
non-dissolution or foreign qualification, as applicable, of the Company
in such state(s).
(k) Seller shall have delivered to Purchaser (i) a copy
of the Company's Certificate of Incorporation, as amended to date,
certified as of a recent date by the Secretary of State of Delaware,
and (ii) all corporate minute books, stock transfer books, blank stock
certificates and corporate seals of the Company.
(l) Seller and the Company, as appropriate, shall have
executed and delivered:(i) an Assumption of Liabilities; (ii) a
Tradename License; (iii) if necessary landlord approvals have been
obtained, the Seller Space Agreement; (iv) the Transition Agreement,
substantially in the form of Exhibit E hereto; (v) the Subcontractor
Agreements (x) regarding the contracts identified on Schedule 6.1(l)
hereto, substantially in the form of Exhibit F hereto, and (y) with
Bell Communications Research, Inc. (together with the contracts listed
on Schedule 6.1(l), the "Prime Contracts"), substantially in the form
of Exhibit G hereto, subject, in the
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case of all Subcontractor Agreements, to any changes that are
reasonably acceptable to Purchaser and consistent with the Prime
Contracts; (vi) the Preferred Provider Agreement (including commission
schedule), substantially in the form of Exhibit H hereto; and (vii) the
side letter substantially in the form of Exhibit I hereto.
(m) Purchaser shall have received the consents and
approvals described in Schedules 2.2 and 2.3 hereof.
(n) Purchaser shall have received evidence satisfactory
to it to the effect that (i) the Terminated Vehicles have been
terminated, and (ii) the Terminated Contracts have been terminated or
assigned, and, in each case, are of no further force or effect as
against the Company.
(o) The Company shall have complied with its obligations
under Section 5.13 hereof.
(p) Seller shall deliver to Purchaser, on behalf of the
Company, executed contracts, or renewals thereof, or notifications of
renewals thereof, in form and substance reasonably acceptable to
Purchaser, between the Company and the parties listed on Schedule
6.1(p) hereto.
(q) Seller shall have delivered to Purchaser the
Releases, in form and substance reasonably acceptable to Purchaser.
(r) Seller shall have complied with its obligations under
Section 5.15 hereof.
(s) Early termination shall have been granted or
applicable waiting periods shall have expired under the HSR Act.
6.2 Conditions to Seller's Obligations. The obligations of Seller
and Shareholder to consummate the transactions contemplated by this Agreement
are subject to the satisfaction at or prior to the Closing of each of the
following conditions precedent, any one or more of which may be waived by
Seller:
(a) Each of the representations and warranties of
Purchaser set forth in Article 2 shall be true and correct in all
material respects on and as of the date of this Agreement and as of the
Closing Date with the same force and effect as though made on and as of
the Closing Date; provided, however, that any such representation or
warranty that is already qualified by "materiality" shall be true in
all respects.
(b) Purchaser shall have performed and complied in all
material respects with the agreements, covenants and obligations
required under this Agreement to be performed or complied with by
Purchaser prior to or at the Closing.
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<PAGE> 34
(c) Purchaser shall furnish Seller with a certificate of
its appropriate officers as to compliance with the conditions set forth
in Sections 6.2(a) and (b) hereof.
(d) All filings that are required to have been made by
Purchaser with any Authority in order to carry out the transactions
contemplated by this Agreement shall have been made; all
authorizations, consents and approvals from all Authorities required
for Purchaser to carry out the transactions contemplated by this
Agreement shall have been received; and all statutory waiting periods
in respect thereof shall have expired.
(e) There shall be in force no claim, proceeding, action,
order or decree by or before any Authority of competent jurisdiction
restraining, enjoining, prohibiting, invalidating or otherwise
preventing (or seeking to prevent) the consummation of the transactions
contemplated hereby.
(f) No proceeding in which Purchaser shall be a debtor,
defendant or party seeking an order for its own relief or
reorganization shall have been brought or be pending by or against
Purchaser under any United States or state bankruptcy or insolvency
Law.
(g) Seller shall have obtained the Releases, in form and
substance reasonably acceptable to Seller.
(h) Seller shall have received the legal opinion of
Purchaser's counsel, King & Spalding, substantially in the form of
Exhibit J hereto.
(i) Early termination shall have been granted or
applicable waiting periods shall have expired under the HSR Act.
(j) Neither Seller nor Shareholder shall have any
collateral, letter of credit or other obligation in respect of the
Performance Bonds.
(k) Purchaser shall have received the consents and
approvals described in Schedules 2.2 and 2.3 hereof.
(l) Purchaser shall have complied with its obligations
under Section 5.9 hereof.
6.3 Materiality Defined. For purposes of this Article 6, a
condition to closing will be considered "material" if, in the aggregate, all
adverse conditions applicable to Seller or Purchaser, as the case may be (offset
by all beneficial conditions, if any arising since August 23, 1998), equal or
exceed $175,000 of operating income.
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ARTICLE 7.
Additional Agreements
7.1 Further Assurances. The parties hereto shall deliver any and
all other instruments or documents required to be delivered pursuant to, or
necessary or proper in order to give effect to, all of the terms and provisions
of this Agreement including, without limitation, all necessary stock powers and
such other instruments of transfer as may be necessary or desirable to transfer
ownership of the Shares.
7.2 Certain Tax Matters.
(a) Seller will join with Purchaser in making an election
under Section 338(h)(10) of the Code and Treasury Regulations Section
1.338(h)(10)-1 (and any corresponding elections under any applicable
state and local Laws) (collectively, a "Section 338(h)(10) Election")
with respect to the purchase and sale of the Shares hereunder. Seller
will pay any Tax attributable to the making of the Section 338(h)(10)
Election (including, without limitation, any Tax arising as the result
of the recognition of any built-in gain pursuant to the provisions of
Section 1374 of the Code and any Tax arising as the result of the
"recapture" of previously deducted items) and Seller will indemnify
Purchaser and the Company from and against any and all damages,
penalties, fines, costs, reasonable amounts paid in settlement,
liabilities, obligations, losses, expenses and fees (including court
costs and reasonable attorneys' fees and expenses), including, as the
context may require, any of the foregoing which arise out of or in
connection with any actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions,
judgments, orders or rulings arising out of any failure to pay such
Tax.
(b) Seller will be responsible for preparing and filing
all income or franchise Tax Returns of the Company relating to Tax
periods ending on or before the Closing Date. Purchaser will be
responsible for preparing and filing the Section 338(h)(10) election
(provided that Seller shall provide such written consents and other
items required by Seller to make such election) all income and
franchise Tax Returns of the Company relating to periods beginning on
or after the Closing Date. After the Closing has occurred, Purchaser
will cause the Company to provide, or cause to be provided, to Seller,
without charge, any information that may reasonably be requested by
Seller in connection with the preparation of any Tax Returns relating
to pre-Closing Tax periods.
(c) The parties hereto agree to cooperate with one
another to allocate the Purchase Price in a manner reasonably
acceptable to the parties. Such agreed allocation shall be binding on
the Seller and Purchaser and their respective affiliates for all
purposes (including without limitation, financial accounting purposes,
financial and regulatory reporting purposes and tax purposes) and none
of the parties or such affiliates shall take for tax purposes any
position in any tax return, report, form, declaration or questionnaire
that is inconsistent with such allocation.
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<PAGE> 36
7.3 Litigation Support. In the event and for so long as any party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand in connection with
(i) any transaction contemplated under this Agreement, or (ii) any fact,
situation, circumstance, status, condition, activity, practice, occurrence,
event, incident, action, failure to act, or transaction on or prior to the
Closing Date involving the Company, each of the parties will cooperate with the
contesting or defending party and its or their counsel in the contest or
defense, all at the sole cost and expense of the contesting or defending party
(except to the extent the contesting or defending party is entitled to
indemnification therefor under this Agreement).
7.4 Noncompetition and Confidential Information
(a) Definitions. For the purposes of this Section 7.4,
the following definitions shall apply:
(i) "Company Activities" shall mean the business
of providing commercial security services, including the
provision of any armed guard services, protection services,
access control, fire and safety administration (as provided by
the Company prior to the Closing), and road and highway
distress services.
(ii) "Confidential Information" shall mean any
data or information of the Company, other than Trade Secrets,
that is valuable to the Company and not generally known to
competitors of the Company.
(iii) "Noncompete Period" or "Nonsolicitation
Period" shall mean the period beginning the Closing Date and
ending on the third anniversary of the Closing Date.
(iv) "Territory" shall mean the areas where the
Company conduct business as of the Closing Date and
surrounding areas into which Purchaser has plans of expanding
the business of the Company. The Territory includes areas
where customers or actively sought prospective customers of
the Company are located. For purposes of reference, such areas
include the entire United States.
(v) "Trade Secrets" shall mean information,
without regard to form, including, but not limited to,
technical or nontechnical data, a formula, pattern,
compilation, program, device, method, technique, drawing,
process, financial data, financial plan, product plan, list of
actual or potential customers or suppliers, or other
information similar to any of the foregoing, which derives
economic value, actual or potential, from not being generally
known to, and not being readily ascertainable by proper means
by, other persons who can derive economic value from its
disclosure or use, and is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.
(b) Trade Secrets. Seller and Shareholder shall hold, and
shall cause their
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respective officers, directors, officers, employees and agents
(collectively, together with Seller and Shareholder, the "Seller
Group") to hold, in confidence at all times after the date hereof, all
Trade Secrets, and shall not disclose, publish or make use at any time
after the date hereof of (or permit the disclosure, publishing or use
by any member of the Seller Group of) Trade Secrets without the prior
written consent of Purchaser, or unless required by law or legal
proceeding, and then only to the extent so required, and provided that
prompt written notice of such disclosure shall be delivered to
Purchaser. Nothing in this Agreement shall diminish the Company's or
Purchaser's rights regarding the protection of trade secrets pursuant
to applicable Law.
(c) Confidential Information. Seller and Shareholder
hereby agree that during the Noncompete Period, Seller and Shareholder
shall, and shall cause the members of the Seller Group to, hold in
confidence all Confidential Information and will not (and will not
permit members of the Seller Group to) (other than as an employee of or
a consultant to the Company or to Purchaser or an affiliate of
Purchaser) disclose, publish or make use of Confidential Information
without the prior written consent of the Company which is the source of
the Confidential Information, or unless required by law or legal
proceeding, and then only to the extent so required, and provided that
prompt written notice of such disclosure shall be delivered to
Purchaser.
(d) Noncompetition.
(i) Coverage and Acknowledgment. Seller and
Shareholder acknowledge that the Company conducts Company
Activities throughout the Territory and that to protect
adequately the interest of Purchaser in the business of the
Company it is essential that any noncompete covenant with
respect thereto cover all Company Activities and the entire
Territory. Seller and Shareholder further acknowledge that in
developing the business of the Company, Seller and Shareholder
have developed substantial personal contacts and strong
business and personal ties and goodwill within the Territory
and that the benefits of these ties and goodwill are an
essential factor in Purchaser's acquisition of the Company.
Because of the value to Purchaser of these contacts, ties and
goodwill, Seller and Shareholder make the covenants in this
Section 7.4(d) and Section 7.4(e) below.
(ii) Covenant. Seller and Shareholder hereby
agrees that they shall not, during the Noncompete Period,
directly or indirectly, engage in or have an equity or profit
interest in or render services (of an executive, marketing,
administrative, financial or consulting nature) to any
business that, directly or indirectly, is engaged in the
conduct of Company Activities in the Territory.
Notwithstanding anything in this Section 7.4(d) to the
contrary, nothing contained herein shall prohibit Seller or
Shareholder from (A) acquiring not more than five percent (5%)
of any company whose common stock is publicly traded on a
national securities exchange or in the over-the-counter
market, (B) performing Company Activities under any contract
to
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the extent the performance of Company Activities under the
terms of such contract involves less than 168 permanent man
hours per week; (C) performing its obligations under the terms
of the Agreement dated October 1, 1996, between Shareholder
and General Services Administration; and (D) engaging in any
Company Activities if (x) the opportunity to provide such
Company Activity was first offered to Purchaser in accordance
with the Preferred Provider Agreement and was not accepted by
Purchaser, and (y) Seller has used its reasonable best efforts
to subcontract such Company Activity (including, without
limitation, by offering such Company Activity to
subcontractors that are reasonably acceptable to Seller on
commercially reasonable terms).
(e) Nonsolicitation. Seller and Shareholder hereby agree
that they shall not, during the Nonsolicitation Period, in any manner
(other than as an employee of or a consultant to the Company or to
Purchaser or an affiliate of Purchaser), directly or by assisting
others:
(i) solicit or attempt to solicit any business
from any of the Company's or Purchaser's customers, including
actively sought prospective customers, for purposes of
providing products or services that constitute Company
Activities; or
(ii) solicit or attempt to solicit, on Seller's
or Shareholder's behalf, or on behalf of any other Person, any
employee of the Company (or any employee of Purchaser or its
affiliates who was an employee of the Company immediately
prior to the Closing) while such Person is employed by the
Company, Purchaser or its affiliates.
(f) Severability. If a judicial determination is made
that any of the provisions of this Section 7.4 constitutes an
unreasonable or otherwise unenforceable restriction against Seller or
Shareholder, the provisions of this Section 7.4 shall be rendered void
only to the extent that such judicial determination finds such
provisions to be unreasonable or otherwise unenforceable. In this
regard, Seller, Shareholder and Purchaser hereby agree that any
judicial authority construing this Agreement shall be empowered to
sever any portion of the Territory, any prohibited business activity or
any time period from the coverage of this Section 7.4 and to apply the
provisions of this Section 7.4 to the remaining portion of the
Territory, the remaining business activities and the remaining time
period not so severed by such judicial authority. Moreover,
notwithstanding the fact that any provision of this Section 7.4 is
determined not to be specifically enforceable, Purchaser shall
nevertheless be entitled to recover actual monetary damages as a result
of the breach of such provision by Seller and/or Shareholder.
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ARTICLE 8.
Indemnification
8.1 Seller and Shareholder
(a) Indemnity. Seller and Shareholder shall, jointly and
severally, defend and indemnify Purchaser and hold the Purchaser wholly
harmless from and against any and all losses, liabilities, damages,
costs (including, without limitation, court costs) and expenses
(including, without limitation, reasonable attorneys' fees)
(collectively, "Damages") that Purchaser or the Company incurs as a
result of, or with respect to:
(i) any inaccuracy in or breach of any
representation, warranty, covenant or agreement by or on
behalf of Shareholder, Seller or the Company contained in this
Agreement or contained in any certificate, agreement or
document of Shareholder, Seller or the Company delivered to
Purchaser in connection with the consummation of the
transactions contemplated hereunder;
(ii) any direct costs or expenses associated with
any arbitration award in the Bell Atlantic union dispute
(including, without limitation, any legal fees, back benefits
or back pay owed, but not including any consequential losses
resulting therefrom);
(iii) the Excluded Liabilities (including, without
limitation, the Terminated Contracts, Terminated Vehicles, and
any liability incurred in respect of any EEOC claims or other
litigation relating to events occurring prior to the Closing
Date);
(iv) any liabilities for Taxes levied on or
calculated based upon the revenues or income of the Company
and payable by the Company on or after the Closing Date with
respect to any taxable period ending on or prior to the
Closing Date (treating any taxable period that begins before
and ends after the Closing Date as if such taxable period had
ended on the Closing Date), to the extent such liabilities
exceed any reserves for Tax liabilities on the Financial
Statements.
(b) Claims. In the event that Purchaser shall receive
written notice of any claim or proceeding against Purchaser or the
Company that, if successful, might result in a claim under Section
8.1(a) by Purchaser, Purchaser shall give Seller prompt written notice
of such claim or proceeding and shall permit Seller to participate in
the defense of, or, at Seller's option, to assume the defense of, such
claim or proceeding by counsel of Seller's own choosing and at the sole
cost and expense of Seller. If Seller assumes the defense of such
claim, Seller shall keep Purchaser informed of the progress of the
claim, and shall consult with Purchaser in good faith regarding actions
to be taken in respect of such claim; provided, however, that if, in
the reasonable opinion of Purchaser, Seller does not diligently pursue
the defense of such claim, Purchaser shall be entitled to take over the
defense of such claim at the sole cost and expense of Seller,
including, without limitation by hiring counsel of Purchaser's own
choosing for the defense of such claim. Seller will not settle any such
claim without the prior written consent of Purchaser; provided, however
that if Purchaser elects not to accept such settlement, Purchaser may
elect to continue the defense of such claim at the
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sole cost and expense of Purchaser; provided further, however, that (i)
if the liability in respect of such claim as finally determined is
greater than the liability that would have resulted from the acceptance
of the settlement in question, Seller shall only be liable in respect
of such claim for the amount of such settlement, plus costs and
expenses through the date of such settlement; and (ii) if the liability
in respect of such claim as finally determined is less than the
liability that would have resulted from the acceptance of the
settlement in question, Seller shall promptly reimburse Purchaser, in
cash, for any costs and expenses incurred by Purchaser (including
without limitation reasonable legal expenses) in respect of the pursuit
of such claim; provided, however that Seller shall not be obligated to
pay or reimburse Purchaser for amounts in excess of the amounts Seller
would have been required to pay had such settlement been accepted.
Within ten business days of the final determination of the merits and
amount of such claim (after the expiration of all applicable appeal
periods), Seller shall pay to Purchaser immediately available funds in
an amount equal to the claim as so determined.
(c) Time to Assert Claim. Except as otherwise provided in
this Section 8.1(c), the representations and warranties of Seller,
Shareholder and the Company shall survive until June 30, 2000, and any
claim for indemnification by Purchaser under Section 8.1(a)(i) hereof
shall be asserted by written notice to Seller on or before such date.
On June 30, 2000, any matters as to which a claim has been asserted
under Section 8.1(a)(i) shall continue to be covered by Section
8.1(a)(i) until finally terminated or resolved. It is specifically
acknowledged and agreed to that the foregoing time limitation shall not
be applicable with respect to a claim for indemnification based upon
the breach or inaccuracy of a representation, warranty, covenant or
agreement contained in Sections 3.1 (Seller's Organization, Good
Standing, Power and Authority), 3.2 (Authorization), 3.4 (Consents and
Approvals), 3.5 (Ownership of the Shares), 3.6 (Power, Authority and
Ownership of Shareholder), 4.1 (the Company's Organization, Good
Standing, Power and Authority), 4.2 (Authorization), 4.5
(Capitalization), 4.10 (Tax Matters), 4.14 (Employee Matters), 4.22
(Brokers), 5.11 (Assumption of Liabilities), 5.12 (Releases), 5.13
(Vesting of Retirement Plans), 5.14 (Assignment of Certain Contracts),
5.15 (Employee Payments), 7.2 (Certain Tax Matters), 7.4
(Noncompetition and Confidential Information), 8.1(a)(ii), 8.1(a)(iii)
or 8.1(a)(iv) (the "Seller Surviving Matters") and there shall be no
time limit for any claim for indemnification for Seller Surviving
Matters; provided, however that such time period shall not be construed
as any attempted extension or waiver of any applicable statute of
limitations.
(d) Limitations on Liability. Notwithstanding any
implication to the contrary contained herein, Seller and Shareholder
shall have no liability with respect to the breach of any
representation, warranty, covenant or obligation to be performed or
complied with under the Agreement or with respect to any
indemnification under Section 8.1(a) hereof, until the total amount of
all Damages with respect to such matters exceeds $100,000 (including
costs, expenses and liabilities incurred by Purchaser that would not be
considered "material" under the terms of Articles 3 and 4 hereof), and
then only for amounts by which such Damages
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<PAGE> 41
exceed $100,000; provided, however, that the foregoing limitation shall
not apply to any Damages in respect of accounts payable, accrued wages,
accrued taxes, other accruals in accordance with GAAP, taxes payable,
workers' compensation claims (including incurred but not recorded
claims), pension plan claims, outstanding debt, and any claims
described on Schedules 4.17 (loss runs only), 4.19 and 4.22 hereof.
Furthermore, Seller and Shareholder shall have no liability with
respect to any of the foregoing for amounts in excess of $12,000,000 in
the aggregate. Notwithstanding the foregoing, nothing contained herein
shall limit Seller's or Shareholder's liability under this Agreement to
the extent such liability results from fraud or wilful misconduct of
Seller or Shareholder.
(e) Limitation on the Scope of Indemnification.
Notwithstanding the foregoing, Purchaser will not be entitled to
indemnification with respect to punitive damages, except in the case of
fraud or wilful misconduct by Seller or Shareholder. Any
indemnification amounts payable by Seller or Shareholder to Purchaser
under this Section 8.1 shall be calculated after giving effect to (i)
any proceeds (net of retro-premium adjustments and other expenses)
actually received by Purchaser from insurance policies covering the
Damage that is the subject of such claim for indemnity; and (ii) the
actual recognized tax benefit (taking into account the timing of the
receipt of such benefit) resulting from the Damage that is the subject
of such claim for indemnity. For purposes of this Section 8.1(e), an
actual recognized tax benefit is an actual reduction in taxes payable
or a refund of taxes previously paid after taking into account the tax
impact of any indemnification from Seller or Shareholder.
8.2 Purchaser.
(a) Indemnity. Purchaser shall defend and indemnify
Seller, and hold Seller wholly harmless from and against any and all
Damages that Seller or Shareholder incurs as a result of, or with
respect to,
(i) any inaccuracy in or breach of any
representation, warranty, covenant or agreement by or on
behalf of Purchaser contained in this Agreement or contained
in any certificate, agreement or document of Purchaser
delivered to Seller in connection with the consummation of the
transactions contemplated hereunder; or
(ii) any liability of the Company relating to the
business of the Company conducted on or after the Closing,
including, without limitation, any liability arising with
respect to the use of the name "UNICCO Security Services,
Inc." by Purchaser and the occupance of the Seller Space by
Purchaser.
(b) Claims. In the event that Seller or Shareholder shall
receive written notice of any claim or proceeding against Seller or
Shareholder that, if successful, might result in a claim under Section
8.1(a) by Seller or Shareholder, Seller shall give Purchaser prompt
written notice of such claim or proceeding and shall permit Purchaser
to participate in the defense of, or, at Purchaser's option, to assume
the defense of, such claim or proceeding by
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<PAGE> 42
counsel of Purchaser's own choosing and at the sole cost and expense of
Purchaser. If Purchaser assumes the defense of such claim, Purchaser
shall keep Seller informed of the progress of the claim, and shall
consult with Seller in good faith regarding actions to be taken in
respect of such claim; provided, however, that if, in the reasonable
opinion of Seller, Purchaser does not diligently pursue the defense of
such claim, Seller shall be entitled to take over the defense of such
claim at the sole cost and expense of Purchaser, including, without
limitation by hiring counsel of Seller's own choosing for the defense
of such claim. Purchaser will not settle any such claim without the
prior written consent of Seller; provided, however that if Seller
elects not to accept such settlement, Seller may elect to continue the
defense of such claim at the sole cost and expense of Seller; provided
further, however (i) if the liability in respect of such claim as
finally determined is greater than the liability that would have
resulted from the acceptance of the settlement in question, Purchaser
shall only be liable in respect of such claim for the amount of such
settlement, plus costs and expenses through the date of such
settlement; and (ii) if the liability in respect of such claim as
finally determined is less than the liability that would have resulted
from the acceptance of the settlement in question, Purchaser shall
promptly reimburse Seller, in cash, for any costs and expenses incurred
by Seller (including without limitation reasonable legal expenses) in
respect of the pursuit of such claim; provided, however that Seller
shall not be obligated to pay or reimburse Purchaser for amounts in
excess of the amounts Seller would have been required to pay had such
settlement been accepted. Within ten business days of the final
determination of the merits and amount of such claim (after the
expiration of all applicable appeal periods), Seller shall pay to
Purchaser immediately available funds in an amount equal to the claim
as so determined.
(c) Time to Assert Claim. Except as otherwise provided in
this Section 8.2(d), any claim for indemnification by Seller under
Section 8.2(a) hereof shall be asserted by June 30, 2000. Any matters
as to which a claim has been asserted under Section 8.2(a) on or June
30, 2000 shall continue to be covered by Section 8.2(a) until finally
terminated or resolved.
(d) Limitations on Liability. Notwithstanding any
implication to the contrary contained herein, Purchaser shall have no
liability with respect to the breach of any representation, warranty,
covenant or obligation to be performed or complied with under the
Agreement or with respect to indemnification under Section 8.2(a)
hereof, until the total amount of all Damages with respect to such
matters exceeds $100,000, and then only for amounts by which such
Damages exceed $100,000. Furthermore, Purchaser shall have no liability
with respect to any of the foregoing for amounts in excess of
$12,000,000 in the aggregate. Notwithstanding the foregoing, nothing
contained herein shall limit Purchaser's liability under this Agreement
to the extent such liability results from fraud or wilful misconduct of
Purchaser.
(e) Limitation on the Scope of Indemnification.
Notwithstanding the foregoing, neither Seller nor Shareholder will be
entitled to indemnification with respect to punitive damages, except in
the case of fraud or wilful misconduct by Purchaser. Any
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<PAGE> 43
indemnification amounts payable by Purchaser to Seller or Shareholder
under this Section 8.2 shall be calculated after giving effect to (i)
any proceeds (net of retro-premium adjustments and other expenses)
actually received by Seller or Shareholder from insurance policies
covering the Damage that is the subject of such claim for indemnity;
and (ii) the actual recognized tax benefit (taking into account the
timing of the receipt of such benefit) resulting from the Damage that
is the subject of such claim for indemnity. For purposes of this
Section 8.2(e), an actual recognized tax benefit is an actual reduction
in taxes payable or a refund of taxes previously paid after taking into
account the tax impact of any indemnification from Purchaser.
ARTICLE 9.
Modification, Waivers and Termination
9.1 Modification. The parties hereto may, by mutual consent,
amend, modify or supplement this Agreement in such manner as may be agreed upon
by them in writing at any time.
9.2 Waivers. Purchaser, by an instrument in writing, may extend
the time for or waive the performance of any of the obligations of Seller or
Shareholder or waive compliance by Seller or Shareholder with any of the
covenants or conditions of Seller and Shareholder contained herein, and Seller,
by an instrument in writing, may extend the time for or waive the performance of
any of the obligations of Purchaser or waive compliance by Purchaser with any of
the covenants or conditions of Purchaser contained herein.
9.3 Termination. This Agreement may be terminated, and the
transactions contemplated hereby abandoned, prior to the Closing as follows:
(a) by Purchaser and Seller by mutual written consent at
any time;
(b) by Purchaser by giving written notice to Seller at
any time (i) in the event Seller has breached any of its
representations, warranties, covenants or agreements contained in this
Agreement in any material respect, Purchaser has notified Seller of the
breach and the breach has continued without cure for a period of ten
days after the notice of breach, or (ii) if Purchaser reasonably
determines in good faith that there will be any change in the Company's
relationships with its customers after the date of this Agreement that
will have a material adverse effect (as such term is defined in Section
6.3 hereof) on the Company's ongoing business; provided, however, that
the receipt by Purchaser or Seller of any oral or written notice to the
effect that any customer intends to terminate or put to bid any
Material Contract, the loss of which would result in a "material
adverse effect" as defined in Section 6.3 hereof, shall be grounds for
termination for purposes of this Section 9.3), or (iii) subject to
satisfaction of the conditions to Closing set forth in Sections 6.1(s)
and 6.2(i) hereof, if the Closing shall not have occurred on or before
December 1, 1998 (unless the failure results (x) primarily from
Purchaser itself breaching any representation, warranty, covenant or
agreement of Purchaser contained in this Agreement; or (y) from an
inability of Seller to
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<PAGE> 44
satisfy the conditions to Closing set forth in Sections 6.1(g), (n),
(o), (p) or (q) hereof, in which event this Agreement shall not
terminate, and the Closing shall be delayed until such time as such
condition or conditions shall be satisfied; provided, however, that any
delay in the Closing pursuant to this clause (y) shall not extend
beyond January 31, 1999);
(c) by Seller by giving written notice to Purchaser at
any time (i) in the event Purchaser has breached any representation,
warranty, covenant or agreement of Purchaser contained in this
Agreement in any material respect, Seller has notified Purchaser of the
breach, and the breach has continued without cure for a period of ten
days after the notice of breach, or (ii) subject to satisfaction of the
conditions to Closing set forth in Sections 6.1(s) and 6.2(i) hereof,
if the Closing shall not have occurred on or before December 1, 1998
(unless the failure results primarily from (x) Seller or Shareholder
breaching any of their respective representations, warranties,
covenants or agreements contained in this Agreement), or (y) an
inability to satisfy the conditions to Closing set forth in Section
6.2(l) hereof, in which event this Agreement shall not terminate, and
the Closing shall be delayed until such time as such condition or
conditions shall be satisfied; provided, however, that any delay in the
Closing pursuant to this clause (y) shall not extend beyond January 31,
1999); or
(d) by Seller or by Purchaser at any time prior to the
Closing Date if the Closing shall violate any order, decree or judgment
of any court or any Authority having competent jurisdiction.
9.4 Effect of Termination. In the event this Agreement is
terminated pursuant to Section 9.3 hereof, all rights and obligations of the
parties hereunder shall terminate without liability of any party to any other
party; provided, however, that the provisions of this Section 9.4 and Section
10.7 shall remain in full force and effect.
ARTICLE 10.
Miscellaneous
10.1 Notices. Any notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and, except as otherwise specified in writing, shall be given by personal
delivery, facsimile transmission, FedEx (or other similar courier service) or by
registered or certified mail, postage prepaid, return receipt requested (a) if
to Purchaser, c/o AHL Services, Inc., 3353 Peachtree Road, N.E., Suite 1120,
North Tower, Atlanta, Georgia 30326, Attention: David L. Gamsey, Telecopy No.:
404-267-2231; with a copy to: King & Spalding, 191 Peachtree Street, Atlanta,
Georgia 30303-1763, Attention: Russell B. Richards, Telecopy No.: 404- 572-5100;
and (b) if to Seller or Shareholder, c/o UNICCO Service Company, Four Copley
Place, Boston, Massachusetts 02116, Attention: George A. Keches, CFO; with a
copy to: Posternak, Blankstein & Lund, L.L.P., 100 Charles River Plaza, Boston,
Massachusetts 02114-2723, Attention: Noel Posternak, or to such other addresses
as any party hereto may from time to time give notice of (complying as to
delivery with the terms of this Section 10.1) to the other. Notice by registered
or
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<PAGE> 45
certified mail shall be effective three days after deposit in the United States
mail. Notice by any other permitted means will be effective upon receipt.
10.2 Entire Agreement. This Agreement (including the Annex and all
of the Schedules and Exhibits attached hereto) constitutes the entire agreement
among the parties hereto with respect to the transactions contemplated hereby
and supersedes all prior agreements, understandings, negotiations and
discussions, both written and oral, among the parties hereto with respect to
thereto. Annex I hereto lists all of the Schedules and Exhibits to this
Agreement.
10.3 Benefits; Binding Effect; Assignment. This Agreement shall be
for the benefit of and binding upon the parties hereto, their respective
successors and, where applicable, assigns. No party may assign this Agreement or
any of its rights, interests or obligations hereunder without the prior approval
of the other party; provided, however, that (i) before the Closing is effected,
Purchaser may (A) assign any or all of its rights and interests hereunder to one
or more of its affiliates, and (B) designate one or more of its affiliates to
perform its obligations hereunder (but in any or all of such cases Purchaser
shall nonetheless remain responsible for the performance of all of its
obligations hereunder), and (ii) after the Closing is effected, any or all of
the rights and interests of Purchaser hereunder (A) may be assigned to any
purchaser of substantially all of the assets of Purchaser, (B) may be assigned
as a matter of law to the surviving entity in any merger of Purchaser, and (C)
may be assigned as collateral security to any lender or lenders (including any
agent for any such lender or lenders) providing financing to Purchaser in
connection with the transactions contemplated hereby, or to any assignee or
assignees of any such lender, lenders or agent.
10.4 Waiver. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall any such waiver constitute a continuing
waiver unless otherwise expressly so provided.
10.5 No Third Party Beneficiary. Nothing expressed or implied in
this Agreement is intended, or shall be construed, to confer upon or give any
Person other than the parties hereto and their respective successors and assigns
any rights or remedies under or by reason of this Agreement.
10.6 Severability. It is the desire and intent of the parties
hereto that the provisions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular provision of this
Agreement shall be adjudicated by a court of competent jurisdiction to be
invalid, prohibited or unenforceable for any reason, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of this
Agreement or affecting the validity or enforceability of such provision in any
other jurisdiction. Notwithstanding the foregoing, if such provision could be
more narrowly drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
10.7 Expenses. Whether or not the transactions contemplated by this
Agreement shall be
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<PAGE> 46
consummated, all legal, accounting and other costs and expenses incurred in
connection with this Agreement and any of the transactions contemplated hereby
on behalf of Purchaser shall be borne and paid by Purchaser (including without
limitation fees incurred in respect of any HSR filings made by Purchaser in
respect of the transactions contemplated by this Agreement), and all such costs
and expenses incurred on behalf of the Company or Seller shall be borne and paid
by Seller whether or not included in the Interim Financial Statements
(including, without limitation fees incurred in respect of any HSR filings made
by Seller or Shareholder in respect of the transactions contemplated by this
Agreement).
10.8 Headings. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of any provisions of this Agreement. Unless otherwise specified,
all references to Articles, Sections, Exhibits and Schedules are references to
Articles, Sections, Exhibits and Schedules of this Agreement.
10.9 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
shall be deemed to be one and the same instrument.
10.10 Governing Law. This Agreement will be governed by and
construed in accordance with the domestic Laws of the State of Georgia, without
giving effect to any choice of Law or conflicting provision or rule (whether of
the State of Georgia or any other jurisdiction) that would cause the Laws of any
jurisdiction other than the State of Georgia to be applied. Notwithstanding the
foregoing, any suit for the enforcement of this Agreement may be brought in the
courts of the Commonwealth of Massachusetts or the State of Georgia, and all
parties consent to the jurisdiction of such courts and to the service of process
in any such suit being made upon any party by mail at its address set forth
above.
10.11 Equitable Remedies. The parties agree that the assets and
business of the Company as a going concern constitute unique property and that
there is no adequate remedy at law for the damage which any party might sustain
for failure of the other parties to consummate the transactions contemplated by
this Agreement, and accordingly, each party shall be entitled, at its option, to
the remedy of specific performance to enforce the consummation of the
transactions described in this Agreement. Further, Seller hereto acknowledges
and agrees that Purchaser would not have an adequate remedy at law in the event
any of the provisions of Sections 7.2 and 7.4 of this Agreement are not
performed in accordance with their specific terms or are breached. Accordingly,
each of the parties hereto agrees that Purchaser shall be entitled to an
injunction or injunctions to prevent breaches of Sections 7.2 and 7.4 of this
Agreement and to enforce specifically the terms and provisions hereof in any
action instituted in any court of competent jurisdiction, in addition to any
other remedies which may be available to it. Neither rescission nor reformation
of this Agreement shall be available as a remedy to any of the parties hereto.
10.12 Construction. The provisions of this Agreement shall be
construed according to their fair meaning and neither for nor against any party
hereto irrespective of which party caused such
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<PAGE> 47
provisions to be drafted. Each of the parties acknowledge that it has been
represented by an attorney in connection with the preparation and execution of
this Agreement.
10.13 Knowledge Defined. The terms "to the best knowledge of the
Company and Seller" or any similar phase used in this Agreement means the
knowledge of a responsible officer of the Company or Seller, after making
appropriate inquiries into the matter in question.
- SIGNATURES ON THE FOLLOWING PAGE -
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<PAGE> 48
IN WITNESS WHEREOF, the parties hereto have each executed and delivered
this Agreement as of the day and year first above written.
PURCHASER:
ARGENBRIGHT SECURITY, INC.
By: /s/ David L. Gamsey
--------------------------------------
Title:
-----------------------------------
THE COMPANY:
UNICCO SECURITY SERVICES, INC.
By: /s/ Steven C. Kletjian
--------------------------------------
Title:
-----------------------------------
SELLER:
USC, INC.
By: /s/ Steven C. Kletjian
--------------------------------------
Title: President
-----------------------------------
- SIGNATURES CONTINUE ON THE FOLLOWING PAGE -
- 44 -
<PAGE> 49
SHAREHOLDER
UNICCO SERVICE COMPANY
By: /s/ Steven C. Kletjian
--------------------------------------
Title: Chief Executive Officer
-----------------------------------
<PAGE> 50
ANNEX A
EXHIBITS AND SCHEDULES
<TABLE>
<S> <C> <C> <C>
EXHIBITS
EXHIBIT A - Tradename License Agreement
EXHIBIT B - Seller Space Agreement
EXHIBIT C - Assumption of Liabilities Agreement
EXHIBIT D - Posternak, Blankstein & Lund, L.L.P. Opinion
EXHIBIT E - Transition Agreement
EXHIBIT F - Subcontractor Agreement
EXHIBIT G - Bell Communications Research Subcontractor Agreement
EXHIBIT H - Preferred Provider Agreement
EXHIBIT I - Side Letter
EXHIBIT J - King & Spalding Opinion
SCHEDULES
SCHEDULE 2.2 - Purchaser Authorization
SCHEDULE 2.3 - Consents and Approvals of Purchaser
SCHEDULE 2.4 - Brokers' and Finder's Fees (Purchaser)
SCHEDULE 3.3 - Consents and Approvals of Seller
SCHEDULE 3.4 - Ownership of the Shares of the Company
SCHEDULE 3.6 - Power, Authority and Ownership of Shareholder of Seller
SCHEDULE 4.3 - Consents and Approvals of the Company
</TABLE>
<PAGE> 51
<TABLE>
<S> <C> <C>
SCHEDULE 4.5 - Capitalization of the Company
SCHEDULE 4.7 - Financial Statements
SCHEDULE 4.8 - Undisclosed Liabilities
SCHEDULE 4.9 - Absence of Certain Changes and Events
SCHEDULE 4.10 - Tax Matters
SCHEDULE 4.11 - Title to Personal Property and Condition of Assets
SCHEDULE 4.12 - Material Contracts
SCHEDULE 4.13(a) - Intellectual Property
SCHEDULE 4.13(b) - Software
SCHEDULE 4.14(a) - Employee Benefits
SCHEDULE 4.14(g) - ERISA Requirements
SCHEDULE 4.14(h) - Plan Claims
SCHEDULE 4.14(j) - Additional Payments
SCHEDULE 4.14(k) - FMLA Employees
SCHEDULE 4.15 - Labor Matters (including Union Contracts)
SCHEDULE 4.17 - Insurance Policies
SCHEDULE 4.18 - Permits; Compliance with Law
SCHEDULE 4.19 - Litigation
SCHEDULE 4.20 - List of Personnel
SCHEDULE 4.21 - Transactions with Affiliates
SCHEDULE 4.22 - Brokers' and Finders' Fees (Seller)
SCHEDULE 4.24 - Customers
SCHEDULE 5.1 - List of Customers to be Contacted
SCHEDULE 5.3 - Pre-Closing Activities
</TABLE>
<PAGE> 52
<TABLE>
<S> <C> <C>
SCHEDULE 5.4 - Assigned Agreements
SCHEDULE 5.7 - Performance Bonds
SCHEDULE 5.9 - Terminated Vehicles
SCHEDULE 5.10(a) - Seller Space
SCHEDULE 5.10(b) - Company Space
SCHEDULE 5.14 - Terminated Contracts
SCHEDULE 6.1(1) - Subcontractor Agreements
SCHEDULE 6.1(p) - Renewed Contracts
</TABLE>
<PAGE> 1
EXHIBIT 10.11
FIRST AMENDMENT TO
STOCK PURCHASE AGREEMENT
This First Amendment to Stock Purchase Agreement, dated December 11,
1998 (this "Amendment"), is by and among Argenbright Security, Inc., a Georgia
corporation (the "Purchaser"); UNICCO Security Services, Inc., a Delaware
corporation (the "Company"); USC, Inc., a Massachusetts corporation ("Seller");
and UNICCO Service Company, a Massachusetts business trust ("Shareholder");
BACKGROUND
A. The Purchaser, the Company, the Seller and the Shareholder
have executed and delivered a Stock Purchase Agreement, dated October 26, 1998
(the "Stock Purchase Agreement").
B. The Purchaser, the Company, the Seller and the Shareholder
desire to amend the Stock Purchase Agreement.
AGREEMENTS
1. Definitions. Any capitalized term not otherwise defined in
this Amendment shall have the same meaning as in the Stock Purchase Agreement.
2. Amendment of Stock Purchase Agreement.
(A) SECTION 1.4. Section 1.4 is amended to read as
follows:
1.4 Closing. Subject to the fulfillment or
waiver of the conditions precedent set forth in Article 6
hereof, and subject to any extension permitted under clause
(y) of Section 9.3(b) hereof, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take
place at the offices of Posternak, Blankstein & Lund, L.L.P.,
at 100 Charles River Plaza, Boston, Massachusetts 02114-2723,
on December 28, 1998, or such other date as may be agreed upon
by the parties (such date, the "Closing Date"). Subject to the
consummation of the Closing, the sale, transfer and conveyance
to the Purchaser of the Shares shall be deemed effective as of
12:01 A.M., Eastern Standard Time, on the Closing Date (the
"Effective Time"). Except as otherwise provided herein, all
proceedings to be taken and all documents to be executed at
the Closing shall be deemed to have been taken, delivered and
executed simultaneously, and no proceeding shall be deemed
taken nor documents deemed executed or delivered until all
have been taken, delivered and executed.
<PAGE> 2
(B) SECTION 5.18. The last sentence of Section 5.18 shall
be deleted and the following text shall be inserted in its place:
No supplement or amendment to any such Schedules
shall have any effect for the purpose of determining
satisfaction of the conditions set forth in Sections
6.1(a) or 6.2(a); provided, however that the
disclosure in any such supplement or amendment to the
Schedules with respect to any matter occurring after
the date hereof (which did not exist on the date
hereof) shall not form the basis of a claim for
misrepresentation or breach of a representation,
warranty, covenant or agreement hereunder; provided,
further, however, that none of the Shareholder,
Purchaser, Seller or the Company shall be deemed to
have failed to satisfy the conditions set forth in
Sections 6.1(a) or 6.2(a) by reason of the disclosure
in any supplement or amendment to the Schedules with
respect to any matter occurring after the date of the
First Amendment to Stock Purchase Agreement, dated
December 11, 1998 (the "Amendment Date") (which did
not exist on the date hereof or at any time
thereafter through the Amendment Date).
(C) SECTION 6.1. Section 6.1 is amended as follows:
(i) The text of subsection (a) shall be deleted and
replaced with the following text:
(a) Each of the representations and
warranties of Shareholder, Seller and the Company set
forth in Articles 3 and 4 hereof shall have been true
and correct on and as of the date of this Agreement,
as of the Amendment Date and, except with respect to
the "Excluded Representations" (as defined below), as
of the Closing Date, with the same force and effect
as though made on and as of the Closing Date. The
term "Excluded Representations" means the
representations and warranties of the Shareholder,
Seller and Company set forth in Section 4.8
[Undisclosed Liabilities]; Sections 4.9(a)(i),
4.9(a)iii) and 4.9(b)(iv) [Absence of Certain Changes
and Events]; the last sentence of Section 4.12
[Material Contracts], to the extent relating to a
breach of a Material Contract by a party other than
Company; clauses (d) through (o) of Section 4.15
[Labor Matters]; subsections (a), (b) and (e)(i) of
Section 4.16 [Environmental Matters]; the last
sentence of Section 4.17 [Insurance]; Section 4.19
[Litigation]; and the last sentence of Section 4.24
[Customers]. Notwithstanding the foregoing, any such
representation or warranty that is already qualified
by "materiality" shall be true in all respects at the
time it is reaffirmed; provided, however, that the
foregoing is inapplicable to the Excluded
Representations as of the Closing Date because the
Excluded Representations will not be reaffirmed as of
the Closing Date.
2
<PAGE> 3
(ii) Subsection (b) shall be amended by the addition of a
new last sentence to read as follows:
Neither Shareholder, Seller nor Company shall be
deemed to be in default with respect to the covenants
set forth in subsections (b) or (c) of Section 5.2 or
subsection (c) of Section 5.3 because of the
occurrence between the Amendment Date and the Closing
Event of any event not within the control of
Shareholder, Purchaser or Company.
(iii) The text of subsection (e) shall be deleted and the
word "reserved" shall be inserted in its place;
(iv) The text of subsection (r) shall be deleted and the
word "reserved" shall be inserted in its place; and
(v) The text of subsection (s) shall be deleted and the
word "reserved" shall be inserted in its place.
(D) SECTION 6.2. Section 6.2 is amended as follows:
(i) The text of subsection (i) shall be deleted and the
word "reserved" shall be inserted in its place.
(E) SECTION 7.2. Section 7.2 is amended to read as
follows:
7.2 Certain Tax Matters.
(a) Any tax sharing agreement between the
Company and the Seller and/or any direct or indirect
subsidiary of the Seller shall be, and is hereby, terminated
as of the Closing Date and will have no further effect for any
taxable year (whether the current year, a future year or a
past year).
(b) Seller will join with Purchaser in making an
election under Section 338(h)(10) of the Code and Treasury
Regulation Section 1.338(h)(10)-1 (and any corresponding
elections under any applicable state and local Laws)
(collectively, a "Section 338(h)(10) Election") with respect
to the purchase and sale of the Shares hereunder. Seller will
pay any Tax attributable to the making of the Section
338(h)(10) Election and Seller will indemnify Purchaser and
the Company from and against any and all damages, penalties,
fines, costs, reasonable amounts paid in settlement,
liabilities, obligations, losses, expenses and fees (including
court costs and reasonable attorneys' fees and expenses)
arising out of any failure to pay such Tax.
3
<PAGE> 4
(c) Seller will be responsible for preparing and
filing all income and franchise Tax Returns of the Company for
all Tax periods ending on or before the Closing Date, and
Seller shall pay all income and franchise taxes of Company for
all such periods. Purchaser will be responsible for preparing
and filing the Section 338(h)(10) election (provided that
Seller shall provide such written consents and other items
required by Seller to make such election) and all income and
franchise Tax Returns of the Company relating to periods
beginning on or after the Closing Date. After the Closing has
occurred, Purchaser will cause the Company to provide, or
cause to be provided, to Seller, without charge, any
information that may reasonably be requested by Seller in
connection with the preparation of any Tax Returns relating to
periods ending on or before the Closing Date.
(d) The parties hereto agree to cooperate with
one another to allocate the Purchase Price in a manner
reasonably acceptable to the parties. Such agreed allocation
shall be binding on the Seller and Purchaser and their
respective affiliates for all purposes (including without
limitation, financial accounting purposes, financial and
regulatory reporting purposes and tax purposes) and none of
the parties or such affiliates shall take for tax purposes any
position in any tax return, report, form, declaration or
questionnaire that is inconsistent with such allocation.
(F) SECTION 7.4. Section 7.4 is amended as follows:
(i) Clause (C) of subsection 7.4(d) is amended to read as
follows:
(C) performing its obligations under the terms of
(w) the Agreement dated October 1, 1996, between Shareholder
and General Services Administration; (x) the Agreement dated
May 19, 1997 between Shareholder and LeMoyne- Owen College;
(y) the Agreement dated July 1, 1992 between Shareholder and
The McCallie School; and (z) the Agreement dated September,
1988 between Shareholder and Ingersoll-Rand Company.
(G) ARTICLE 7. Article 7 shall be amended by the
insertion of new Sections 7.5 and 7.6 to read as follows:
7.5 Chicago EEOC Litigation. Seller and
Shareholder shall provide, promptly following
receipt, to Purchaser copies of all correspondence
with the EEOC and the court, pleadings and discovery
requests and responses relating to the action filed
by the Equal Employment Opportunity Commission in the
United States District Court for the Northern
District of Illinois, Eastern Division (Civil Action
No. 98C 6083) (the "EEOC Litigation") and otherwise
keep Purchaser fully informed regarding the status of
the EEOC Litigation; provided, however, that Seller
and Shareholder shall be under no obligation to
provide to Purchaser any attorney/client confidential
or privileged materials or any materials relating
4
<PAGE> 5
to matters involving Seller or Shareholder insurance
coverage for the EEOC Litigation. Seller and
Shareholder shall (i) at their sole cost and expense,
vigorously defend against the claims asserted against
the Company in the EEOC Litigation to the extent such
claims relate to actions or omissions of the Company
occurring prior to the Closing Date, and (ii) permit
Purchaser to monitor the defense of the EEOC
Litigation, with counsel of its own choice and at its
expense and (iii) consult with and consider the
recommendations and advice of Purchaser and any such
counsel with respect to defense of the EEOC
Litigation. Neither Seller nor Shareholder shall
settle the EEOC Litigation without the prior written
consent of the Purchaser. The parties agree that,
notwithstanding any other provision of this
Agreement, (i) the obligations of Seller and
Shareholder set forth in this Section 7.5 shall
survive the Closing indefinitely, and (ii) there are
no express or implied limitations on Seller's and
Shareholder's defense and settlement rights relating
to the Shareholder in the EEOC Litigation.
7.6 LeMoyne-Owen College Contract.
Seller and Shareholder shall use their best efforts
to obtain, as soon as practicable following the
Closing, the consent of LeMoyne-Owen College, a
client of the Shareholder, to the execution of a
subcontract between the Shareholder and the Purchaser
providing for the performance by the Purchaser of all
services included within the Company Activities that
Shareholder is obligated to provide pursuant to its
contract with such client. Shareholder shall enter
into such subcontract with Purchaser promptly
following Shareholder's receipt of such consent, if
it is received. The obligations of Seller and
Shareholder set forth in this Section 7.6 shall
survive the Closing indefinitely.
(H) SECTION 8.1. Section 8.1 shall be amended as follows:
(i) Paragraph (iii) of subsection 8.1(a) shall be amended
to read as follows:
the Excluded Liabilities (including, without
limitation, the Terminated Contracts, Terminated
Vehicles, and any liability or cost incurred in
respect of any EEOC claim or other litigation
(including, without limitation, the EEOC Litigation)
relating to events occurring prior to the Closing
Date);
(ii) The following text shall be inserted at the end of
Section 8.1:
Purchaser acknowledges and agrees that it shall not
be entitled to assert any claim against the Seller or
Shareholder pursuant to this Section 8.1 or otherwise
with respect to (i) any claim asserted by the EEOC
against the Company and/or the Purchaser in the EEOC
Litigation or any other action, to the extent arising
or resulting from conduct of the Company following
the Closing Date or conduct of the Purchaser at any
time prior to or following the
5
<PAGE> 6
Closing Date, or (ii) any costs or expenses of
compliance with any injunctive relief which may be
imposed as a result of the EEOC Litigation and which
relates to the operations or business of the
Purchaser other than the operations and business of
the Company as they existed prior to the Closing
Date.
(I) SECTION 9.3(B). Section 9.3(b) is amended as follows:
(i) The text of clause (ii) shall be deleted and replaced
with the word "reserved"; and
(ii) The date "December 1, 1998" in clause (iii) shall be
deleted and replaced with the date "December 28,
1998".
(J) SECTION 9.3(C). Section 9.3(c) is amended by the
deletion of the date "December 1, 1998" in clause (ii) and the
replacement of such date with the date "December 28, 1998".
3. Representations and Warranties; Covenants. (a) Each of the
representations and warranties of Shareholder, Seller and Company set forth in
the Stock Purchase Agreement was true and correct in all material respects on
the date of the execution of the Stock Purchase Agreement and is true and
correct in all material respects on and as of the date hereof (unless limited by
their term to a prior date) with the same force and effect as though made on and
as of the date hereof; provided, however, that any such representation or
warranty that is already qualified by "materiality" was true and correct on the
date of execution of the Stock Purchase Agreement and is true and correct on and
as of the date hereof with the same force and effect as though made on and as of
the date hereof. Shareholder, Seller and Company have performed and complied
with, in all material respects, all covenants, obligations and agreements set
forth in the Stock Purchase Agreement to be performed and complied with by them
prior to the date hereof.
(b) Purchaser represents and warrants to Seller,
Shareholder and Company that Purchaser has obtained the consent of First Union
National Bank, N.A., as Syndication Agent pursuant to Purchaser's credit
agreement, to the consummation of the transactions contemplated by the Stock
Purchase Agreement and that such consent remains in full force and effect on the
date of this Agreement.
4. Amendment of Schedules. Copies of amended and restated
Schedules 4.12, 4.18, 4.19 and 5.4 are attached to this Amendment. The Seller
and Shareholder jointly and severally represent and warrant to the Purchaser (i)
that the customer contracts that were included on Schedule 4.12 on the date of
the execution of the Stock Purchase Agreement and that are not included in
Schedule 4.12 as amended on the date hereof (the "Excluded Contracts") were
mistakenly included on Schedule 4.12 because they had expired or been terminated
prior to the date of the Stock Purchase Agreement and (ii) that the financial
results and projections supplied by the Seller, Shareholder or Company to
Purchaser in connection with Purchaser's evaluation of the Company's business
did not include any revenues attributable to the Excluded Contracts.
6
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5. Amendment of Exhibit. Subsection 2.1(g) of Exhibit C to the
Stock Purchase Agreement, the Assumption Agreement, shall be amended to read as
follows: "any liability arising in connection with the termination of employment
of any employee of the Company, Seller or Shareholder that arises prior to the
Closing." The parties agree that all references in the Stock Purchase Agreement
to Exhibit C shall refer to Exhibit C as so amended.
6. Execution of Escrow Agreement. Simultaneously with the
execution and delivery of this Agreement, (i) the Purchaser, the Seller and
SunTrust Bank, Atlanta, as Escrow Agent, are executing and delivering the Escrow
Agreement, dated as of the date hereof, in the form attached to this Amendment
as Exhibit "A" and (ii) the Purchaser is depositing into the escrow fund created
by such Escrow Agreement the sum of $1,200,000 in cash in immediately available
funds, such funds to be held and disbursed pursuant to the terms of such Escrow
Agreement.
7. Effect on Stock Purchase Agreement. Except as expressly
modified by this Amendment, the Parties ratify and confirm the Stock Purchase
Agreement in all respects.
[Signatures appear on the following page]
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have each executed and delivered
this Agreement as of the day and year first above written.
PURCHASER:
ARGENBRIGHT SECURITY, INC.
By: /s/ David L. Gamsey
--------------------------------------
Title: Vice President and Chief
Financial Officer
-----------------------------------
THE COMPANY:
UNICCO SECURITY SERVICES, INC.
By: /s/ George A. Keches
--------------------------------------
Title: Assistant Treasurer
-----------------------------------
SELLER:
USC, INC.
By: /s/ George A. Keches
--------------------------------------
Title: Treasurer
-----------------------------------
SHAREHOLDER
UNICCO SERVICE COMPANY
By: /s/ George A. Keches
--------------------------------------
Title: Chief Financial Officer
-----------------------------------
8
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EXHIBIT 23.2
As independent public accountants, we hereby consent to the use of our reports
included in or made a part of this registration statement, and to all
references to our firm herein.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
December 22, 1998
<PAGE> 1
EXHIBIT 23.3
As independent public accountants, we hereby consent to the use of our reports
included in or made a part of this registration statement, and to all
references to our firm herein.
PRICE WATERHOUSE GMBH
December 22, 1998
/s/Price Waterhouse GmbH
Wirtschaftsprufungsgesellschaft
70191 Stuttgart - Heilbronner Strasse 190
70033 Stuttgart - Postfach 103853
