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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST , 1997
REGISTRATION NO. 333-29463
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------
INTERNATIONAL TOTAL SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
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<S> <C> <C>
Ohio 4551 34-1264201
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
Crown Centre
5005 Rockside Road
Independence, Ohio 44131
(216) 642-4522
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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ROBERT A. WEITZEL
International Total Services, Inc.
Crown Centre
5005 Rockside Road
Independence, Ohio 44131
(216) 642-4522
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------
COPIES TO:
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<S> <C>
ALBERT T. ADAMS, ESQ. THOMAS F. MCKEE, ESQ.
Baker & Hostetler LLP Calfee, Halter & Griswold LLP
3200 National City Center 1400 McDonald Investment Center
1900 East Ninth Street 800 Superior Avenue
Cleveland, Ohio 44114 Cleveland, Ohio 44114
(216) 621-0200 (216) 622-8200
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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, please 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE 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
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST , 1997
2,825,000 SHARES
[ITS LOGO]
INTERNATIONAL TOTAL SERVICES, INC.
COMMON SHARES
Of the 2,825,000 common shares, without par value (the "Common Shares"),
offered hereby, 2,597,727 shares are being offered by International Total
Services, Inc. ("ITS" or the "Company") and 227,273 shares are being offered by
Robert A. Weitzel, the Company's Chief Executive Officer (the "Selling
Shareholder"). See "Principal and Selling Shareholders."
Prior to the Offering, there has been no public market for the Common
Shares. It is currently anticipated that the initial public offering price per
Common Share will be between $10.00 and $12.00. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company has applied for trading of the Common Shares on the
Nasdaq National Market under the symbol "ITSW."
Upon completion of the Offering, the Selling Shareholder and certain
officers of the Company will collectively own approximately 52% of the
outstanding Common Shares of the Company (approximately 49% if the Underwriters
exercise the over-allotment option in full). Consequently, these persons will be
able to determine the outcome of any matter subject to a vote of a majority of
the Company's shareholders, including elections of directors.
------------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON SHARES.
------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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===============================================================================================
PROCEEDS
PRICE UNDERWRITING PROCEEDS TO THE
TO THE DISCOUNTS AND TO THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2)(3) SHAREHOLDER
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.............. $ $ $ $
- -----------------------------------------------------------------------------------------------
Total(3)............... $ $ $ $
===============================================================================================
</TABLE>
(1) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses, estimated at $ , payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
423,750 additional Common Shares solely to cover over-allotments, if any. If
that option is exercised in full, the Price to the Public, Underwriting
Discounts and Commissions and proceeds to the Company will be $ ,
$ , and $ , respectively.
The Common Shares are offered by the Underwriters subject to receipt and
acceptance of the shares by them. The Underwriters reserve the right to reject
any orders, in whole or in part. It is expected that delivery of the Common
Shares will be made against payment therefor at the offices of McDonald &
Company Securities, Inc. or through the facilities of The Depository Trust
Company, on or about , 1997.
MCDONALD & COMPANY MORGAN KEEGAN & COMPANY, INC.
SECURITIES, INC.
The date of this Prospectus is , 1997.
<PAGE> 3
[Reserved for Photos]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
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<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Except when otherwise indicated, information in this Prospectus assumes a
12,892.62-for-1 share split of the Company's Common Shares effected immediately
prior to the commencement of the Offering, and assumes no exercise of the
Underwriters' over-allotment option. The Company's fiscal year ends on March 31,
and its fiscal years are identified by reference to the calendar year in which
they begin. For example, the fiscal year ended March 31, 1997 is referred to as
"fiscal 1996."
THE COMPANY
ITS is a leading domestic provider of aviation security and other aviation
services. The Company provides predeparture screening services for more than 60
U.S. and international carriers at more than 130 U.S. airports. ITS has used its
predeparture screening business to establish a growing presence in the broader
aviation services market and believes that it offers a wider array of services
than its competitors in this market. Aviation services offered by ITS include
skycap, baggage handling and aircraft cleaning services, and wheelchair and
electric cart operations. The Company's security services extend beyond aviation
security, and include the provision of commercial security services to
government and business clients, hospitals, arenas and museums.
ITS's revenues have grown at a compounded annual rate of 14.2% over the
past five years, driven by growth in both aviation security and other aviation
services as well as growth resulting from acquisitions. The Company has
experienced significant revenue growth in its predeparture screening business,
attributable primarily to the trend toward consolidation in this market and the
Company's historic ability to pass on wage increases to customers. The Company's
predeparture screening revenues have grown from $47 million to $58 million from
1994 through 1996, representing a 23% increase during that period. Aviation
services have also accounted for substantial growth, as airlines have outsourced
noncore services and have begun to consolidate their vendor base to a few
leading vendors such as ITS. ITS believes that these consolidation and
outsourcing trends will continue and that it can realize additional revenue
growth by leveraging its established business presence and relationships to
deliver a wide array of services to its clients at a very competitive overall
cost. See "Business -- Growth Strategy -- Growth Through Acquisitions."
ITS's growth strategy is premised on using its experience in recruiting,
training, motivating and managing the large numbers of personnel needed to
perform the labor-intensive, task-repetitive functions that its services
require. The Company believes that it is well-positioned to realize significant
growth for the following reasons:
- Favorable growth prospects exist in the markets for aviation services and
commercial security services.
- The Company enjoys strong market position and administrative support from
its significant aviation and security experience, extensive market
breadth and competitive cost structure.
- Management is able to exploit the Company's aviation and security
experience to capture revenue in related service segments such as general
aviation services and commercial security.
- The economies of scale resulting from the Company's use of its existing
administrative resources support internal growth and acquisitions.
The Company intends to grow internally and through acquisitions. The
Company expects internal growth will be generated by using the Company's
established business base as a platform for expanding the services it provides
at existing airport and commercial security locations and for developing new
service locations. The Company intends to target acquisition candidates that
will add geographic scope to its existing businesses, broaden its service
offerings and expand its client base. ITS made two acquisitions of aviation
security contracts and four acquisitions of commercial security contracts in
fiscal 1996 that have contributed an aggregate of approximately $11.9 million in
annual revenues and have improved profitability. In addition, in April 1997, the
Company acquired service contracts from Intex Aviation Services, Inc. ("Intex").
Intex provided a variety of aviation services, including baggage handling,
lavatory and water services, de-icing
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<PAGE> 5
services and aircraft cleaning and ground support services. On a pro forma basis
for the year ended December 31, 1996, the contracts acquired from Intex
generated revenues of approximately $32.3 million. See "Pro Forma Financial
Data" and "Management's Discussion and Analysis of Results of Operations and
Financial Condition."
The Company's executive offices are located at Crown Centre, 5005 Rockside
Road, Independence, Ohio 44131, and its telephone number is (216) 642-4522.
THE OFFERING
Common Shares offered...... 2,825,000
By the Company(1)........ 2,597,727
By the Selling
Shareholder.............. 227,273
Common Shares outstanding
after the
Offering(1)(2)........... 6,251,637
Use of Proceeds............ The Company intends to use the net proceeds from
the Offering: (i) to pay approximately $14.0
million of outstanding indebtedness, consisting of
(a) approximately $11.0 million outstanding under a
revolving line of credit with the Company's senior
lender, which matures on March 31, 1999 and bears
interest at the lender's prime rate plus 1 1/2% per
annum; and (b) $3 million of subordinated notes
payable to an unrelated lender, which mature on
November 25, 2001 and bear interest at an annual
rate of 20%; and (ii) for general corporate
purposes, including working capital to support the
Company's growth, and for possible acquisitions.
Proposed Nasdaq National
Market Symbol............ ITSW
- ---------------
(1) Does not include 423,750 Common Shares that may be sold by the Company if
the over-allotment option granted by the Company to the Underwriters is
exercised in full.
(2) Does not include 267,015 Common Shares reserved for issuance under the
Company's Long Term Incentive Plan or the 15,000 Common Shares reserved for
issuance to the Company's Independent Directors upon completion of the
Offering. See "Management -- Long Term Incentive Plan" and "-- Compensation
of Directors."
4
<PAGE> 6
SUMMARY FINANCIAL AND OPERATING DATA
(AMOUNTS IN THOUSANDS, EXCEPT SHARES, PER-SHARE AMOUNTS AND OPERATING DATA)
<TABLE>
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YEAR ENDED MARCH 31,
-------------------------------------------------------------------------- THREE MONTHS ENDED
1997 JUNE 30,
---------------------- ----------------------
1993 1994 1995 1996 ACTUAL PRO FORMA 1996 1997
--------- --------- --------- --------- --------- --------- --------- ---------
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STATEMENT OF OPERATIONS
DATA:
Revenues.................. $ 68,230 $ 78,173 $ 92,654 $ 95,463 $ 115,242 $156,404 $ 24,106 $ 38,364
Cost of revenues.......... 56,180 66,103 79,981 81,341 98,338 132,417 20,475 31,824
Gross profit.............. 12,050 12,070 12,673 14,122 16,904 23,987 3,631 6,540
General and administrative
expenses................ 11,916 11,075 12,655 11,603 13,334 16,449 2,772 4,639
Operating income.......... 134 995 18 2,519 3,570 7,538 859 1,901
Interest expense (income)
net..................... 22 34 188 523 637 637 99 414
Income (loss) before
income taxes............ 112 961 (170) 1,996 2,933 6,901 760 1,487
Income taxes(2)........... 109 1,035 548 958 1,237 2,898 318 634
Net income (loss)......... $ 3 $ (74) $ (718) $ 1,038 $ 1,696 $ 4,003 $ 442 $ 853
Net income (loss) per
share................... $ 0 $ (0.01) $ (0.12) $ 0.18 $ 0.33 $ 0.79 $ 0.07 $ 0.23
Supplemental pro forma net
income(3)............... $ 2,136 $ 4,443 $ 1,098
Supplemental pro forma net
income per share(3)..... $ 0.35 $ 0.73 $ 0.22
Weighted average common
and common equivalent
shares.................. 6,446,310 6,446,310 6,292,976 5,775,880 5,089,480 5,089,480 5,945,022 3,654,985
OPERATING DATA (AT PERIOD
END):
Number of employees....... 8,121 9,006 9,863 9,914 10,690 12,690 9,984 12,618
</TABLE>
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JUNE 30, 1997
AT MARCH 31, ------------------------
------------------------------------------------------------- AS
1993 1994 1995 1996 1997 ACTUAL ADJUSTED(5)
--------- --------- --------- --------- --------- --------- -----------
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BALANCE SHEET DATA:
Cash and cash equivalents......... $ 1,108 $ 769 $ 1,267 $ 1,873 $ 1,452 $ 1,711 $14,781
Working capital (deficit)......... (2,004) (1,351) (4,425) (2,951) 324 1,338 16,808
Total assets...................... 12,222 14,843 20,295 20,892 27,001 34,470 47,540
Short-term bank debt and current
maturities of long-term
obligations..................... 236 875 5,658 4,806 2,521 2,464 64
Long-term obligations, net of
current maturities(4)........... 0 0 152 164 7,556 10,755 87
Retained earnings................. 3,752 3,678 2,961 3,998 2,784 3,637 3,637
Shareholders' equity.............. 4,347 4,273 3,139 3,978 3,195 4,025 29,424
</TABLE>
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(1) Pro forma statement of operations data give effect to the Intex acquisition
as if it had occurred on April 1, 1996. See "Pro Forma Financial Data."
(2) No provision (benefit) has been provided for the portion of operating income
resulting from the profit (loss) of International Transport Security, Inc.
("Transport"), a corporation under common ownership with the Company, which
had operated as an "S" corporation prior to its dissolution in March 1996.
See Note A to Consolidated Financial Statements explaining the relationship
of Transport with the Company.
(3) The supplemental pro forma net income and net income per share data reflect
the issuance of shares necessary to repay certain indebtedness and the
related reduction in interest expense and increase in net income. See Note A
of Notes to the Consolidated Financial Statements.
(4) Includes amounts due under revolving credit facility, subordinated debt,
capital lease obligations and other long-term debt.
(5) As adjusted to give effect to the Offering and the application of the
estimated net proceeds therefrom at an assumed initial public offering price
of $11.00 per share (the midpoint of the estimated initial public offering
price range). See "Use of Proceeds."
5
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should consider carefully the following factors in evaluating an
investment in the Common Shares offered by this Prospectus.
DEPENDENCE ON AVIATION INDUSTRY
The Company's success is largely dependent on continuing demand for the
Company's services to passenger airlines. That demand is driven by domestic air
travel volume and by the travel volume experienced by, and the financial
condition of, the particular air carriers that choose ITS as a service provider.
Although the volume of air travel has grown significantly in the past ten years,
the aviation industry historically has been highly cyclical. Because the
Company's typical billing arrangements are based on the number of hours of
service provided or flights serviced by the Company, a significant industry
downturn or financial difficulties experienced by particular airline clients
could have a material adverse effect on the volume of services provided.
Additionally, the financial condition of particular airline clients can have a
material impact on the prices that they are willing to pay for the Company's
services. Consolidation in the airline industry also could result in the Company
losing contracts. Outsourcing by U.S. airlines of an increasing number of
nonflight services has increased the demand for the Company's services, but
there can be no assurance that this trend will continue or not be reversed. In
addition, the trend by airlines to select a limited number of vendors to provide
all or a large part of their predeparture screening and other services may not
continue and, if it does continue, there can be no assurance that the Company
will continue to provide the same volume of services which it currently
provides. See "Business -- Aviation Services."
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend in part on the continued service of its
key employees, including, among others, Robert A. Weitzel, its Chief Executive
Officer, James O. Singer, President and Chief Operating Officer, Robert A.
Swartz, Vice President and Chief Financial Officer, and Scott E. Brewer, Vice
President and General Counsel. The loss of one or more of the Company's key
employees could have a material adverse effect on the Company. As the Company
continues to grow, it will need to recruit and retain additional qualified
management personnel, and there can be no assurance that the Company will be
able to do so. See "Management."
RISKS ASSOCIATED WITH MANAGING A GROWING BUSINESS
ITS has rapidly expanded its operations in the past several years. This
growth has placed demands on its management, administrative, operating and
financial resources. The Company's planned continued growth may place a
significant strain on the Company's resources and the Company's future success
may be dependent on its ability to augment its senior management team with
talented people. Several members of the Company's senior management team have
assumed their current positions since the beginning of fiscal 1996. There can be
no assurance that the Company will continue to attract and retain adequate
management personnel or be able to implement enhancements to its management
systems and adapt those systems to respond to changes in its business. See
"Business -- Management and Reporting Systems."
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
An important element of the Company's growth strategy is the pursuit of
acquisitions. Acquisitions involve a number of risks, including potentially
adverse short-term effects on the Company's reported operating results,
potentially dilutive issuances of equity securities, the incurrence of debt and
contingent liabilities, diversion of management's attention, dependence on
retention, hiring and training of key personnel, and risks associated with
unanticipated problems or liabilities and amortization of goodwill and an
acquired company's intangible assets, some or all of which could have a material
adverse effect on the Company's business, results of operations and financial
condition. There can be no assurance that the Company will be able to identify,
acquire, integrate or profitably manage acquisitions without substantial costs,
delays or other problems. In addition, there can be no assurance that acquired
businesses will achieve or maintain revenue and
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profitability levels that justify the investment therein. See "Business --
Growth Strategy -- Growth Through Acquisitions."
POTENTIAL LOSS OF INTEX CONTRACTS
The Company acquired substantially all of the contracts and goodwill of
Intex in April 1997. Prior to the acquisition, Intex lost a number of contracts
to provide cargo and mail services to Delta Airlines. The Company believes that
negative publicity relating to an alleged mail theft operation at Atlanta's
Hartsfield International Airport, which included certain former Intex employees,
may have contributed to the loss of these contracts. Since the date of the
acquisition, Intex has lost contracts that generated approximately $2.5 million
in annual revenue. The Intex asset purchase agreement provides for a purchase
price adjustment based upon a multiple of monthly revenues on the acquired
contracts for the period from April 1, 1997 to June 30, 1997. There can be no
assurance that additional contracts held by Intex prior to the acquisition and
assumed by the Company will not be terminated subsequent to the end of the
purchase price adjustment period. The loss of significant additional contracts
related to Intex's business could have a material adverse effect on the
Company's business, results of operations and financial condition. See "Pro
Forma Financial Data" and "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
RELATIONSHIPS WITH CUSTOMERS
ITS derives a significant portion of its revenues from relatively few
clients. In fiscal 1996, Continental Airlines, Inc., United Air Lines, Inc.,
Delta Air Lines, Inc., Southwest Airlines Co., US Airways, Inc. and Trans World
Airlines, Inc. together accounted for approximately 56% of the Company's
revenues. During fiscal 1994, 1995 and 1996, the Company's ten largest clients
accounted for an aggregate of approximately 80%, 71% and 69%, respectively, of
the Company's revenues. The Company's contracts with its clients, consistent
with general industry practice, are generally for one to three year terms but
are terminable by either party on 30 to 90 days' notice. The Company has
provided services to each of its five largest clients during each of the past
five years. While the Company believes that relationships with its customers are
generally satisfactory, it believes that its relationships with certain major
airlines are unsatisfactory. The quality of relationships with particular
customers varies from time to time as a result of customer perceptions of the
relative quality of the Company's services, the presence or absence of
performance problems and changes in personnel at the Company and at its major
customers. There can be no assurance that one or more major clients will not
terminate, elect to renegotiate or decide not to renew a Company contract or
that the Company will not lose the opportunity to provide services at one or
more client locations.
LOSS OF CONTRACTS
Over the past two fiscal years, the Company has lost contracts to provide
screening services at a number of major airports, including Los Angeles, San
Francisco, Phoenix, Minneapolis, Detroit, Boston and Ontario, California,
because of customer dissatisfaction with the Company's services at these
locations. The Company believes that the factors contributing to the lost
contracts varied from location to location, and included problems with
responsiveness and the quality of local management, as well as security breaches
at several of the Company's predeparture screening checkpoints. The Company
continues to provide services including, in some cases, screening services, at
each of these locations. Most of the contracts lost by the Company were
controlled by two airline customers who together represented approximately
16.7%, 23.7% and 23.2% of the Company's revenues in 1996, 1995 and 1994,
respectively. The lost contracts accounted for an aggregate of $232,000 in
pre-tax earnings. The Company recognizes the need to improve its relationships
with these customers, and is making efforts to accomplish this objective. These
efforts include the addition of a new Chief Operating Officer with established
relationships with several major airlines, and efforts to improve the quality of
local and district management personnel. The loss of one or more major clients
or of significant service sites may have a material adverse effect on the
Company. See "Business -- Customers and Contract Terms."
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IMPACT OF NEGATIVE PUBLICITY
The Company's business is subject to public scrutiny and, consequently, can
be materially affected by negative publicity or negative public reaction with
respect to the Company's policies or operations or the actions of its employees.
The Company has experienced negative publicity from time to time, including
publicity arising from security breaches at predeparture screening checkpoints
in Albany, New York and San Jose, California (as a consequence of which the
Company lost several predeparture screening contracts); an incident involving
theft by a former employee in Tampa, Florida; and a checkpoint security test
failure at an airport in Islip, New York. Future negative publicity could have a
material adverse effect on the Company's business, results of operations and
financial condition.
PROBLEMS WITH LOCAL MANAGEMENT SYSTEMS AND CONTROLS
The nature of the Company's operations requires it to maintain local
management systems and controls sufficient to identify and prevent regulatory
violations, theft or other illegal activities by employees and billing
irregularities at its locations. The Company's large, low-wage workforce and
high turnover rates increase the difficulties associated with establishing and
maintaining effective management controls at the local level. The Company has
experienced control-related problems at various locations involving employees'
compliance with regulatory requirements regarding training records and
background checks, and involving employee theft. Some of these incidents have
had a material adverse effect on customer relationships and have led to the
termination of client contracts. For example, the failure of a local manager to
conduct proper background checks led to the loss of contracts, which had
generated annual revenue of $1.3 million, to provide predeparture screening
services at the airport in Ontario, California. Because of the nature of the
Company's business, there can be no assurance that control-related problems will
not arise in the future. See "Business -- Workforce Management."
LIMITED HISTORY OF PROFITABLE OPERATIONS
Although ITS had net income of $1.7 million and $1.0 million for fiscal
1996 and fiscal 1995, respectively, the Company had net losses of $718,000 and
$74,000 for fiscal 1994 and 1993, respectively. There can be no assurance that
the Company's business strategies will be successful or that the Company will be
able to achieve consistent revenue growth or profitability on a quarterly or
annual basis. The Company may experience significant fluctuations in future
operating results as a result of a number of factors, including the costs
associated with future acquisitions, the profitability of acquired operations,
changes in the regulatory environment, and increased competition in the
industries the Company serves.
COMPETITION
The Company believes that its aviation security, other aviation services
and commercial security clients view price as the overriding consideration in
vendor selection and retention. Other important considerations include the
quality of services provided, the geographic availability of services and the
range of services available. The Company competes with outsourcing companies,
specialized contract service providers and its clients' and potential clients'
internal service staffs. While substantial consolidation is occurring in the
predeparture screening market, the markets for other aviation services and
commercial security services remain highly fragmented, with limited barriers to
entry.
Certain of the Company's competitors and potential competitors have
significantly greater financial resources and larger operations than the
Company, and may therefore be better situated to take advantage of expansion
opportunities arising from industry consolidation trends. The Company expects
that the level of competition that it faces will remain high or increase in the
future, and there can be no assurance that the Company will continue to compete
successfully. See "Business -- Competition and Marketing."
EMPLOYEE TURNOVER
The Company's business is very labor intensive and is characterized by high
rates of personnel turnover, continuous training requirements and periodic
shortages of personnel in some markets. A higher turnover rate
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<PAGE> 10
among the Company's employees would increase the Company's recruiting and
training costs and may adversely affect productivity. If the Company were unable
to recruit and retain sufficient personnel, it would be forced to limit its
growth or possibly reduce the scope of its operations. Because employee turnover
is inherent in the nature of its business, ITS allocates significant resources
to recruiting potential employees. Each applicant must complete an interview and
a written application. In addition, FAA regulations require that each applicant
provide proof of citizenship or resident alien status, and each applicant is
subject to a five-or ten-year background verification, depending upon the
position, and a pre-employment drug screen. The Company believes that it
operates its business in substantial compliance with applicable FAA regulatory
requirements, including those relating to background verification. The Company
from time to time must increase its wage rates and employee benefits in order to
attract and retain sufficient qualified employees. Because the Company may not
always be able to have its clients absorb the attendant additional costs, these
increases can adversely affect the Company's financial performance. See
"Business -- Workforce Management."
FAILURE TO MEET PERFORMANCE REQUIREMENTS
The Company's success will depend on its ability to continue to meet the
performance requirements set by its clients and the government agencies that
regulate them. The Company is subject to random periodic testing by the Federal
Aviation Administration (the "FAA") with regard to adherence to regulations
relating to predeparture screening and passenger profiling, hiring practices
(including background checks, drug testing, training and employee file
maintenance), baggage handling, aircraft security, and document verification.
The services provided by the Company require it to train and manage effectively
low wage workforces with high turnover rates. From time to time, the Company has
failed to meet test standards or a client's service expectations at a particular
location, and, like its competitors, has had contracts terminated because of
customer dissatisfaction with various aspects of its performance. The risk of
contract termination as a result of actual or perceived service failures is
enhanced by the substantial publicity that, because of public concern over
airline security issues, often attends errors in the provision of screening
services. Failure to meet test or other performance standards may result in the
loss of a contract or service location or the Company's license to perform
services, and any such loss could have a material adverse effect on the
Company's reputation, business, results of operations and financial condition.
See "Business -- Aviation Services" and "-- Government Regulation."
EMPLOYEE-RELATED COSTS AND CLAIMS EXPOSURE
The Company is required to pay unemployment insurance premiums and workers'
compensation benefits for its employees in the United States. Any increase in
the cost of unemployment insurance or workers' compensation benefits could
adversely affect the Company's profitability. The Company is self-insured for
the first $250,000 of each workers' compensation claim and the first $200,000 of
each liability claim and, accordingly, establishes reserves for future claims
and payments. During fiscal 1996, the Company also implemented a medical
insurance program covering substantially all of its hourly workers. That program
provides medical benefits to eligible employees with minimal employee
contribution. The program provides employees with maximum annual benefits of
$10,000, for which the Company is self-insured and, accordingly, establishes
reserves for future claims and payments. The Company has only recently
established this program, and has less experience on which to base its judgments
concerning reserve levels than it does with respect to its workers' compensation
and liability self-insurance programs. There can be no assurance that the
Company's actual workers' compensation, liability or medical insurance claims
will not exceed the amount of the Company's reserves. Furthermore, there can be
no assurance that the Company will be able to pass along to its clients any
increased costs related to unemployment, workers' compensation and medical
claims. See "Business -- Workforce Management."
GOVERNMENT REGULATION
Aviation security matters affecting airports and passenger airlines are
subject to regulation by the FAA and foreign governmental agencies. Demand for
the Company's predeparture screening, passenger profiling
9
<PAGE> 11
and various other services is significantly affected by applicable regulatory
requirements and security directives issued by governmental authorities.
Typically, these authorities react to terrorist or other criminal activity, or
threats of such activity, in a manner that increases the demand for the
Company's aviation security services. That demand can thereafter diminish as the
perceived threat diminishes. In addition, there can be no assurance that
applicable regulations will not be changed generally in a manner that would
affect adversely the demand for the Company's services. In the Federal Aviation
Reauthorization Act of 1996, Congress directed the FAA, among other things, to
develop and implement certification procedures for providers of predeparture
screening services. The FAA has issued an Advance Notice of Proposed Rulemaking,
soliciting comment on a number of issues relating to the certification of
screening companies, but has not promulgated any proposed rules concerning
implementation of the certification directive. The Company is unable to predict
the nature and extent of any such regulations or their potential impact on its
business. Major U.S. airlines have considered the creation of a nationwide
nonprofit security corporation, funded by the airlines, to handle airport
security. Any trend toward the relaxation of aviation security measures or a
shift in responsibility for aviation security functions could have a material
adverse effect on the Company's business, results of operations or financial
condition. In addition, the Company currently has licenses to operate in several
of the major international airports in Western Europe where licenses are
required. The loss of or failure to obtain a license to operate in one or more
airports is likely to result in the loss of, or the inability to compete for, a
major contract. See "Business -- Government Regulation."
LIABILITIES FOR CLIENT AND EMPLOYEE ACTIONS AND OTHER CLAIMS
Because the Company's employees function in public facilities and in the
workplaces of other businesses, the Company is exposed to possible claims by its
clients' customers and employees of discrimination, harassment, negligence, and
similar claims. The Company is subject to liability for the acts or negligence
of its employees while on assignment that cause personal injury or damages and
to claims of misuse of client proprietary information or theft of client
property. As a provider of security services, the Company faces potential
liability for claims that may arise from any terrorist activity occurring in
circumstances associated with the Company. Although the Company maintains
insurance coverage against such potential liabilities, any such claim against
the Company might exceed the amount of such insurance coverage or fall outside
the type of activities covered by such insurance. Any of these situations could
have a material adverse effect on the Company's business, results of operations
or financial condition. See "Business -- Workforce Management" and "-- Legal
Proceedings."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company experiences quarterly variations in revenues and net income as
a result of various factors, including the timing of commencement of new
contracts, changes in its revenue mix, the timing of additional selling, general
and administrative expenses incurred to support new business, the seasonality of
air travel and the effect of acquisitions. The Company's revenues are typically
based on the number of hours of service provided by the Company or the number of
flights serviced. Thus, decreases in air travel generally result in lower
revenues for the Company. While the effects of seasonality on ITS's business
often are obscured by the timing of the addition of new clients and the
performance of new services for existing clients, revenues and net income
typically are at their lowest levels in the first and fourth quarters of the
fiscal year. This reflects lower levels of air travel during these periods and
certain additional expenses, such as annual unemployment insurance premiums,
that become payable with the commencement of a new calendar year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results and Seasonality."
LACK OF CASH DIVIDENDS
The Company does not expect to pay any cash dividends on the Common Shares
in the foreseeable future. Any cash otherwise available for such dividends will
be reinvested in the Company's business. In addition, the Company's ability to
pay cash dividends is limited by the terms of its revolving line of credit from
its senior lender. See "Dividend Policy."
10
<PAGE> 12
GRANT OF SECURITY INTERESTS
The Company has granted security interests in substantially all of its
assets to its senior lender under a revolving line of credit. In the event of a
default on the secured indebtedness (whether as a result of the failure to
comply with a payment or other covenant, a cross-default, or otherwise), the
lender could attempt to foreclose on the Company's assets. Any such attempt
would be likely to have a material adverse effect on the Company's financial
condition and on the value of the Common Shares.
CONTROL BY PRINCIPAL SHAREHOLDER
Immediately following the Offering, Robert A. Weitzel will beneficially own
approximately 51% of the outstanding Common Shares (approximately 48% if the
Underwriters' over-allotment option is exercised in full). As a result, Mr.
Weitzel will continue to exercise substantial influence over the election of the
Board of Directors and over other matters requiring shareholder approval. This
concentration of voting power may also have the effect of delaying or preventing
a change in control of the Company. See "Management," "Principal and Selling
Shareholders" and "Description of Capital Shares."
NO PRIOR PUBLIC MARKET FOR COMMON SHARES; POTENTIAL VOLATILITY OF SHARE PRICE
Prior to the Offering, there has been no public market for the Common
Shares, and there can be no assurance that an active trading market will develop
or be sustained after the Offering. The initial public offering price will be
determined through negotiation between the Company and the Representatives of
the Underwriters based on various considerations and may not be indicative of
the price at which the Common Shares will trade after the Offering. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The market price of the Common Shares may be
volatile and may be significantly affected by factors such as actual or
anticipated fluctuations in the Company's operating results, announcements of
new services offered by the Company or its competitors, developments with
respect to conditions and trends in the industries served by the Company,
governmental regulation, changes in estimates by securities analysts of the
Company's future financial performance, general market conditions and other
factors. 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.
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales, or
the availability of Common Shares for future sale, by the Company or by its
executive officers, directors and current shareholders will have on the market
price of the Common Shares prevailing from time to time. Sales of substantial
amounts of Common Shares (including shares issued on the exercise of options),
or the perception that such sales could occur, could adversely affect prevailing
market prices for the Common Shares. The Company and its directors, officers and
current shareholders have agreed not to sell, offer for sale, or otherwise
dispose of any Common Shares for a period of 180 days from the date of this
Prospectus without the prior written consent of McDonald & Company Securities,
Inc. Upon expiration of this period, an aggregate of 77,355 Common Shares will
be eligible for sale in the public market without restriction. An additional
3,276,180 Common Shares will be eligible for resale by existing shareholders,
subject to the volume and manner of sale limitations imposed by Rule 144 under
the Securities Act of 1933, as amended (the "Securities Act"). The Company
expects to file, within 180 days after the Offering, a registration statement
covering the issuance of shares underlying share options granted under the
Company's Long Term Incentive Plan. See "Shares Eligible for Future Sale."
CERTAIN ANTI-TAKEOVER PROVISIONS
Chapter 1704 of the Ohio Revised Code prohibits certain transactions,
including mergers, sales of assets and similar corporate transactions involving
Ohio corporations and holders of 10% or more of their voting shares, unless
certain advance approvals are obtained or certain other conditions are met.
Section 1701.831 of
11
<PAGE> 13
the Ohio Revised Code imposes certain advance notice and shareholder approval
requirements with respect to voting share acquisitions that cross the 20%,
33 1/3% and 50% of voting shares thresholds. Section 1707.041 of the Ohio
Revised Code imposes advance filing and notice requirements with respect to
certain tender offers and invitations for tenders for more than 10% of the
outstanding common shares of certain Ohio corporations. The Company's Articles
of Incorporation authorize the Company's Board of Directors, without action by
the shareholders, to specify the terms of and to issue preferred shares of the
Company. These restraints, requirements and authorizations, and the substantial
percentage of Common Shares that Mr. Weitzel will hold following the Offering,
could discourage potential acquisition proposals and could delay or prevent a
change in control of the Company. See "Description of Capital Shares."
IMMEDIATE AND SUBSTANTIAL DILUTION
At June 30, 1997, the Company had a net tangible book value deficit of
$(1.60) per share. Purchasers of Common Shares in the Offering will incur
immediate and substantial dilution of $7.90 in the net tangible book value per
Common Share, assuming an initial public offering price of $11.00 per share (the
midpoint of the estimated initial offering price range). The net tangible book
value deficit before the offering approximated $5.8 million, and the net
tangible book value following the offering is expected to approximate $19.3
million. Accordingly, investors will have paid 100% of the Company's total net
tangible book value after the offering and will have an ownership interest in
the Company of approximately 41.6%. See "Dilution."
FORWARD-LOOKING STATEMENTS
This Prospectus contains statements that constitute forward-looking
statements. Those statements appear in a number of places in this Prospectus and
include statements regarding the intent, belief or current expectations of the
Company, its directors or its officers with respect to: (i) the declaration or
payment of dividends; (ii) potential acquisitions by the Company; (iii) the use
of the proceeds of the Offering; (iv) the Company's financing plans; and (v)
trends affecting the Company's financial condition or results of operations.
Prospective investors are cautioned that any such forward-looking statement
is not a guarantee of future performance and involves risks and uncertainties,
and that actual results may differ materially from those in the forward-looking
statement as a result of various factors. The accompanying information contained
in this Prospectus, including, without limitation, the information set forth
above and the information under the headings "Management's Discussion and
Analysis of Financial Condition and Results of Operations," identifies important
factors that could cause such differences. With respect to any such
forward-looking statement that includes a statement of its underlying
assumptions or bases, the Company cautions that, while it believes such
assumptions or bases to be reasonable and has formed them in good faith, assumed
facts or bases almost always vary from actual results, and the differences
between assumed facts or bases and actual results can be material depending on
the circumstances. When, in any forward-looking statement, the Company, or its
management, expresses an expectation or belief as to future results, that
expectation or belief is expressed in good faith and is believed to have a
reasonable basis, but there can be no assurance that the stated expectation or
belief will result or be achieved or accomplished.
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
2,597,727 Common Shares offered by the Company are estimated to be approximately
$25.4 million, after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company, assuming an initial public
offering price of $11.00 per share (the midpoint of the estimated initial
offering price range).
The Company intends to use the net proceeds from the Offering: (i) to pay
approximately $14.0 million of outstanding indebtedness, consisting of (a)
approximately $11.0 million outstanding under a revolving line of credit with
the Company's senior lender, which matures on March 31, 1999 and bears interest
at the lender's prime rate plus 1 1/2% per annum, and (b) $3.0 million of
subordinated notes payable to an unrelated lender, which mature on November 25,
2001 and bear interest at an annual rate of 20%; and (ii) for general corporate
purposes, including working capital to support the Company's growth and for
possible acquisitions. The Company used approximately $1.2 million of the
proceeds of the subordinated notes to purchase 2,002,727 of the Company's Common
Shares from a former shareholder and approximately $1.4 million of the
subordinated notes to acquire certain security contracts from JJ Protective
Services, Inc. in November 1996. The remainder of the proceeds of the
subordinated notes was used for working capital.
Although the Company regularly evaluates possible acquisition
opportunities, it is not currently engaged in any negotiations and is not a
party to any agreement, letter of intent or other arrangement regarding any
material acquisition. Pending the use of proceeds as described above, the net
proceeds will be invested in short-term, interest-bearing, investment grade
securities. See "Business -- Growth Strategy -- Growth Through Acquisitions."
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Shares. The Company
does not anticipate paying cash dividends on its Common Shares in the
foreseeable future because it intends to retain its earnings to finance the
expansion of its business and for general corporate purposes. The declaration
and payment of any dividends will be at the discretion of the Company's Board
and will depend on, among other things, the Company's earnings, financial
condition, capital requirements, level of indebtedness, contractual restrictions
with respect to payment of dividends and other factors considered relevant by
the Board. The Company's current credit arrangements prohibit the payment of
dividends. The credit arrangements anticipated to be entered into after the
Offering will permit the payment of dividends, subject to certain restrictions.
See "Management's Discussion and Analysis of Financial Condition and Result of
Operations -- Liquidity and Capital Resources."
13
<PAGE> 15
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1997
was a deficit of $(5,834,162) or $(1.60) per share. The net tangible book value
per Common Share represents the amount of the Company's shareholders' equity,
less intangible assets, divided by the 3,653,910 Common Shares outstanding at
that date.
Net tangible book value dilution per Common Share represents the difference
between the amount per share paid by purchasers of the 2,825,000 Common Shares
in the Offering and the pro forma net tangible book value per Common Share
immediately after completion of the Offering. After giving effect to the sale by
the Company of the 2,597,727 Common Shares offered hereby, at an assumed initial
public offering price of $11.00 per share (the midpoint of the estimated initial
offering price range) and after deduction of underwriting discounts and
commissions and estimated offering expenses, the pro forma net tangible book
value of the Company as of June 30, 1997 would have been approximately
$19,366,000 or $3.10 per share. This represents an immediate increase in pro
forma net tangible book value of $4.70 per share to existing shareholders and an
immediate dilution in pro forma net tangible book value of $7.90 per share to
purchasers of Common Shares in the Offering, as illustrated in the following
table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $11.00
Pro forma net tangible book value per share at June 30,
1997......................................................... $(1.60)
Increase per share attributable to new investors.............. $ 4.70
------
Pro forma net tangible book value per share after the Offering..... $ 3.10
------
Net tangible book value dilution per share to new investors........ $ 7.90
======
</TABLE>
The following table sets forth, on a pro forma basis as of June 30, 1997,
the differences between the number of Common Shares purchased from the Company,
the effective cash contributed and the average price per share paid by existing
shareholders and by new investors purchasing Common Shares in the Offering at
the assumed initial public offering price of $11.00 per share (the midpoint of
the estimated initial offering price range):
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED --------------------------------------------
------------------------ AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
--------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)....... 3,653,910 58.4% $ 44,000 0.2% $ 0.01
New investors.................. 2,597,727 41.6% $28,575,000 99.8% $ 11.00
--------- -----
6,251,637 100.0%
</TABLE>
- ---------------
(1) The number of shares shown excludes an aggregate of 282,015 Common Shares
reserved for issuance under the Company's option plans, 215,262 of which are
expected to be subject to options to be awarded in connection with the
Offering. See "Management -- Compensation of Directors" and "-- Long Term
Incentive Plan." Sales of Common Shares by the Selling Shareholder in the
Offering will reduce the number of Common Shares held by existing
shareholders to approximately 3,426,637 shares, or 54.8% of the total shares
outstanding, and will increase the number of shares held by new investors to
2,825,000, or 45.2% of the total shares outstanding.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997, as adjusted to give effect to the sale by the Company of the 2,597,727
Common Shares offered by the Company, assuming an initial public offering price
of $11.00 per share (the midpoint of the estimated initial public offering price
range) and the application of the estimated net proceeds therefrom as set forth
under "Use of Proceeds." This table should be read in conjunction with the Pro
Forma Financial Data and the Consolidated Financial Statements of the Company
and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt and current maturities of long-term debt............. $ 2,464 $ 64
======= =======
Long-term debt, net of current maturities(1)......................... 10,755 87
------- -------
Shareholders' equity
Preferred shares, without par value; 5,000,000 shares authorized;
none issued or outstanding......................................
Common shares, without par value, 20,000,000 shares authorized;
3,653,910 shares issued and outstanding and 6,251,637 issued and
outstanding as adjusted(2)...................................... 37 63
Additional paid-in capital(2)...................................... 450 25,823
Retained earnings.................................................. 3,637 3,637
Cumulative translation adjustments................................. (99) (99)
------- -------
Total shareholders' equity................................. 4,025 29,424
------- -------
Total capitalization....................................... $14,780 $29,511
======= =======
</TABLE>
- ---------------
(1) Consists of a revolving bank debt of $7,668 and subordinated debt of $3,000,
all of which is being repaid from the proceeds of the Offering, and $87 of
capital lease obligations and other long-term debt.
(2) Excludes an aggregate of 282,015 Common Shares issuable pursuant to options
to be awarded to certain officers under the Company's Long Term Incentive
Plan and to certain directors in connection with the Offering. See
"Management -- Employment Contracts" and "-- Compensation of Directors."
15
<PAGE> 17
PRO FORMA FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following sets forth an Unaudited Pro Forma Combined Income Statement
giving effect to the Intex acquisition (as described under "Business -- Growth
Strategy -- Growth Through Acquisitions"). The historical information in this
pro forma statement for the Company is for the year ended March 31, 1997;
historical information for Intex is for the year ended December 31, 1996. The
Company's Unaudited Pro Forma Combined Income Statement presents the effects of
the acquisition as if it had been consummated at the beginning of the periods
presented. The Unaudited Pro Forma Combined Financial Information of the Company
is presented for illustrative purposes only and does not purport to present the
results of operations of the Company had the Intex acquisition occurred on the
dates indicated, nor is it necessarily indicative of results of operations that
may be expected in the future.
The pro forma adjustments relating to the acquisition represent the
Company's preliminary determinations of purchase accounting adjustments based
upon available information and certain assumptions the Company considers
reasonable under the circumstances.
An Unaudited Pro Forma Combined Balance Sheet is not presented since the
acquisition is reflected in the Company's consolidated historical balance sheet
as of June 30, 1997 included in this filing.
The following unaudited pro forma combined financial information should be
read in conjunction with the more detailed information, including the Financial
Statements and Notes thereto, included elsewhere in this Prospectus.
16
<PAGE> 18
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
INCOME STATEMENT
YEAR ENDED
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
ITS INTEX ADJUSTMENTS FOR ADJUSTED
MARCH 31, 1997 DECEMBER 31, 1996 ACQUISITION PRO FORMA
-------------- ----------------- --------------- ---------
<S> <C> <C> <C> <C>
Operating Revenues.......................... $ 115,242 $41,162 (1) $ 156,404
(1)
Cost of Operating Revenues.................. 98,338 35,877 (1,798)(2) 132,417
--------- ------- ------ ---------
Gross Profit................................ 16,904 5,285 1,798 23,987
General and Administrative Expenses......... 13,334 3,192 (377)(3) 16,449
384 (4a)
(84)(4b)
--------- ------- ------ ---------
Operating Profit............................ 3,570 2,093 1,875 7,538
Interest Expense -- net..................... 637 533 (533)(5) 637
--------- ------- ------ ---------
Earnings Before Income Taxes................ 2,933 1,560 2,408 6,901
Income Taxes................................ 1,237 40 1,621 (6) 2,898
--------- ------- ------ ---------
Net Earnings................................ $ 1,696 $ 1,520 $ 787 $ 4,003
========= ======= ====== =========
Weighted Average Number Of
Shares Outstanding........................ 5,089,480 11,250 n/a 5,089,480
--------- ------- ------ ---------
Earnings Per Share(7)....................... $ 0.33 $135.07 n/a $ 0.79
========= ======= ====== =========
</TABLE>
17
<PAGE> 19
- ---------------
1. Adjustments have not been made to reflect operating revenues and cost of
operating revenues associated with contracts lost by Intex during 1996,
amounting to $9,567 and $8,704, respectively, or for contracts representing
$2.5 million in annual revenues lost since April 1997.
2. Represents a reduction in Intex's historical costs for workers'
compensation, liability insurance, medical insurance and personnel relations
to conform them to the cost structure associated with the Company's
programs.
3. Represents a reduction in compensation expense associated with the
elimination of certain salaries paid to Intex officers not employed by the
Company subsequent to the acquisition.
4a. Represents the additional depreciation and amortization costs to be charged
to expense after allocation of the purchase price in the Intex acquisition
as follows:
<TABLE>
<S> <C>
- amortization of service contracts (5 years)........................... $ 115
- depreciation of furniture and fixtures (5 years)...................... 10
- amortization of goodwill (20 years)................................... $ 259
------
$ 384
======
4b. Elimination of Intex's historical depreciation................................ $ 84
======
</TABLE>
5. Represents the reduction of interest expense for interest on Intex debt not
assumed with the contract acquisition.
6. Represents an adjustment to the historical provision for income taxes to
reflect the application of the Company's estimated effective tax rate of 42%
after giving effect to the foregoing adjustments and to make a provision for
income taxes of Intex, which had previously operated as an S corporation.
7. Earnings per share are computed by dividing net earnings, after giving
effect to preferred dividend requirements, by the weighted average number of
shares outstanding.
18
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT SHARES, PER SHARE AMOUNTS AND OPERATING DATA)
The selected financial data of the Company for the years ended March 31,
1995, March 31, 1996 and March 31, 1997 are derived from audited financial
statements. These financial statements and the notes thereto appear elsewhere in
this Prospectus. The selected financial data of the Company for the three months
ended June 30, 1997, the three months ended June 30, 1996 and the years ended
March 31, 1993 and March 31, 1994 have been derived from unaudited financial
statements. Those unaudited financial statements include all adjustments,
consisting only of normal recurring accruals, which the Company considers
necessary for a fair presentation of its financial position and results of
operations for those periods. The data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Use of Proceeds, Pro Forma Financial Data and the Consolidated
Financial Statements and the notes thereto, and the other financial information
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, THREE MONTHS THREE MONTHS
--------------------------------------------------------- ENDED ENDED
1993 1994 1995 1996 1997 JUNE 30, 1996 JUNE 30, 1997
--------- --------- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................. $ 68,230 $ 78,173 $ 92,654 $ 95,463 $ 115,242 $ 24,106 $ 38,364
Cost of revenues......... 56,180 66,103 79,981 81,341 98,338 20,475 31,824
-------- -------- -------- -------- -------- -------- --------
Gross profit............. 12,050 12,070 12,673 14,122 16,904 3,631 6,540
General and
administrative
expenses............... 11,916 11,075 12,655 11,603 13,334 2,772 4,639
-------- -------- -------- -------- -------- -------- --------
Operating income......... 134 995 18 2,519 3,570 859 1,901
Interest expense (income)
net.................... 22 34 188 523 637 99 414
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes........... 112 961 (170) 1,996 2,933 760 1,487
Income taxes(2).......... 109 1,035 548 958 1,237 318 634
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ 3 $ (74) $ (718) $ 1,038 $ 1,696 $ 442 $ 853
======== ======== ======== ======== ======== ======== ========
Net income (loss) per
share.................. $ 0.00 $ (0.01) $ (0.11) $ 0.18 $ 0.33 $ .07 $ 0.23
Supplemental Pro Forma
Net Income............. $ 2,136 $ 1,098
Supplemental Pro Forma
Net Income Per Share... $ 0.35 $ 0.22
Weighted average common
and common equivalent
shares................. 6,446,310 6,446,310 6,292,976 5,775,880 5,089,480 5,945,022 3,654,985
OPERATING DATA (AT PERIOD
END):
Number of employees...... 8,121 9,006 9,863 9,914 10,690 9,984 12,618
</TABLE>
19
<PAGE> 21
<TABLE>
<CAPTION>
MARCH 31, THREE MONTHS
--------------------------------------------------------- ENDED
1993 1994 1995 1996 1997 JUNE 30, 1997
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 1,108 $ 769 $ 1,267 $ 1,873 $ 1,452 $ 1,711
Working capital (deficit)............ (2,004) (1,351) (4,425) (2,951) 324 1,338
Total assets......................... 12,222 14,843 20,295 20,892 27,001 34,470
Short-term bank debt and current
maturities of long-term debt....... 236 875 5,658 4,806 2,521 2,464
Long-term obligations, net of current
maturities(3)...................... 0 0 152 164 7,556 10,755
Retained earnings.................... 3,752 3,678 2,961 3,998 2,784 3,637
Shareholder's equity................. 4,347 4,273 3,139 3,978 3,195 4,025
</TABLE>
- ---------------
(1) The supplemental pro forma net income and net income per share reflect the
issuance of shares necessary to repay certain indebtedness and the related
reduction in interest expense and increase in net income. See Note A of
Notes to the Consolidated Financial Statements.
(2) No provision (benefit) has been provided for the portion of operating income
resulting from the profit (loss) of International Transport Security, Inc.,
a corporation under common ownership with the Company, which had operated as
an "S" corporation. See Note A to Consolidated Financial Statements
explaining the relationship of Transport with the Company.
(3) Includes amounts due under revolving credit facility, subordinated debt,
capital lease obligations and other long-term debt.
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITS provides aviation security, ramp and ground handling and passenger
services, and commercial security services. The Company's revenues have grown
from $68.2 million in fiscal 1992 to $115.2 million in fiscal 1996, reflecting a
compound annual growth rate of 14.2%. The growth for fiscal 1993, 1994, 1995 and
1996 was 15.3%, 17.8%, 3.0% and 20.7%, respectively.
The gross margins associated with airline security services typically have
been lower than the gross margins associated with other airline services,
reflecting the maturity of the market for airline security services and the
intensity of price competition in that market. While airline security services
have long been outsourced, airlines have only recently begun to outsource many
other services. Consequently, the market for these other services is more
fragmented and less mature than the market for airline security services. The
Company anticipates that, as the airline services market matures, gross margins
will experience compression as a result of increasing competition in the market
and the increasing importance of cost considerations to the airlines that
outsource these services.
The Company's services are provided under contracts that typically have
terms of from one to three years but are cancelable by either party on 30 to 90
days' notice. Although contract terms vary significantly, clients generally pay
at an hourly rate for services provided. Certain services, such as aircraft
lavatory cleaning, are billed on a flat fee for service basis, and certain
others are billed at a fixed monthly rate. The Company recognizes revenues as
the related services are performed.
Prior to fiscal 1995, ITS's strategy included using technological
innovation to drive the growth of its business, and the Company made research
and development expenditures of approximately $500,000 in support of this
strategy. In recognition of the importance of cost considerations in customer
purchasing decisions, the Company in fiscal 1995 determined to reduce its cost
structure in order to enhance its competitive position. As a consequence of this
decision, ITS made several important operational changes that contributed to a
significant improvement in its financial results. These changes included
reductions in corporate headquarters staff and executive compensation of
approximately $500,000, the development of divisional budgeting systems and the
implementation of compensation programs tied to the achievement of budgeted
performance levels. The Company also made efforts to enhance its management and
control systems in order to improve accounts receivable collection and
streamline its purchasing arrangements.
Acquisitions played an important role in the Company's revenue and earnings
growth during fiscal 1996, and they are expected to remain an important
component of ITS's growth strategy during future periods. ITS seeks acquisition
candidates that will add geographic coverage to the Company's existing
businesses, broaden its service offerings and expand its customer base. The
Company's recent acquisitions have involved the purchase of service contracts
and property and equipment related to those contracts, but not the liabilities
associated with the sellers' businesses. Management believes that the
acquisition of service contracts, rather than of stock or of assets unrelated to
those contracts, significantly reduces the cost of integrating acquired
operations.
In fiscal 1996, ITS completed six acquisitions of service contracts, all of
which were accounted for under the purchase method, and their operations are
reflected in ITS's consolidated financial statements for all periods subsequent
to the date of the acquisition. All of these acquisitions involved providers of
airline security or commercial security services. These acquisitions contributed
approximately $11.9 million in total revenues during fiscal 1996. In addition,
in April 1997, the Company acquired service contracts from Intex Aviation
Services. Intex did not provide security services; instead, it provided a
variety of other aviation services, including baggage handling, lavatory and
water services, de-icing services and aircraft cleaning and ground support
services. For the year ended December 31, 1996, Intex recognized revenues of
approximately $32.3 million from the contracts acquired by ITS. Intex's
operations are not reflected in the Company's consolidated financial statements
for fiscal 1996. See "Pro Forma Financial Data."
21
<PAGE> 23
RESULTS OF OPERATIONS
The following table sets forth Statement of Operations data as a percentage
of revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, MARCH 31, MARCH 31, JUNE 30,
1995 1996 1997 1997
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
Revenues..................................... 100.0% 100.0% 100.0% 100.0%
Gross profit................................. 13.7 14.8 14.7 17.0
Selling, general and administrative
expenses................................... 13.7 12.2 11.6 12.1
----- ----- ----- -----
Operating income (loss)...................... 0.0 2.6 3.1 4.9
Interest expense............................. 0.2 0.5 0.5 1.0
----- ----- ----- -----
Income (loss) before income taxes............ (0.2) 2.1 2.6 3.9
Income taxes................................. 0.6 1.0 1.1 1.7
----- ----- ----- -----
Net income (loss)............................ (0.8)% 1.1% 1.5% 2.2
===== ===== ===== =====
</TABLE>
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
Revenues. Revenues for the three months ended June 30, 1997 increased by
$14.4 million, or 60.0%, as compared to the three months ended June 30, 1996.
This increase is attributable to an increase in revenues from the six
acquisitions that were completed during fiscal 1996 and the Intex acquisition,
and from the addition of continuous bag search that was implemented by the FAA
during fiscal 1996 as well as increased revenues from passing along to customers
the U.S. minimum wage increase commencing October 1, 1996 and an increase in
revenues from existing customers for aircraft cleaning and ground handling. Of
the $14.4 million increase in revenues, $10.4 million was attributable to the
acquisitions, $1.5 million to continuous bag search, $1.5 million to the minimum
wage increase and $1.0 million from aircraft cleaning and ground handling.
Gross profit. Gross profit was $6.5 million for the three months ended
June 30, 1997 compared to $3.6 million in the three months ended June 30, 1996,
an increase of $2.9 million, or 80.2%. Measured as a percentage of net sales,
gross profit margins increased to 17.0% in 1997 from 15.1% in 1996.
Approximately $2.6 million of the increase reflects the impact of higher margin
contracts (primarily resulting from the Intex acquisition). Decreases in
worker's compensation and liability insurance rates based on cost reduction
measures and a favorable claims history also contributed to the gross profit
margin increase.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended June 30, 1997 were $4.6
million compared to $2.7 million in the prior year, an increase of $1.8 million,
or 67.2%, primarily in connection with the acquisitions referred to above.
Measured as a percentage of net sales, these expenses were 12.7% in 1997 and
11.5% in 1996, an increase of only 5.2%, because of the Company's focus on
increasing revenues without a proportionate increase in corporate expenses.
Interest Expenses. Interest expenses increased in the three months ended
June 30, 1997 to $414,000 from $98,000 in the prior year because of an increase
in the amount of debt outstanding exclusively as a result of the acquisitions.
Income Taxes. The Company's consolidated effective income tax rate in the
three months ended June 30, 1997 was 42.6% as compared to 41.8% in the prior
year. The Company's effective tax rate will vary from period to period depending
on the breakdown of earnings among the various operating subsidiaries and the
treatment of such items by the relevant tax authorities and income tax effects
deferred from prior periods.
Net Income. As a result of the foregoing, the Company's net income
increased to $853,000 in the three months ended June 30, 1997 compared to
$442,000 in the prior year, an increase of $411,000, or 93%.
22
<PAGE> 24
Year Ended March 31, 1997 Compared to Year Ended March 31, 1996
Revenues. Revenues in fiscal 1996 increased by $19.8 million, or 20.7%, as
compared to fiscal 1995. This increase is attributable to an increase in
revenues from the six acquisitions that were completed during the year, and from
the addition of continuous bag search services that were required by the FAA
during the year, as well as increased revenues from passing along to customers
the U.S. minimum wage increase commencing October 1, 1996 and an increase in
revenues from existing customers for aircraft cleaning and ground handling. Of
the $19.8 million increase in revenues, $11.9 million was attributable to the
acquisitions ($9.1 million in predeparture screening and $2.8 million in
industrial security), $4.2 million to continuous bag search, $2.3 million to the
minimum wage increase and $1.4 million to aircraft cleaning and ground handling.
Gross Profit. Gross profit was $16.9 million in fiscal 1996 compared to
$14.1 million in fiscal 1995, an increase of $2.8 million, or 19.9%.
Approximately $1.4 million of the increase resulted from higher margin contracts
of acquired businesses. Approximately $1.0 million of the increase resulted from
an increase in hourly rates under certain contracts and higher utilization of
personnel and improved operating efficiencies. Company-wide cost reduction
measures, including decreases in worker's compensation and liability insurance
rates contributed approximately $500,000 to the increase in gross profit.
For its fiscal year ended December 31, 1996, Intex had gross profit of $5.3
million, or 12.8% of total revenues. The Company had gross profit of $16.9
million, or 14.7% of total revenues. On a pro forma basis, after giving effect
to the Intex acquisition, the Company's gross profit percentage for fiscal 1996
would have increased to 15.7%. This increase reflects savings resulting from the
elimination of certain lower-margin contracts that Intex lost prior to the
acquisition, as well as a reduction in certain workers' compensation and
insurance costs attributable to the lower cost of comparable Company programs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in fiscal 1996 were $13.3 million compared to $11.6
million in the prior year, an increase of $1.7 million, or 14.7%. The increase
primarily reflects expenses associated with the operations of acquired
businesses. Measured as a percentage of net sales, these expenses were 11.6% in
fiscal 1996 and 12.2% in fiscal 1995, a decrease of 4.9% attributable to
improved overhead absorption resulting from the growth of revenues over the
prior year. On a pro forma basis, after giving effect to the Intex acquisition,
the Company's selling, general and administrative expenses for fiscal 1996 would
have been 11.3% of total revenues, primarily as a result of improved overhead
absorption resulting from the larger pro forma revenue base.
Interest Expense. Interest expense increased in fiscal 1996 to $637,000
from $523,000 in fiscal 1995 because of an increase in the amount of debt
outstanding. The debt was incurred primarily in connection with the
acquisitions.
Income Taxes. The Company's consolidated effective income tax rate in
fiscal 1996 was 42.2% as compared to 42.4% in fiscal 1995. The Company's
effective tax rate will vary from period to period depending on the breakdown of
earnings among the various operating subsidiaries and the treatment of earnings
items by the relevant tax authorities and income tax effects deferred from prior
periods.
Net Income. As a result of the foregoing, the Company's net income
increased to $1.7 million in fiscal 1996 from $1.0 million in fiscal 1995, an
increase of 63.4%.
The Company anticipates that the Intex acquisition will have a significant
effect on the mix of its revenues. During each of the past three fiscal years,
predeparture screening services have represented approximately 50% of the
Company's revenues. Intex historically did not provide these services, but
instead focused on other aviation services. In light of Intex's significant
historical revenue from these other aviation services, the Company believes
that, as a percentage of revenue, predeparture screening services will decrease
and other aviation services will increase during future periods.
Year Ended March 31, 1996 Compared to Year Ended March 31, 1995
Revenues. Revenues in fiscal 1995 increased by $2.8 million, or 3.0%, as
compared to fiscal 1994. This increase is exclusively attributable to an
increase in revenues from the sale of high efficiency screening systems
23
<PAGE> 25
to airline customers. Service revenues remained relatively constant as compared
to fiscal 1994. Revenues from new business were offset by revenues lost as a
result of an airline customer's decision to terminate a discount passenger
service operating at a number of airports served by the Company.
Gross Profit. Gross profit was $14.1 million in fiscal 1995 compared to
$12.7 million in fiscal 1994, an increase of $1.4 million, or 11.0%. Measured as
a percentage of net sales, gross profit margins increased to 14.8% in fiscal
1995 from 13.7% in fiscal 1994. The improvement in fiscal 1995 was attributable
primarily to cost reduction measures implemented Company-wide of $1.4 million,
including $500,000 related to research and development expenditures and a
$900,000 decrease in worker's compensation and liability insurance rates based
on cost reduction measures and a favorable claims history.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in fiscal 1995 were $11.6 million compared to $12.7
million in the prior year, a decrease of $900,000, or 8.7%. Measured as a
percentage of net sales, these expenses were 12.2% in fiscal 1995 and 13.7% in
fiscal 1994, a decrease of 10.9%. The improvement was primarily attributable to
cost reduction measures implemented Company-wide, including a decrease in
workers' compensation and liability insurance rates for administrative employees
of $400,000 and reductions in headquarters staff and executive compensation of
$500,000.
Interest Expense. Interest expense increased in fiscal 1995 to $523,000
from $188,000 in fiscal 1994 because of an increase in the amount of debt
outstanding. The debt was incurred in connection with normal operations.
Income Taxes. The Company's consolidated effective income tax rate in
fiscal 1995 was 42.4%.
Net Income. As a result of the foregoing, the Company's net income
increased from a loss of $718,000 in fiscal 1994 to net income of $1.0 million
in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business is labor intensive. Consequently, it has substantial
needs for cash throughout its fiscal year. During fiscal 1996, the Company's
cash requirements were heightened by its acquisition program and the need to
support the higher levels of revenue resulting from those acquisitions.
Operating activities generated cash of approximately $1.9 million in both fiscal
1996 and 1995 and $627,000 for the three months ended June 30, 1997. Financing
activities generated net cash of $3.9 million during fiscal 1996, primarily as a
result of borrowings under various credit arrangements, offset by $1.2 million
in purchases of treasury shares and $52,000 in principal payments on long-term
indebtedness, and $3.1 million for the three months ended June 30, 1997,
primarily as a result of borrowings under credit arrangements for the Intex
acquisition.
Principal uses of funds, in addition to working capital requirements,
included expenditures associated with the Company's acquisition program. During
fiscal 1996, these included $2.7 million in acquisitions of service contracts
and related goodwill and noncompete agreements, a $2.6 million purchase price
deposit in connection with the Intex acquisition, and $1.1 million in purchases
of property and equipment. The Company also used approximately $1.2 million
during fiscal 1996 to acquire outstanding Common Shares from certain current and
former shareholders. In the three months ended June 30, 1997, the Company used
$2.0 million as the final payment for the Intex acquisition and $280,000 for
purchases of property and equipment.
In April 1997, the Company acquired substantially all of Intex's aviation
services business through the assumption of various existing contracts. Under
the terms of the purchase agreement, the Company's $2.6 million deposit was
credited toward the purchase price. The total purchase price payable to the
former owner of Intex was determined on the basis of a multiple of monthly
revenues on the acquired contracts for the period from April 1, 1997 to June 30,
1997. The balance of the purchase price was paid on July 15, 1997. Subsequent to
the date of the acquisition, the Company lost contracts worth $2.5 million in
annual revenue which was deducted from the purchase price.
The Company currently has a credit facility with its senior lender. The
credit facility includes a revolving credit facility providing maximum
availability of $10.5 million, a $2.0 million term loan and a $900,000 term
loan. Borrowings under the credit facility are secured by all of the Company's
domestic accounts receivable,
24
<PAGE> 26
equipment and other assets. Amounts outstanding under the revolving line of
credit bear interest at 1.25% over the bank's prime rate, and availability under
the line is limited to an amount equal to 80% of qualifying domestic and 50% of
qualifying foreign accounts receivable. The revolving line of credit matures on
March 31, 1999. At July 31, 1997, approximately $1.0 million was available for
borrowing under the revolving line of credit. The $2.0 million term loan
provided under the facility bears interest at a fixed rate of 9.832% and is
subject to monthly amortization of principal at the rate of $41,667 beginning in
May 1997, with a final payment of $1.7 million on November 1, 1997. The $900,000
term loan bears interest at 2.00% over the bank's prime rate and will mature on
December 31, 1997.
The Company also has outstanding $3.0 million principal amount of a
subordinated promissory note issued to an institutional lender. Amounts
outstanding under this note are subordinated to all borrowings under the credit
facility described above. Interest on the note is payable quarterly at a fixed
rate of 20% per annum. The principal amount of the note is to be paid in equal
quarterly installments of $250,000 over a period of 12 quarters beginning
February 1999.
As of July 31, 1997, the Company had approximately $13.0 million
outstanding under the various credit arrangements described above. The Company
intends to repay this indebtedness in full with the proceeds of this Offering.
In connection with this Offering, the Company intends to replace its
existing credit facility with a new revolving credit facility with its senior
lender. The Company has received a commitment letter with respect to the new
facility. The commitment letter provides and the Company currently anticipates
that, subject to the completion of the Offering, the negotiation and execution
of definitive documentation and other customary conditions, the lender will
provide a two-year revolving credit facility providing maximum availability of
$30 million. The Company anticipates that amounts borrowed under the new credit
facility will bear interest at rates varying from LIBOR plus 1.5% to the bank's
prime rate plus 2%, and will mature in September 1999. Amounts outstanding under
the new credit facility will be secured by substantially all of the Company's
assets. It is anticipated that the new credit facility will limit the Company's
ability to incur additional indebtedness and pay dividends, and will require the
Company to maintain prescribed debt-to-equity and fixed charge coverage ratios
and minimum net worth levels and to satisfy other financial covenants. Although
the Company believes that financing on the terms outlined above will be
available subsequent to the completion of the Offering, there can be no
assurance thereof.
The Company's capital expenditure budget for fiscal 1997 is approximately
$2.0 million. Capital expenditures for the current fiscal year are expected to
relate to facility and equipment improvements.
The Company believes that the net proceeds from the Offering, together with
its available cash, cash generated from operating activities and amounts
anticipated to be available under its new credit facility will be sufficient to
meet its anticipated cash requirements through the end of fiscal 1998.
QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY
The Company's operations are subject to seasonal fluctuations. The
Company's revenues and operating income typically reach their highest levels
during the third quarter of the fiscal year, reflecting the higher level of air
travel during the holiday season. Revenues and net income typically are at their
lowest levels in the first and fourth quarters of the fiscal year, as a result
of lower levels of air travel during these periods and certain additional
expenses, such as annual unemployment insurance premiums, that become payable
with the commencement of a new calendar year.
25
<PAGE> 27
BUSINESS
COMPANY OVERVIEW
ITS is a leading domestic provider of aviation security and other aviation
services. The Company provides predeparture screening services for more than 60
U.S. and international carriers at more than 130 U.S. airports. ITS has used its
predeparture screening business to establish a growing presence in the broader
aviation services market and believes that it offers a wider array of services
than its competitors in this market. Aviation services offered by ITS include
skycap, baggage handling and aircraft cleaning services, and wheelchair and
electric cart operations. The Company's security services extend beyond aviation
security, and include the provision of commercial security services to
government and business clients, hospitals, arenas and museums.
ITS's revenues have grown at a compounded annual rate of 14.2% over the
past five years, driven by growth in both aviation security and other aviation
services as well as growth resulting from acquisitions. The Company has
experienced significant revenue growth in its predeparture screening business,
attributable primarily to the trend toward consolidation in this market and the
Company's historic ability to pass on wage increases to customers. The Company's
predeparture screening revenues have grown from $47 million to $58 from 1994
through 1996, representing a 23% increase during that period. Aviation services
have also accounted for substantial growth, as airlines have outsourced noncore
services and have begun to consolidate their vendor base to a few leading
vendors such as ITS. ITS believes that these consolidation and outsourcing
trends will continue and that it can realize additional revenue growth by
leveraging its established business presence and relationships to deliver a wide
array of services to its clients at a very competitive overall cost. See "Growth
Strategy -- Growth Through Acquisitions."
ITS's growth strategy is premised on using its experience in recruiting,
training, motivating and managing the large numbers of personnel needed to
perform the labor-intensive, task-repetitive functions that its services
require. The Company believes that it is well-positioned to realize significant
growth for the following reasons:
- Favorable growth prospects exist in the markets for aviation services and
commercial security services.
- The Company enjoys strong market position and administrative support from
its significant aviation and security experience, extensive market
breadth and competitive cost structure.
- Management is able to exploit the Company's aviation and security
experience to capture revenue in related service segments such as general
aviation services and commercial security.
- The economies of scale resulting from the Company's use of its existing
administrative resources support internal growth and acquisitions.
The Company intends to grow internally and through acquisitions. The
Company expects internal growth will be generated by using the Company's
established business base as a platform for expanding the services it provides
at existing airport and commercial security locations and for developing new
service locations. The Company intends to target acquisition candidates that
will add geographic scope to its existing businesses, broaden its service
offerings and expand its client base. ITS made two acquisitions of aviation
security contracts and four acquisitions of commercial security contracts in
fiscal 1996 that have contributed an aggregate of approximately $11.9 million in
annual revenues and have improved profitability. In addition, in April 1997, the
Company acquired service contracts from Intex. Intex provided a variety of
aviation services, including baggage handling, lavatory and water services,
de-icing services and aircraft cleaning and ground support services. On a pro
forma basis for the year ended December 31, 1996, the contracts acquired from
Intex generated revenues of approximately $32.3 million. See "Pro Forma
Financial Data" and "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
26
<PAGE> 28
AVIATION SERVICES
General.
In 1973, the FAA mandated that airlines conduct predeparture screening of
all passengers at most airports in the U.S. Because the labor-intensive nature
of predeparture screening imposed substantial administrative burdens, most
airlines opted to contract out predeparture screening and other security
services to third party contractors. Certain other airline services, such as
food service and fueling, historically have also been contracted out by the
airlines. In the past several years, market forces have driven airlines to
outsource a number of other labor-intensive aviation services in order to permit
airline management to focus on the essential aspects of its businesses and to
reduce labor and benefit costs and administrative overhead.
As the costs of labor have increased, airlines now frequently outsource
baggage claim and check services, skycap, baggage handling, aircraft cleaning
and wheelchair assistance services, and inter-gate cart services. Ticketing and
check-in services are also beginning to be outsourced. Many small, regional
carriers still provide their own ground handling and cleaning services, offering
additional growth opportunities for contractors such as the Company.
Aviation Security Services.
Predeparture Screening. The Company is a leading provider of domestic
airline predeparture screening services. ITS currently employs approximately
4,500 full-time equivalent predeparture screeners in more than 130 U.S. airports
in 44 states. The Company's predeparture screening services include conducting
x-ray or electro-magnetic inspection of all carry-on baggage, manual searches of
suspicious baggage and metal-detector searches of all passengers. The Company
derived approximately 50% of its revenues from predeparture screening services
in each of the last three fiscal years.
Other Airline Security Services. ITS provides passenger profiling services
and document verification agents, primarily in Europe and Asia, where airlines
and airports have been obliged by regulatory agencies and the political climate
to devote significant resources to the prevention of terrorist activity.
Airlines contract with ITS to provide document verification (customs) agents who
interview passengers as they enter or leave a country via an international
flight. In the domestic market, ITS also 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. Airline security services other than predeparture screening
accounted for less than 5% of the Company's revenues in each of the last three
fiscal years.
Other Aviation Services.
The Company provides nonsecurity aviation services, attempting to take
advantage of its existing base of operations and overhead costs in its airport
security operations. It also provides these services for airlines with which it
does not have security contracts.
Ramp and Ground Handling Services. The ramp and ground handling services
provided by ITS are described in the chart below.
<TABLE>
<CAPTION>
SERVICE DESCRIPTION
- -------------------------------------------- --------------------------------------------
<S> <C>
Baggage Handling............................ Conveyance of checked baggage from terminal
to baggage compartment of plane and from
plane to baggage carousel
Aircraft Cleaning........................... Interior: cleaning interior parts of the
aircraft between flights and at end of the
aircraft's flight day.
Exterior: washing exterior of aircraft.
Lavatory and Water Services................. Use of equipment to empty lavatory and
replace the water source with potable water.
De-icing.................................... Spraying ice-melting substance on aircraft
prior to departure from gate, in accordance
with customer specifications.
</TABLE>
27
<PAGE> 29
The Company derived approximately 12.2%, 12.7% and 14.2% of its revenues
from ramp and ground handling services in fiscal 1996, 1995 and 1994,
respectively.
Passenger Services. The Company's passenger services include providing
skycaps for curbside check-in, baggage assistance and help with routine
passenger problems, wheelchair operators to transport disabled or elderly
passengers to and from the check-in area and the plane, and electric cart
drivers to provide inter-gate transport for passengers who need to board flights
at distant gates. Passenger services are a growing source of revenue for ITS,
representing approximately 19.6%, 22.7% and 23.8% of the Company's revenues in
fiscal 1994, 1995 and 1996, respectively.
COMMERCIAL SECURITY SERVICES
ITS provides uniformed security officer services, business and facility
access control, security consulting, special event security and security
assessment to a broad range of commercial clients, including in office and
government buildings, airports, hospitals, malls, distribution centers, sports
arenas, museums and other facilities. The Company recently acquired the service
contracts of several regional commercial security providers, including JJ
Protective Services, Inc., which had approximately $7.7 million in sales in 1996
in Minnesota, Wisconsin, Michigan and Colorado, and Maximum Protective Services
of Texas, Inc., which had $1.5 million in annual sales in Texas.
The Company entered the commercial security market in the early 1990s,
attracted by the market's favorable fundamentals and the opportunity to further
capitalize on its aviation security experience. Industrial security is a $100
billion per year industry that employed approximately 2 million people in 1996,
according to the American Society for Industrial Security in Arlington, Virginia
("ASIS"). ASIS data indicates that the industry is highly fragmented, with
approximately 160,000 companies registered as protection companies. Commercial
security accounted for approximately 9.7%, 11.0% and 11.7% of the Company's
revenue in fiscal 1996, 1995, and 1994, respectively.
SECURITY PRODUCTS DISTRIBUTION
In addition to its service offerings, the Company distributes a line of
security products through its Crown Technical Services, Inc. subsidiary. These
products are sold with or without airline security services and offer
significantly better margins than many of the services that ITS provides. In
1992, the Company introduced its High Efficiency Screening System ("HESS"), an
ITS-designed integrated security system that physically replaces the standard
checkpoint configuration found in most U.S. airports. The Company also offers,
either with the entire HESS system or alone, an exit aisle motion detector,
which replaces the guard who stands at most terminals, to ensure that boarding
passengers do not pass through the departing passenger aisle. The Company also
offers a separate line of hand-held and walk-through metal detectors, which it
sells to banks, schools, the federal government, and large businesses.
The Company derived approximately 3.0%, 2.2% and 1.5% of its revenues from
sales of security products in fiscal 1996, 1995 and 1994, respectively.
GROWTH STRATEGY
The Company's growth strategy emphasizes both internal growth and growth
through acquisitions. The Company focuses on using its experience in recruiting,
training, motivating and managing the large numbers of personnel needed to
handle labor-intensive, task-repetitive jobs to capitalize on the trend toward
outsourcing labor-intensive services. The Company believes that its strong
position in the airline security business provides an effective platform from
which to take advantage of opportunities in other elements of the airline
services businesses. The Company also believes that its experience in managing
the personnel requirements of its airline security business provides
opportunities to expand into related labor-intensive service businesses, such as
commercial security services.
28
<PAGE> 30
Growth Through Expansion of Existing Businesses.
Airline security services currently represent approximately 50% of the
Company's revenue. The Company believes a handful of large companies serve most
of the domestic airline security market, in part because increasing federal
regulation has made the cost of doing business prohibitive for smaller
contractors. Airline security contracts tend to be very cost competitive:
prevailing bids often offer only slightly lower costs. ITS believes that because
of its size and ability to leverage its overhead costs, it is well positioned to
increase its revenues, as airlines seek to consolidate their third party
contracts and minimize the costs associated with these functions. In addition,
the Company believes it can increase the revenue and profitability associated
with its other airline security offerings.
ITS believes that its ability to use its "installed base" of airline
security business to increase the range of other services that it provides to
its airline customers is an equally important element of its growth strategy.
The administrative base supporting the Company's airline security services at an
airport can be used to support other services without significant additional
costs, which can give ITS an important advantage in competing with other
providers of airline services on the basis of price. The Company's division and
field management teams actively seek these opportunities and are experienced in
exploiting them. ITS has experienced recent growth in the demand for its ramp
and ground handling and passenger services and expects these services to provide
opportunities for continued growth. The Company intends to identify new business
opportunities and to use its existing marketing, management and administrative
systems, as well as its strong airline relationships, to expand its reach in
these areas. ITS currently performs these services primarily in the United
States but intends to package these services with its security services in
international markets. Because all carriers, regardless of location, need
airplane cleaning, baggage handling and passenger related services, ITS believes
that the potential market for these services is as large as, if not larger than,
the airline security market.
The Company believes that the management and administrative resources it
has developed to manage its aviation-related operations in 44 states provide it
with the capacity to expand its commercial security business in a number of
geographic areas without significant additional overhead costs. By leveraging
its existing administrative base, the Company seeks to increase its share of the
highly fragmented commercial security market.
Growth Through Acquisitions.
The Company generally acquires existing service contracts and the goodwill,
property and equipment related to those contracts and does not assume
liabilities associated with the seller's business. It targets acquisition
candidates that will add geographic coverage to its existing businesses, broaden
its service offerings and expand its client base. ITS generally seeks
acquisitions that it believes can make an immediate contribution to
profitability, although it also pursues opportunities that have strategic value
to its business even if the returns appear less immediate. ITS is willing to
retain members of an acquired company's management team that it believes can
contribute expertise. Management believes the Company has certain advantages
that may enable it to implement its acquisition strategy more successfully than
its competition. Specifically, management believes that its self-insurance and
risk management practices and its centralized administration of payroll and
billing functions have resulted in a lower cost structure than many of its
competitors have. This cost structure generally enables ITS to improve margins
of acquired businesses. The Company will seek to implement its operating
strategies at acquired companies while retaining existing management talent of
those companies.
The Company has completed seven acquisitions since July 1996. The largest
of these acquisitions was the purchase in April 1997 of the airline service
contracts and related goodwill of Intex, based in Greenville, South Carolina.
Intex contracts cover ramp and ground handling services, including baggage
handling, and lavatory and water services for clients in 28 locations across the
United States. The Intex contracts also include aircraft cleaning and ground
support and facility services at some of these locations. Delta Air Lines, with
whom Intex held its largest ramp and ground handling contract, has become ITS's
biggest aviation services customer as a result of the purchase. In connection
with the Intex acquisition, ITS intends to develop its ramp and ground handling
services with existing customers.
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Other acquisitions in the aviation services industry include the contracts
and related goodwill of Andy Frain Services, Inc., acquired in July 1996, which
produced $7.5 million in annual sales in Salt Lake City, Anchorage, Oakland,
Phoenix and Seattle, and of Airport Terminal Services, Inc. ("ATS"), purchased
in July 1996, which produced $4.5 million in annual predeparture screening sales
in St. Louis, Kansas City, Dallas and Los Angeles. As a result of the ATS
acquisition, the Company acquired significant market share in St. Louis, which
is TWA's hub.
In the commercial security area, the Company acquired the contracts and
goodwill of four companies with varied geographic coverage in fiscal 1996. In
November 1996, the Company acquired security contracts from JJ Protective
Services, Inc. that generated $7.7 million in annual revenue in Minnesota,
Wisconsin, Michigan and Colorado. In January 1997, the Company acquired security
contracts from Maximum Protective Services, Inc. that generated $1.5 million in
annual revenue in Texas. In March 1997, the Company purchased contracts that
provided $298,000 in annual revenue from City Security Services, Inc. in San
Antonio, Texas, and in August 1996, it purchased contracts that provided
$175,000 in annual revenue from ABC Security Guard Services, Inc. in Columbus,
Ohio.
The Company's use of debt to finance its growth has resulted in significant
increases in interest expense over the past three years. In light of the
Company's debt service obligations, as well as the labor intensive nature of its
business, the Company has historically operated with a working capital deficit.
COMPETITION AND MARKETING
The Company competes in international, national, regional and local markets
with specialized contract service providers, outsourcing companies, and its
clients' and potential clients' internal service staffs. While substantial
consolidation is occurring in the Company's markets, portions of these markets
remain extremely competitive and highly fragmented, with limited barriers to
entry. Industry participants compete mainly on the basis of price, as well as
the quality of service provided, their ability to provide national and
international services, and the range of services offered. ITS believes its
primary competitive advantage is its low administrative overhead, which enables
it to offer competitive costs for large contracts. The Company has been
successful in minimizing its workers' compensation and liability insurance costs
and in leveraging its administrative base to add new contracts with minimal
increase in overhead cost. In addition, ITS believes that it offers a broader
range of services than its competitors.
Airline Security Services. Contracts for predeparture screening services
tend to be highly competitive among a handful of experienced providers and are
generally awarded to the low-cost provider. At the same time, the airlines are
sensitive about security lapses and may cancel a contract based on even minor
security breaches. While ITS believes it has an advantage because of its size
and overhead in underbidding other companies, the Company faces the same
challenge as its competitors in providing consistent service at the minimum wage
rates offered by the airlines for screeners. The Company's principal competitors
in domestic predeparture screening include Globe Aviation Securities
Corporation, AHL Services, Inc. and Huntleigh, Inc.
In the international security arena, where training and service generally
are more important, the Company strives to distinguish itself by developing
training programs and screening methods that meet the demands of its customers.
The Company's passenger profilers are trained in questioning techniques that are
designed to elicit cooperation and to avoid offense to innocent travelers. In
addition, because the Company's method of profiling is less intrusive than other
security methods, ITS considers it to be more cost-effective and
passenger-friendly than other systems. Currently, the Company has a small number
of contracts to provide these services in Europe and Asia. The Company's main
competitors for international profiling and screening services are Aviation
Defense International, Inc., ICTS International, N.V., AHL Services, Inc. and
International Aviation Security, Inc.
Ramp and Ground Handling Services. Airlines have found it cost effective
to outsource ramp and ground handling functions because they often require an
investment in hard equipment, which can be expensive for carriers with few
flights. ITS has taken advantage of the opportunity to offer a package of new or
refurbished equipment, maintenance and the required manpower, all for a per-hour
labor charge. In addition,
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ITS considers potential revenue gains from ground handling and passenger
business when negotiating new security business, and is sometimes able to
package combinations of services to clients at a lower overall cost than it
could offer for one type of service alone. The Company has typically offered
ground handling or passenger services as "add on" services to its screening
business. It also offers these services on a stand-alone basis at certain
locations. In this area, the Company competes with the airlines, Signature
Flight Support Services, AMR Services, Ogden Allied Support Services, Hudson
General, and Service Master Co.
ITS has sought to increase the volume of its cleaning business by focusing
on providing fast, reliable service. The Company conducts an Aircraft Appearance
and Facility Audit Program through which it continually monitors its own
performance. Under this program, ITS supervisors and managers conduct a pre-
determined number of audits based on the number of planes serviced for a
particular client. The Company provides the results of the audit to the client
regularly, emphasizing areas requiring improvement. ITS believes that its
clients appreciate the continuous and honest feedback the audit program provides
and that this approach enables the Company to correct problems that might not
otherwise come to its attention until the client became dissatisfied. The
Company believes, based on discussions with its customers, that it is the only
cleaning service provider that has such a program. The Company's competitors in
aircraft cleaning are the airlines, Signature Flight Support Services, AMR
Services, Ogden Allied Support Services, Hudson General, and Service Master Co.
Passenger Services. Unlike predeparture screening services, customer
service is as important as cost in the awarding of domestic passenger service
contracts. Because passenger service providers such as skycaps, wheelchair
operators and cart drivers have a high level of interaction with passengers, ITS
has developed specialized training programs that emphasize customer service and
empathy. In 1996, the Company was awarded a contract to provide Continental
Airlines, Inc. skycaps nationwide. The Company's main competitors for passenger
services include the airlines, AHL, Globe Aviation Securities Corporation, and
Huntleigh, Inc.
Commercial Security. The commercial security field is highly fragmented.
There are as many as 160,000 separate providers of commercial and industrial
security services, and the Company does not believe that any participant has a
significant share of the market. While ITS has made only minor inroads into this
market, the Company's competitive strength in this area comes from its low
overhead costs and its ability to assimilate acquired commercial security
businesses into its existing administrative structure. In the commercial
security field, the major providers include Borg-Warner Security Corporation,
Guardsmark, Inc. and The Wackenhut Corporation.
MANAGEMENT AND REPORTING SYSTEMS
ITS is headquartered in Cleveland, Ohio and conducts its domestic
operations through an Eastern, a Central and a Western division. International
operations are conducted through the International Division. Each domestic
division has a President, who reports to the Company's Chief Operating Officer,
and a Controller. Each division has two or more district offices. Each district
has two or more recruiters and trainers who are responsible for ensuring that
the Company has adequate personnel to staff service contracts in that district.
The district managers report to their respective division presidents. Each
service site has a manager who reports to the applicable district manager.
All payroll and billing information is entered at the service sites and
transmitted to the Company's headquarters. Headquarters administrative personnel
verify the information, issue all client invoices for services, and authorize
the issuance of payroll checks from the division offices. The Company believes
that its payroll system facilitates on-time personnel payment and Company
control over unwarranted overtime costs.
The large number and geographic dispersion of the Company's employees, and
the volume of the Company's business that is documented on a chargeable hours
basis, create substantial administrative burdens. The Company believes that its
IBM mainframe computer system, implemented in February 1990 and upgraded in June
1993, enables it to manage efficiently its current and reasonably foreseeable
administrative requirements. The Company uses the system to, among other things,
monitor all company
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finance functions, audit training records, manage and monitor payroll and
billing, report on field irregularities, maintain accountability of weapons
detection, and manage client database information.
WORKFORCE MANAGEMENT
As of June 30, 1997, the Company had approximately 12,600 full and
part-time employees engaged in performing its client services. The Company's
services are characterized by task-repetitive, low wage functions, and the
Company, like its competitors, experiences high turnover and incurs substantial
hiring and training costs estimated at approximately $111 per employee. The
Company experiences annual turnover of approximately 100%, and believes that
maximizing employee retention is important to reducing operating costs and
providing high quality service to its clients. Accordingly, the Company places
significant emphasis on motivating its employees and reducing turnover. In
January 1997, the Company instituted an employee medical benefit plan, which
provides medical benefits to eligible employees with minimal employee
contribution. In addition, the Company grants various bonuses and awards to
exceptional employees, in part to further enhance retention.
Because employee turnover is inherent in the nature of its business, ITS
allocates significant resources to recruiting potential employees. Each
applicant must complete an interview and a written application. In addition, FAA
regulations require that each applicant provide proof of citizenship or resident
alien status, and each applicant is subject to a five- or ten-year background
verification, depending upon the position, and a pre-employment drug screen. The
Company believes that it operates its business in substantial compliance with
applicable FAA regulatory requirements, including those relating to background
verification.
The Company has experienced control-related problems at various locations
involving employees' compliance with regulatory requirements. Some of these
incidents have had a material adverse effect on customer relationships and have
led to the termination of client contracts. Because of the nature of the
Company's business, there can be no assurance that control-related problems will
not arise in the future.
Approximately 330 skycap employees at Newark International Airport, 170
predeparture screeners at Logan International Airport in Boston and 85
predeparture screeners in Anchorage, Alaska are covered by collective bargaining
agreements. Each of these agreements was assumed by the Company in connection
with an acquisition of a contract previously held by another vendor. In fiscal
1996, unions initiated three efforts to organize Company employees in various
locations, each of which failed. The Company considers its relations with its
employees to be good.
CUSTOMERS AND CONTRACT TERMS
The Company derives a significant portion of its revenues from a few
clients. In fiscal 1996, Continental Airlines, Inc. (18.9%), United Air Lines,
Inc. (11.8%), Delta Air Lines, Inc. (7.0%), Southwest Airlines Co. (6.7%), U.S.
Airways, Inc. (6.5%) and Trans World Airlines, Inc. (5.3%) accounted for 56.2%
of the Company's revenues. During fiscal 1996, 1995 and 1994, the Company's ten
largest clients accounted for an aggregate of 68.6%, 79.9%, and 78.5%,
respectively, of the Company's revenues.
While the Company believes that relations with its customers are generally
satisfactory, it believes that relations with certain major airlines are
unsatisfactory. Over the past two fiscal years, the Company has lost contracts
to provide screening services at a number of major airports, including Los
Angeles, San Francisco, Phoenix, Minneapolis, Detroit, Boston and Ontario,
California, because of customer dissatisfaction with the Company's services at
these locations. The Company believes that the factors contributing to the lost
contracts varied from location to location, and included problems with
responsiveness and the quality of local management, as well as security breaches
at several of the Company's predeparture screening checkpoints. Most of the
contracts lost by the Company were controlled by two airline customers who
together represented approximately 16.7%, 23.7% and 23.2% of the Company's
revenues in 1996, 1995 and 1994, respectively. The lost contracts accounted for
an aggregate of $232,000 in pre-tax earnings. The Company recognizes the need to
improve its relationships with these customers, and is making efforts to
accomplish this objective. These efforts include the addition of a new Chief
Operating Officer with established relationships with several major
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airlines and efforts to improve the quality of local and district management
personnel. The Company continues to provide services, including, in some cases,
screening services, at each of these locations.
The services provided by the Company require it to train and manage
effectively low wage workforces with high turnover rates. From time to time, the
Company has failed to meet test standards or a client's service expectations at
a particular location, and, like its competitors, has had contracts terminated
because of customer dissatisfaction with various aspects of its performance. The
Company's predeparture screening services are tested daily at numerous
locations, both internally and by the FAA, to determine the Company's ability to
detect weapons passing through checkpoints. In the period from January 1997
through June 1997, the Company passed over 94% of both the FAA's tests and its
internal tests. Failure to pass FAA tests may result in fines to the airline
responsible for the checkpoint, which the Company reimburses pursuant to its
contracts in amounts up to $10,000 per test failure.
The risk of contract termination as a result of actual or perceived service
failures is enhanced by the substantial publicity that, because of public
concern over airline security issues, often attends errors in the provision of
screening services. Failure to meet test or other performance standards may
result in fines, or the loss of a contract or service location or the Company's
license to perform services, and any such loss could have a material adverse
effect on the Company's reputation, business, results of operations and
financial condition.
The Company's contracts with clients, including those that it obtains
through acquisitions, generally have one to three year terms but are cancelable
by either party on 30 to 90 days notice. The Company invoices its aviation
services clients weekly or biweekly. The Company invoices its commercial
security clients weekly, which is typical in that field.
The Company's contracts with airlines typically provide that the Company
will indemnify the client against claims for property damage, or death of or
personal injury to any person, arising out of the negligent acts or omissions of
ITS, unless the claim results from a negligent act of the client. In addition,
these contracts provide that the Company will pay FAA fines of up to $10,000 per
incident if it is responsible for the actions that give rise to the fine.
LEGAL PROCEEDINGS
Because the Company's employees function in public facilities and in the
workplaces of other businesses, the Company is exposed to possible claims by its
clients' customers and employees of discrimination, harassment and negligence,
and similar claims. The Company is subject to liability for the acts or
negligence of its employees while on assignment that cause personal injury or
damages, and to claims of misuse of client proprietary information or theft of
client property. As a provider of security services, the Company faces potential
liability for claims that may arise from any terrorist activity occurring in
circumstances associated with the Company. Although the Company maintains
insurance coverage against such potential liabilities, any such claim against
the Company might exceed the amount of such insurance coverage or fall outside
the type of activities covered by such insurance.
In May 1997, a United States District Court in Philadelphia, Pennsylvania,
rendered a judgment in the amount of $900,000 against the Company in connection
with an employment discrimination lawsuit. The Company believes that it has
accrued adequate reserves to cover the judgment and plans to contest the
judgment on appeal. The Company has moved for a judgment notwithstanding the
verdict and for a new trial. The court has not acted on these motions.
On December 2, 1996, the United States Equal Employment Opportunity
Commission (the "EEOC") filed suit against the Company in the United States
District Court for the Southern District of Indiana on behalf of two named
plaintiffs and a class of similarly situated female employees of the Company.
The EEOC's complaint alleges that the Company engaged in sexual harassment of
the plaintiffs in violation of federal law. The EEOC seeks to force the Company
to refrain from the alleged sexual harassment in the future, and to compensate
the plaintiffs for pecuniary and nonpecuniary losses claimed to have resulted
from the alleged harassment. The Company's potential liability is limited by
federal statute to $300,000, plus
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punitive damages in unspecified amounts if the Company is found to have engaged
in intentionally discriminatory conduct. The Company plans to contest the suit
vigorously.
The Company is also involved in various legal proceedings, including
routine civil actions instituted by the FAA with respect to test failures,
background check and recordkeeping matters, that arise in the ordinary course of
its business. The Company does not believe that the ultimate outcome of these
proceedings will have a material adverse effect on the Company's business,
assets, financial condition or results of operations.
GOVERNMENT REGULATION
Certain of the Company's clients are subject to various regulations and
directives issued by the FAA. Under current regulations, independent
contractors, such as the Company, that perform services for air carriers and
airport authorities share responsibility for aviation security with air
carriers, airport authorities, the FAA and various other federal, state and
local agencies. At airports throughout the United States, the FAA tests security
systems and conducts threat and vulnerability assessments. Through the use of
its regulatory powers, the FAA directs the aviation industry to implement
measures that address existing and anticipated threat situations.
FAA regulations require each air carrier and airport authority to implement
an FAA-approved security program. Airport authorities are responsible for
maintaining a secure environment on airport grounds and for providing law
enforcement support and training. Air carriers are responsible for the security
of all people and items connected to their aircraft, including passengers,
baggage, and maintenance and flight crews. The FAA has promulgated regulations
requiring air carriers to conduct predeparture screening of all passengers and
property that will be carried in an aircraft cabin. These regulations also
provide basic standards for the screeners, and equipment and procedures to be
used in predeparture screening activities. FAA regulations also mandate
pre-employment background checks of persons hired to serve as screeners.
Although an air carrier is permitted to outsource its screening function, FAA
regulations require the air carrier to provide oversight in order to assure that
all requirements are met. For example, FAA regulations require an air carrier's
ground security coordinator to review security-related functions and initiate
corrective action for noncompliance, and to conduct an annual evaluation of each
person assigned screening duties. In addition to the oversight responsibilities
imposed on air carriers, the FAA itself regularly conducts tests of predeparture
screening checkpoints at U.S. airports. Failure to meet requirements imposed by
the FAA or the air carrier or the failure of various tests administered by the
FAA can result in fines and other penalties to the responsible air carrier,
which are in turn passed on to the screening company under the terms of the
contract between the provider and the carrier. Regulatory compliance problems
and test failures may also result in the termination of a security contract or
of services at the affected site.
Historically, entities providing predeparture screening services have not
been subject to certification or direct regulation by the FAA. However, recent
events, including the April 1995 bombing of the Alfred P. Murrah Federal
Building in Oklahoma City and the explosion of TWA Flight 800 in July 1996, have
focused intense governmental scrutiny on issues relating to the deterrence of
domestic terrorism and aviation security. As a result, at least three separate
governmental authorities have recommended changes in laws relating to aviation
security and have authorized studies of new regulations designed to increase
airport safety. These governmental initiatives have focused on, among other
things, the need for standards to apply to providers of predeparture screening
services.
The first new mandates resulting from this increased focus were issued in
October 1996, when the United States Congress approved the Federal Aviation
Reauthorization Act of 1996 (the "1996 Act"). Among the directives in the 1996
Act are requirements that airlines and airports periodically assess their
security systems, that background checks be conducted for all predeparture
screeners and other employees associated with baggage or cargo, and that the FAA
"certify" companies that provide predeparture screening services. The 1996 Act
also directed the FAA and the United States Department of Transportation to
assist airlines in developing computer-assisted and other appropriate passenger
profiling programs, authorized a study of the practicality of transferring
security responsibilities from airlines to airports or to the government, and
granted funds to the National Academy of Sciences for a study of systems to
detect weapons and explosives. Other
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areas being investigated by Congress include the feasibility of requiring a
match of all checked bags with a boarded passenger and increased inspection of
air cargo.
The White House Commission on Aviation Safety and Security (the "Gore
Commission"), which was formed following the explosion of TWA Flight 800,
included the heads of various federal agencies and was charged with making
recommendations on how a partnership between the U.S. government and industry
participants can achieve improved aviation security. The Gore Commission issued
its final report on February 12, 1997, and recommended: (i) development of
uniform performance standards for selection, training and certification of
predeparture screening companies; (ii) implementation of procedures for matching
of passengers and checked baggage on a nationwide basis no later than December
31, 1997; (iii) the continued development and implementation of an automated
passenger profiling system; and (iv) utilization of U.S. Customs Service
personnel and computer systems to complement the efforts of the FAA and other
federal agencies. The FAA has initiated rulemaking procedures that would
implement certain of these recommendations.
The Aviation Security Advisory Committee ("ASAC"), a committee of
government and industry participants, was formed following the crash of Pan Am
flight 103 in 1989 and is charged with coordinating the flow of aviation
security information and countermeasures within the United States. In July 1996,
ASAC began an effort to strengthen the domestic aviation security "baseline" and
formed a working group to recommend specific measures. In its report issued on
December 12, 1996, ASAC recommended that no change be made in the current
structure or assignment of responsibilities for aviation security. ASAC did
recommend, however, that the FAA initiate rulemaking procedures for
"certification" of security contractors and made numerous recommendations with
respect to specific aviation security measures, which are generally consistent
with those proposed by the Gore Commission.
Subsequent to the issuance of the Gore Commission and ASAC recommendations,
the FAA issued an Advanced Notice of Proposed Rulemaking (the "APRM") relating
to the certification directive contained in the 1996 Act. In the APRM, the FAA
solicited public comment on a number of issues relating to the certification of
companies providing predeparture screening services. Issues upon which comment
was solicited include the information to be collected by an air carrier prior to
contracting with a screening company, the nature and scope of air carriers'
oversight responsibilities for screening companies, methods for evaluating
screener performance and improving screener training, the qualification of
screening companies and the appropriate nature of the certification process and
the constraints that should be imposed on new screening companies. The comment
period associated with the APRM expired on May 1, 1997. To date, the FAA has not
promulgated any proposed rules concerning the implementation of the 1996 Act's
certification directive, and the Company is unable to predict the nature and
extent of such regulations or their potential impact on the Company's business.
In addition to the certification directive contained in the 1996 Act,
executives of certain major air carriers have proposed the transfer of security
responsibilities from third party contractors to a nationwide nonprofit security
corporation, funded by the air carriers. Any shift in responsibility for
aviation security to such an entity or to the government could have a material
adverse effect on the Company's results of operations and financial condition.
Risk analysis through profiling has been utilized in various forms by U.S.
carriers since 1986. In 1995, the FAA mandated that all U.S. carriers adopt a
uniform methodology of risk analysis through profiling at their "high-risk"
stations. In April 1996, the United States enacted a new anti-terrorism law,
which, among other things, mandates that foreign air carriers flying to and from
airports in the United States use security measures identical to those required
of U.S. airlines serving the same airports. In July 1996, as an initial response
to the explosion of TWA Flight 800, the FAA issued a "security directive"
applicable to all international flights originating from the United States,
which requires the implementation of certain passenger and cargo classifications
similar to some of the profiling procedures included in the Company's profiling
method.
The Company's aviation and commercial security services are subject to
regulation by various state and local authorities. The Company is also required
to obtain and maintain various licenses and permits from state and local
authorities to provide aviation and commercial security services, as well as
certain other services.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Board of Directors of the Company currently consists of two members,
Robert A. Weitzel and his spouse. The Company will expand the Board of
Directors, on or prior to completion of the Offering, to five persons, including
three independent Directors. Directors will be elected at each annual meeting of
shareholders and will serve until their successors are duly elected and
qualified.
The Company's Articles of Incorporation provide that the Board of Directors
must consist of a majority of Independent Directors. (An "Independent Director"
is a person who is (i) independent of management of the Company, (ii) not
employed by or an officer of the Company, (iii) not an "affiliate" (as defined
in Rule 405 under the Securities Act) of the Company or any subsidiary of the
Company, and (iv) not a person who acts on a regular basis as an individual or
representative of an organization serving as a professional advisor, legal
counsel or consultant to management if, in the opinion of the Board of
Directors, the relationship is material to the Company, that person, or the
organization represented.) In the event of the resignation or removal of an
Independent Director, the resulting vacancy will be filled by the remaining
Independent Directors.
Executive officers of the Company are elected and serve at the discretion
of the Board of Directors until their successors are duly chosen and qualified.
The following table sets forth certain information concerning the
individuals who will be directors and officers of the Company on the completion
of the Offering.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Robert A. Weitzel.................. 62 Director and Chief Executive Officer
James O. Singer.................... 53 Director, President and Chief Operating Officer
Robert A. Swartz................... 34 Vice President and Chief Financial Officer
Scott E. Brewer.................... 35 Vice President and General Counsel
Daniel J. Richards................. 39 Eastern Division President
Stephen Metzler.................... 39 Central Division President
Gene Empey......................... 53 Western Division President
Dillard Woodson.................... 49 International Division President
Lee C. Howley...................... 49 Proposed Director
Ivan J. Winfield................... 62 Proposed Director
Jerry V. Jarrett................... 66 Proposed Director
</TABLE>
The following is a biographical summary of the business experience of the
current and proposed directors and officers of the Company.
Robert A. Weitzel, a Director since 1987, is the Chief Executive Officer of
the Company. He has served as the Chief Executive Officer of the Company since
1987 and was President from 1987 to April 1997. He served as Senior Vice
President from 1982 to 1987 and Vice President from 1978 to 1982.
James O. Singer, a Director since June 1997, has been President and Chief
Operating Officer since joining the Company in April 1997. Mr. Singer was
employed by AMR Services Corporation, an aviation services company, as
President-Airline Services Division from May 1989 to June 1995. From 1995 until
April 1997, Mr. Singer worked as a consultant in the aviation industry.
Robert A. Swartz is the Vice President and Chief Financial Officer of the
Company. He has served in this capacity since October 1995. From April 1989 to
October 1995, he was Chief Financial Officer for ASM International, a service
company. From August 1987 to April 1989, he was a senior auditor with Grant
Thornton LLP.
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Scott E. Brewer is the Vice President and General Counsel of the Company.
He has served as Vice President since April 1995 and General Counsel since
September 1993. Mr. Brewer was in the private practice of law from October 1988
to August 1993.
Daniel J. Richards is the Eastern Division President of the Company. He has
served in this position since December 1996. From March 1994 to December 1996 he
was Director Ground Handling/Director Field Operations for American
International Freight, an air cargo service company. He served as a Field
Service Supervisor for Airborne Express, an air cargo service company, from
January 1993 to March 1994. He served as Vice President of Operations for
Evergreen Aviation, an air cargo service company, from June 1991 to December
1992.
Stephen Metzler is the Central Division President of the Company. He has
served in this capacity since April 1996. He served as Vice President Eastern
Division from May 1995 to April 1996 and District Manager from May 1994 to May
1995. He served as Aircraft Appearance Manager from December 1991 to May 1994.
Gene Empey is the Western Division President of the Company. He has served
in this capacity since December 1988.
Dillard Woodson is the International Division President of the Company. He
has served in this capacity since February 1997. He served as the Vice President
of Systems and Training from February 1996 to February 1997. He served as the
Technical Management Consultant to CSA Airlines in Prague from January 1994 to
February 1996. He served as the General Manager for Liberia for Intercon
Security Ltd., a commercial security company, from April 1993 to June 1993. Mr.
Woodson was an artillery officer in the United States Marine Corps from 1968 to
June 1993.
Ivan Winfield is currently Associate Professor and Chairholder of the
Herzog Chair in Free Enterprise at Baldwin Wallace College, in Berea, Ohio. Mr.
Winfield retired in 1994 from Coopers & Lybrand, L.L.P. From 1978 to 1990 he was
managing partner of the firm's Oklahoma practice and from 1990 to 1994 he was
managing partner of the firm's Northeast Ohio practice. Mr. Winfield is a
Trustee of The Fairport Funds and is Chairman of its audit committee. Mr.
Winfield is also a Director of HMI Industries, Inc. and is Chairman of its
finance committee. Mr. Winfield also serves as a Director of Boykin Lodging
Company, a publicly held real estate investment trust.
Lee C. Howley, Jr. has been the sole owner and president of Howley &
Company, a real estate brokerage and development company, since 1981, and has
been the sole owner and Chairman of Coast Management Company, a cleaning and
real estate management company, since 1987. Since January 1992 Mr. Howley has
served as the Chairman of the Convention and Visitors Bureau of Greater
Cleveland. Mr. Howley serves on the Boards of Directors of LESCO, Inc., a
publicly held manufacturer and supplier of lawn care products, and Boykin
Lodging Company.
Jerry V. Jarrett joined Ameritrust Company National Association, a national
banking association, in 1974, and served as its Chairman and Chief Executive
Officer from 1983 until 1990. Mr. Jarrett serves as a director of Forest City
Enterprises Inc., a real estate leasing company, and United Way International.
He is a member of the Distribution Committee of the Cleveland Foundation and
Treasurer of The Musical Arts Association (The Cleveland Orchestra). Mr. Jarrett
is also a trustee of The Cleveland Clinic Foundation and of The Greater
Cleveland Advisory Board of the Salvation Army, of which he is past Chairman.
COMMITTEES
In connection with the Offering, the Board will establish an Audit
Committee and a Compensation Committee. Messrs. Winfield, Howley and Jarrett
will serve as the members of both committees.
The Audit Committee will have responsibility for reviewing and making
recommendations regarding the Company's employment of independent accountants,
the annual audit of the Company's financial statements and the Company's
internal controls, accounting practices and policies. The Compensation Committee
will be responsible for determining the nature and amount of compensation of the
executive officers of the Company and administering the Company's employee
benefit plans.
37
<PAGE> 39
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Ohio Revised Code provides that a director may be held liable in
damages for his act or omission as a director only if it is proved by clear and
convincing evidence that he undertook the act or omission with deliberate intent
to cause injury to the corporation or with reckless disregard for its best
interest. This limitation of director liability does not apply to transactions
between directors and the corporation or to the unlawful payment of dividends,
distribution of assets to shareholders or making of loans to officers or
directors. Further, this limitation does not apply to any liability of a
director arising under the federal securities laws.
The Ohio Revised Code authorizes Ohio corporations to indemnify officers
and directors from liability if the officer or director acted in good faith and
in a manner reasonably believed by the officer or director to be in or not
opposed to the best interest of the corporation, and, with respect to any
criminal actions, if the officer or director has no reason to believe his action
was unlawful. In the case of an action by or on behalf of corporation,
indemnification may not be made (i) if the person seeking indemnification is
adjudged liable for negligence or misconduct, unless the court in which such
action was brought determines such person is fairly and reasonably entitled to
indemnification or (ii) if liability asserted against such person concerns
certain unlawful distributions. The indemnification provisions of the Ohio Code
require indemnification if a director or officer has been successful on the
merits or otherwise in defense of any action, suit or proceeding that he was a
party to by reason of the fact that he is or was a director or officer of the
corporation. The indemnification authorized under Ohio law is not exclusive and
is in addition to any other rights granted to officers and directors under the
articles of incorporation or code of regulations of the corporation or any
agreement between officers and directors and the corporation. A corporation may
purchase and maintain insurance or furnish similar protection on behalf of any
officer or director against any liability asserted against him and incurred by
him in his capacity, or arising out of the status, as an officer or director,
whether or not the corporation would have the power to indemnify him against
such liability under the Ohio Code.
The Company's Code of Regulations provides for the indemnification of a
director or officer of the Company to the maximum extent permitted by Ohio law
as authorized by the Board of Directors of the Company, and for the advancement
of expenses incurred in connection with the defense of any action, suit or
proceeding to which he was a party by reason of the fact that he is or was a
director or officer of the Company upon the receipt of an undertaking to repay
such amount unless it is ultimately determined that he is entitled to
indemnification.
The Company is seeking an insurance policy that will provide coverage in
the amount of $5,000,000 for the officers and directors of the Company against
claims arising out of alleged wrongful acts by such persons in their respective
capacities as officers and directors of the Company.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth information
regarding the compensation of the Chief Executive Officer and certain
individuals serving as executive officers during the last fiscal year
38
<PAGE> 40
(collectively, the "Named Executive Officers"), for services rendered in all
capacities to the Company during fiscal 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION FY(1) SALARY($) BONUS($) COMPENSATION($)(2) COMPENSATION($)(3)
- ----------------------------------- ---- -------- -------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Robert A. Weitzel.................. 1996 $312,250 $200,244 $447
President and Chief Executive
Officer(4)
Robert A. Swartz................... 1996 $ 67,600 $ 38,848 $159,142(5)
Vice President and Chief
Financial Officer
Scott Dennison(6).................. 1996 $ 68,658 $ 48,137
President, Crown Technical
Services
Scott Brewer....................... 1996 $ 50,000 $ 38,239 $ 43,402(5)
Vice President and General
Counsel
Steven Metzler..................... 1996 $ 69,999 $ 28,895 $216
Central Division President
Gene Empey......................... 1996 $ 82,515 $ 11,562
Western Division President
</TABLE>
- ---------------
(1) Includes compensation earned, awarded or paid for the fiscal year ended
March 31, 1997.
(2) No Named Executive Officer received perquisites or other personal benefits
in excess of the lesser of $50,000 or 10% of such individual's salary plus
annual bonus.
(3) Represents amounts contributed by the Company to the Company's 401(k) Plan,
as matching contributions relating to before-tax contributions made by such
individual.
(4) Effective October 1, 1997, Mr. Weitzel's annual salary will be reduced to
$300,000. Mr. Weitzel will also be entitled to a $100,000 bonus, payable
within 90 days after the end of fiscal 1997, if the Company achieves its
budgeted net income for fiscal 1997.
(5) Amounts reported under the caption "Other Annual Compensation" reflect the
cash value of Common Shares awarded to the Named Executive Officers on
November 1, 1996 as determined by an independent appraisal. The Common
Shares awarded to such persons are subject to shareholder agreements, to
which the Company is a party. See "-- Shareholder Agreements."
(6) Mr. Dennison resigned from the Company in February 1997.
There were no options outstanding or granted in fiscal 1996.
EMPLOYMENT CONTRACTS
Robert A. Weitzel, James O. Singer, Robert A. Swartz and Scott E. Brewer
have entered into employment contracts with the Company. Mr. Weitzel's agreement
provides for an initial term expiring December 31, 2000, which is automatically
extended for an additional calendar year at the end of each
calendar year of the agreement, subject to the right of either party to
terminate the agreement by giving six months' prior written notice. The
agreement for Mr. Singer provides that he is responsible for the day-to-day
operations of the Company. The agreement also provides for an initial term
expiring December 31, 1999, which is automatically extended for an additional
calendar year at the end of each calendar year of the agreement, subject to the
right of either party to terminate the agreement by giving six months' prior
written notice. The agreements for Messrs. Swartz and Brewer provide for an
initial term expiring December 31, 1998, which is automatically extended for an
additional calendar year at the end of each calendar year of the agreement,
subject to the right of either party to terminate the agreement by giving six
months' prior written notice.
Mr. Weitzel will also be entitled to annual base compensation of $300,000,
and a bonus of up to $100,000 if the Company achieves its budgeted net income
for fiscal 1997. Mr. Singer will receive a salary of $150,000 and a bonus of
$12,500 for each quarter in which the Company achieves its quarterly operating
budget goals and a bonus of $12,500 for each quarter in which the Company
achieves a 15% annualized internal sales
39
<PAGE> 41
growth rate. Mr. Swartz will receive a salary of $71,500 and a bonus of 0.75% of
monthly operating income for each month in which the Company achieves its
monthly operating budget goals. Mr. Brewer will receive a salary of $50,000 and
a bonus on the same basis as Mr. Swartz. Messrs. Weitzel, Singer, Swartz and
Brewer will also be granted an aggregate of 200,262 options to purchase Common
Shares in connection with the Offering. See "Long Term Incentive Plan."
Each agreement provides that the employee will not compete with the Company
in the aviation services or commercial security business during his employment
or at any time during a period of up to two years immediately following the
termination of his employment. Further, each agreement provides that upon the
termination of the employee's employment (i) by the Company other than for
"cause" (as defined in the employment contracts) or by the employee for certain
actions of the Company, such as effecting a material adverse change in the
employee's duties and responsibilities, or (ii) by the employee on a "change of
control" of the Company (as defined in the employment contracts), the employee
will be entitled to all of the compensation and benefits payable to him under
the employment contract for the remainder of the stated term of the agreement.
SHAREHOLDER AGREEMENTS
Robert A. Swartz, Scott E. Brewer and Gene Empey have each entered into a
Shareholder Agreement with the Company (each a "Shareholder Agreement"). Each
Shareholder Agreement provides certain rights of first refusal to the Company
and the other shareholders of the Company to purchase any Common Shares proposed
to be transferred by the shareholder, at a price equal to the lesser of (i) the
price proposed to be paid by the transferee or (ii) a price determined on an
annual basis by the Company and the Company's majority shareholder (which price
will not exceed the net book value of the Common Shares) (the "Agreement
Price"). In addition, each Shareholder Agreement provides that, upon the death
of the shareholder or the termination of his employment, the Company will
purchase all of the Common Shares owned by him at the Agreement Price. Each
Shareholder Agreement also gives the Company the right to purchase, at its
election, all of the Common Shares at the Agreement Price if the Company
Division for which the shareholder is responsible fails to achieve budgeted
levels of profitability, and gives the other shareholders an option to purchase
the Common Shares at the Agreement Price in the event of the disability of the
shareholder. The Shareholder Agreements will be terminated on the closing of the
Offering.
COMPENSATION COMMITTEE INTERLOCKS
The Company does not currently have a board committee performing the
function of a compensation committee. Mr. Weitzel made decisions with regard to
the compensation of the Company's executive officers for fiscal 1996. After the
consummation of the Offering, the Board of Directors will create a Compensation
Committee consisting of the Independent Directors. See "Certain Transactions"
for information concerning transactions between the Company and Mr. Weitzel.
COMPENSATION OF DIRECTORS
The Company intends to pay its Independent Directors an annual fee of
$12,000 and a fee of $1,000 for each directors' meeting and each committee
meeting attended. Each director may elect to receive his compensation in the
form of grants of Common Shares. No other directors will receive directors'
fees. Upon completion of the Offering, each Independent Director will receive an
option for 5,000 Common Shares exercisable at the initial public offering price
of the Common Shares, which option will vest fully within the first two years of
issuance and will have a term of ten years.
DIRECTORS' DEFERRED COMPENSATION PLAN
The purpose of the Company's Directors' Deferred Compensation Plan (the
"Deferred Plan") is to assist it in attracting and retaining persons of
competence and stature to serve as outside directors by giving them the option
to defer receipt of the fees payable to them by the Company for their services
as directors. A director is eligible to participate in the Deferred Plan if he
or she receives fees for services as a director and is not employed by the
Company. The Deferred Plan is administered by Company officers and directors who
are
40
<PAGE> 42
(i) appointed by the Board of Directors of the Company and (ii) not eligible to
participate in the Deferred Plan. The Deferred Plan is applicable to all
director's fees payable with respect to periods commencing on or after the
consummation of the Offering. The value of amounts credited to a director in the
Deferred Plan increases or decreases based on the market value of the Company's
Common Shares plus the value of dividends or other distributions on the
Company's Common Shares. Distribution of amounts credited to a director in the
Deferred Plan commences (i) on a date elected by the director, so long as that
the date is not earlier than the January 1 following the year in which the
director attains age 72, or (ii) within ninety (90) days after the date of the
director's death or disability.
LONG TERM INCENTIVE PLAN
The purpose of the Company's Long Term Incentive Plan (the "Plan") is to
promote the long-term growth and profitability of the Company by enabling it to
attract, retain and reward key employees of the Company and its affiliates and
to strengthen the mutuality of interest between such key employees and the
Company's shareholders. Grants of incentive or nonqualified share options,
restricted shares, deferred shares, share purchase rights, share appreciation
rights in tandem with options ("SARs"), other share-based awards, or any
combination thereof, may be made under the Plan. Officers and key employees who
are responsible for or contribute to the management, growth or profitability of
the business of the Company and its affiliates are eligible for grants and
awards under the Plan. The Compensation Committee will administer the Plan and
determine the type, amount and timing of grants and awards. The members of the
Compensation Committee are not eligible to participate in the Plan. The Company
has reserved 267,015 Common Shares for issuance under the Plan. No Participant
in the Plan may be granted share options or other share awards in any calendar
year for more than 100,000 shares. Upon the Closing, Messrs. Weitzel, Singer,
Swartz and Brewer will be granted options to purchase, at the initial public
offering price, 66,760, 33,362, 50,070, and 50,070 shares, respectively, under
the Plan. The options will vest in varying periods from four to eight years. The
share limitations, shares reserved and the terms of outstanding awards will be
adjusted, as the Compensation Committee deems appropriate, in the event of a
share dividend, split or other change in the corporate structure of the Company
affecting the shares.
Share Options and Tandem SARs. The term of each option granted under the
Plan will not exceed 10 years from the date of grant, and the exercise price of
share options may not be less than 100% of the fair market value (as defined in
the Plan) of the shares on the date the option is granted. The Compensation
Committee may grant tandem SARs to any person granted an option under the Plan.
Each tandem SAR will represent the right to receive, in cash or shares as the
Compensation Committee determines, a distribution in an amount equal to the
excess of the fair market value of the option shares (to which the SAR
corresponds) on the date of exercise over the exercise price for those shares.
Each tandem SAR expires at the same time as its corresponding option. The
exercise of an option will result in an immediate forfeiture of its
corresponding SAR, and the exercise of an SAR will cause an immediate forfeiture
of its corresponding option. The Plan provides that all options and tandem SARs
will vest on a change in control (as defined in the Plan) of the Company.
Share Awards. The Compensation Committee may award Common Shares under the
Plan and may place restrictions on the transfer or defer the date of receipt of
those shares. Each award will specify any applicable restrictions or deferral
date, the duration of those restrictions, and the time at which the restrictions
lapse. Participants will be required to deposit shares with the Company during
the period of any restrictions. The Compensation Committee may also grant share
purchase rights for which the purchase price may not be less than 100% of the
fair market value (as defined in the Plan) on the date of grant.
Other Share-Based Awards. The Compensation Committee may grant other
awards of shares and other awards that are valued or otherwise based on the
Company's Common Shares.
Miscellaneous. The Plan provides for vesting, exercise or forfeiture of
rights granted under the Plan on retirement, death, disability, termination of
employment or a change of control. The Board of Directors may modify, suspend or
terminate the Plan as long as it does not impair the rights thereunder of any
participant. Under applicable law, the holders of Common Shares must approve any
increase in the maximum number of shares reserved for issuance under the Plan,
any change in the classes of employees eligible to participate in the Plan and
any material increase in the benefits accruing to participants.
41
<PAGE> 43
CERTAIN TRANSACTIONS
Company Purchases of Shares. In February 1994, Robert A. Weitzel borrowed
$200,000 from the Company, evidenced by a promissory note bearing interest at
the rate of 8.0% per annum (the "Note"). Mr. Weitzel utilized the $200,000 to
purchase 200 of the Company's Class E Preferred Shares, par value $1,000 per
share (the "Class E Preferred"), from a former officer of the Company. The
Company acquired the Class E preferred from Mr. Weitzel in March 1997 in
exchange for cancellation of the Note, with accrued and unpaid cumulative
dividends offset against accrued interest on the Note, resulting in
approximately $8,000 of interest remaining to be paid by Mr. Weitzel.
In December 1996, the Company exercised its right to purchase 2,002,727
Common Shares from a former officer of the Company for $1,200,000.
Indebtedness of Principal Shareholder. In May 1993, Robert A. Weitzel,
President and Chief Executive Officer of the Company, borrowed $252,720 from the
Company at an annual rate of interest of 8.15%, evidenced by a promissory note
and secured by a mortgage on Mr. Weitzel's home. Mr. Weitzel also borrowed
$70,000 from the Company in January 1994, at an annual interest rate of 10%,
evidenced by a promissory note. The largest aggregate amount of indebtedness Mr.
Weitzel had outstanding in favor of the Company was $1,978,000, $1,866,000 and
$1,763,000 in fiscal 1996, 1995 and 1994, respectively. The current amount of
Mr. Weitzel's indebtedness to the Company is $445,119, including the interest
referred to above and approximately $100,000 that is delinquent. Mr. Weitzel
will repay all of his indebtedness to the Company at the time of consummation of
the Offering. The Company does not intend to make or guarantee loans to its
officers, directors, or shareholders after the consummation of the Offering.
Acquisition of NBC Leasing, Inc. NBC Leasing, Inc. ("NBC") was merged into
the Company in March 1997. NBC had leased certain machinery and equipment to the
Company prior to the merger. The Company paid $50,000 in management fees to NBC
in each of fiscal 1996, 1995 and 1994. NBC was owned by certain shareholders and
employees of the Company, including Robert A. Weitzel, who was issued 4,126
Common Shares in exchange for his 75% interest in NBC in connection with the
merger. In connection with the merger, the Company cancelled $1,694,000 in notes
and accrued interest receivable from the shareholders of NBC and $1,694,000 in
notes payable to the NBC shareholders by NBC were contributed to capital.
International Transport Security, Inc. International Transport Security,
Inc. ("Transport") was a corporation under common ownership with the Company
until it was dissolved in March 1996. Prior to March 31, 1996, Transport
provided management services to the Company. Transport incurred $4.3 million,
$4.6 million and $959,000 in payroll costs in fiscal 1994, 1995 and 1996 and
received from the Company $4.1 million, $3.8 million and $696,000 in management
fees in fiscal 1994, 1995 and 1996. See "Consolidated Financial Statements."
Agreement with Norman H. Wood. On September 22, 1987, shareholders holding
substantially all of the outstanding shares of ITS executed a written consent in
which they agreed to distribute to Norman H. Wood, who was at that time the
Company's Chief Operating Officer, 6.546% of the net proceeds received by them
upon any sale of the Company. Messrs. Weitzel and Wood have agreed that any
claims that Mr. Wood may have with respect to that instrument will be settled by
Mr. Weitzel transferring to Mr. Wood 73,101 of Mr. Weitzel's Common Shares of
the Company prior to the consummation of the Offering.
42
<PAGE> 44
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Shares on a fully diluted basis as of March
31, 1997, and as adjusted to reflect the sale of the Common Shares offered
hereby, for: (a) each of the Company's directors; (b) each person known by the
Company to own beneficially more than 5% of the outstanding Common Shares on a
fully diluted basis; (c) each Named Executive Officer; and (d) the Company's
executive officers and directors as a group. All information with respect to
beneficial ownership by the Company's directors, officers or beneficial owners
has been furnished by the respective director, officer or beneficial owner, as
the case may be. Except as otherwise described in the notes below, the following
beneficial owners have sole voting power and sole investment power with respect
to all Common Shares set forth opposite their names.
<TABLE>
<CAPTION>
COMPANY COMMON SHARES BENEFICIALLY OWNED
-----------------------------------------------------------
BEFORE THE AFTER THE
OFFERING SHARES OFFERING
-------------------- BEING --------------------
NAME AND ADDRESS(1) NUMBER PERCENT OFFERED NUMBER PERCENT
------------------------------ ---------- ------ ---------- ---------- ------
<S> <C> <C> <C> <C> <C>
Robert A. Weitzel............. 3,438,990 94.12% 227,273 3,211,717 51.37%
James O. Singer(2)............ 0 0 0 0
Robert A. Swartz.............. 41,901 1.15 41,901 0.67
Scott E. Brewer............... 16,116 0.44 16,116 0.26
Stephen Metzler............... 0 0 0 0
Scott Dennison................ 0 0 0 0
Gene Empey.................... 6,446 0.18 6,446 0.10
Ivan J. Winfield(2)........... 0 0 0 0
3901 Insworth
Pepper Pike, Ohio 44124
Lee C. Howley, Jr.(2)......... 0 0 0 0
5430 Portage Drive
Vermillion, Ohio 44089
Jerry V. Jarrett(2)........... 0 0 0 0
2614 Fairwood Drive
Pepper Pike, Ohio 44124
All directors and executive
officers
as a group (11 persons)..... 3,503,453 95.88% 3,276,180 52.36%
</TABLE>
- ---------------
(1) Unless otherwise indicated, the address of each beneficial owner is Crown
Centre, 5005 Rockside Road, Independence, Ohio 44031.
(2) Each of these individuals will receive options to purchase Common Shares in
the following amounts in connection with the Offering: Mr. Singer (33,362
shares); Mr. Winfield (5,000 shares); Mr. Howley (5,000 shares); and Mr.
Jarrett (5,000 shares).
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<PAGE> 45
DESCRIPTION OF CAPITAL SHARES
The following summary description of the Company's capital shares does not
purport to be complete and is qualified in its entirety by reference to the
Amended and Restated Articles of Incorporation of the Company (the "Articles")
and the Code of Regulations of the Company, the material provisions of which are
accurately set forth in the following summary description and which are included
as exhibits to the Registration Statement of which this Prospectus forms a part.
The Articles authorize (a) 20 million Common Shares, without par value, of
which 3,653,909 were issued and outstanding immediately prior to the Offering
and (b) five million Serial Preferred Shares, without par value ("Serial
Preferred Shares"), none of which is issued and outstanding. After completion of
the Offering, a total of 6,251,637 Common Shares will be issued and outstanding.
COMMON SHARES
Subject to the rights of the holders of any outstanding Preferred Shares,
the holders of Common Shares are entitled to receive such dividends as may be
declared by the Board and to share ratably in assets available for distribution
upon liquidation. There are no pre-emptive rights, conversion rights, redemption
provisions or sinking fund provisions with respect to Common Shares under the
Articles. Holders of Common Shares are entitled to one vote per share. All
Common Shares offered hereby, upon completion of the Offering, will be fully
paid and nonassessable.
PREFERRED SHARES
The Board is empowered to authorize the issuance of Serial Preferred Shares
which may be issued in one or more series. All series of Serial Preferred Shares
will rank equally and will be identical in all respects, except that the Board
may fix with respect to each such series without further action by the
shareholders, prior to issuance thereof, the following terms: (a) the
designation of the series; (b) the authorized number of shares of the series,
subject to certain increases and decreases as determined by the Board from time
to time; (c) the dividend rate or rates of the series; (d) the date or dates
from which dividends shall accrue and (if applicable) will be cumulative and the
dates on which and the period or periods for which dividends, if declared, shall
be payable, including the means by which such dates and periods may be
established; (e) any redemption rights and redemption prices; (f) the terms and
amounts of any sinking fund; (g) the amounts payable on shares of the series on
any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Company; (h) whether the shares of the series are convertible
into Common Shares or shares of any other class and, if so, the conversion rate
or rates or price or prices, any adjustments thereof and all other terms and
conditions upon which such conversion may be made; and (i) any restrictions on
the issuance of shares of the same or any other class or series. The holders of
Serial Preferred Shares will have no voting rights, except as otherwise provided
by law as specifically provided in the Articles with respect to certain matters,
such as the election of two members of the Board upon default by the Company in
the payment of dividends for a 540-day period and amendments to the Articles
that would adversely affect the rights of holders of Serial Preferred Shares.
All series of Preferred Shares would rank, as to dividend and liquidation
rights, senior to Common Shares. The Board has no present intention to issue
Preferred Shares.
Because of its discretion with respect to the creation and issuance of any
series of Preferred Shares without shareholder approval, the Board could
adversely affect the voting power and other rights of the holders of Common
Shares. The ability of the Board to issue Preferred Shares, while providing
flexibility in connection with financings, acquisitions and other corporate
purposes, could have the effect of discouraging an attempt by another person or
entity, through the acquisition of a substantial number of Common Shares, to
acquire control of the Company with a view to effecting a merger, sale of the
Company's assets or similar transaction, since the issuance of Preferred Shares
could be used to dilute the share ownership of a person or entity seeking to
obtain control of the Company with a view to effecting a merger, sale of the
Company's assets or similar transaction. Additionally, issuance of Preferred
Shares could result in there being a class of shares with conversion features
and preference over Common Shares with respect to dividends and distributions in
liquidation and could also result in the dilution of net income and book value
per share of the Company.
44
<PAGE> 46
CERTAIN ANTI-TAKEOVER PROVISIONS
Chapter 1704 of the Ohio Revised Code prohibits certain transactions,
including mergers, sales of assets and similar corporate transactions, involving
Ohio corporations and holders of 10% or more of their voting shares, unless
certain advance approvals are obtained or certain other conditions are met.
Section 1701.831 of the Ohio Revised Code imposes certain advance notice and
shareholder approval requirements with respect to voting share acquisitions that
cross the 20%, 33 1/3% and 50% of voting shares thresholds. Section 1707.041 of
the Ohio Revised Code imposes advance filing and notice requirements with
respect to certain tender offers and invitations for tenders for more than 10%
of certain Ohio corporations. These restraints could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Shares is First Chicago
Trust Company, Inc. of New York, located in New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Shares in the public market, or the
perception that those sales could occur, could adversely affect the prevailing
market price of Common Shares and make it more difficult for the Company to sell
equity securities in the future at a time and price that it considers
appropriate.
Immediately following completion of the Offering, the Company will have
6,251,637 Common Shares outstanding. All of the 2,825,000 Common Shares being
sold in the Offering (or 3,248,750 shares if the Underwriters' over-allotment
option is exercised in full) will be freely tradeable (other than by an
"affiliate" of the Company as such term is defined in the Securities Act)
without restriction or registration under the Securities Act. Of the Common
Shares owned by executive officers and directors of the Company, 3,276,180
shares will be eligible for public sale only if registered under the Securities
Act or an exemption from registration is available, including under Rule 144
thereunder, and only following release from or expiration of a 180 day lockup
agreement with the Underwriters.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted Common Shares
for at least one year but less than two years will be entitled to sell in any
three-month period a number of such shares that does not exceed the greater of
(i) 1.0% of the then outstanding Common Shares (approximately 62,516 shares
immediately after the Offering) or (ii) the average weekly trading volume of
Common Shares on the Nasdaq National Market during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
Commission. Sales pursuant to Rule 144 are also subject to certain other
requirements relating to manner of sale, notice and availability of current
public information about the Company. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the three months immediately preceding the sale is entitled to sell
restricted shares pursuant to Rule 144(k) without regard to the limitations
described above, if two years have expired since the later of the date on which
those restricted shares were acquired from the Company or the date they were
acquired from an affiliate of the Company.
The Company and all of its directors, executive officers and current
shareholders who will hold, upon completion of the Offering, 3,426,636 Common
Shares, have agreed that they will not, directly or indirectly, without the
prior written consent of the Underwriters, and except for any grant of options
under the Long-Term Incentive Plan, as described herein, offer, sell, grant any
option to purchase or otherwise dispose (or announce any offer, sale, grant of
any option to purchase or other disposition) of any Common Shares, or any
securities convertible into, or exchangeable or exercisable for, Common Shares,
for a period of 180 days after the Closing Date of the Offering.
45
<PAGE> 47
UNDERWRITING
In the Underwriting Agreement, the Underwriters, represented by McDonald &
Company Securities, Inc. and Morgan Keegan & Company, Inc. (the
"Representatives"), have agreed, severally, subject to the terms and conditions
therein set forth, to purchase from the Company and the Selling Shareholder, and
the Company and the Selling Shareholder have agreed to sell to them, the number
of Common Shares totaling 2,825,000 shares, set forth opposite their respective
names below. The Underwriters are committed to take and pay for all shares if
any shares are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
McDonald & Company Securities, Inc........................................
Morgan Keegan & Company, Inc..............................................
---------
Total................................................................ 2,825,000
=========
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the Common Shares to the public at the public offering price
set forth on the cover page of this Prospectus. The Underwriters may allow to
certain selected dealers who are members of the National Association of
Securities Dealers, Inc. (the "NASD") a discount not exceeding $ per share,
and the Underwriters may allow, and such selected dealers may re-allow, a
discount not exceeding $ per share to other dealers who are members of the
NASD. After the Offering, the public offering price and the discount to dealers
may be changed by the Representatives.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 423,750 Common Shares at the public offering price, less the underwriting
discount, as set forth on the cover page of this Prospectus. The Underwriters
may exercise that option only to cover over-allotments in the sale of the Common
Shares that the Underwriters have agreed to purchase. To the extent that the
Underwriters exercise such option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase the same percentage of
the option shares as the number of shares to be purchased and offered by that
Underwriter in the table above bears to the total.
The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities which may be incurred in connection
with the Offering, including liabilities under the Securities Act of 1933.
The Company, the Selling Shareholder and the directors, executive officers
and current shareholders of the Company have agreed that they will not offer,
sell, transfer or otherwise dispose of any Common Shares, or any securities
convertible into or exchangeable for Common Shares, for a period of 180 days
from the date of this Prospectus, without the prior written consent of McDonald
& Company Securities, Inc.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales of Common Shares offered by this Prospectus to any
accounts over which they exercise discretionary authority.
At the request of the Company, up to 100,000 Common Shares offered in the
Offering have been reserved for sale to employees of the Company and certain
members of their families. The price of those shares to those persons will be
equal to the public offering price set forth on the cover page of this
Prospectus. The number of shares available to the general public will be reduced
to the extent those persons purchase reserved shares. Any shares not so
purchased will be offered in the Offering at the public offering price set forth
on the cover page of this Prospectus.
46
<PAGE> 48
In connection with the Offering and in compliance with applicable law, the
Underwriters may overallot or effect transactions that stabilize, maintain, or
otherwise affect the market price of the Common Shares at levels above those
that might otherwise prevail in the open market, including by entering
stabilizing bids, effecting syndicate covering transactions or imposing penalty
bids. A stabilizing bid means the placing of any bid, or the effecting of any
purchase, for the purpose of pegging, fixing or maintaining the price of a
security. A syndicate covering transaction means the placing of any bid on
behalf of the underwriting syndicate or the effecting of any purchase to reduce
a short position created in connection with the Offering. A penalty bid means an
arrangement that permits McDonald & Company Securities, Inc., as managing
underwriter, to reclaim a selling concession from a syndicate member in
connection with the Offering when securities originally sold by the syndicate
member are purchased in stabilizing or syndicate covering transactions. These
transactions may be effected on the Nasdaq National Market or otherwise. The
Underwriters are not required to engage in any of these activities. Any such
activities, if commenced, may be discontinued at any time.
Prior to the Offering, there has not been any public market for the Common
Shares. Consequently, the initial public offering price for the Common Shares
included in the Offering will be determined by negotiations between the Company
and the Representatives. Among the factors considered in determining that price
will be the history of and prospects for the Company's business and the industry
in which it competes, an assessment of the Company's management and the present
state of the Company's development, the past and present revenues and earnings
of the Company, the prospects for growth of the Company's revenues and earnings,
the current state of the economy in the United States and the current level of
economic activity in the industry in which the Company competes and in related
or comparable industries, and currently prevailing conditions in the securities
markets, including current market valuations of publicly traded companies that
are comparable to the Company.
LEGAL MATTERS
The validity of the Common Shares offered hereby will be passed upon for
the Company by Baker & Hostetler LLP, Cleveland, Ohio and certain legal matters
will be passed upon for the Underwriters by Calfee, Halter & Griswold LLP,
Cleveland, Ohio.
EXPERTS
The financial statements included in this Prospectus, except as they relate
to the unaudited periods, have been so included in reliance on the reports of
Grant Thornton LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
Effective October 20, 1995, the Company replaced Ernst & Young LLP as its
independent accountants. The decision to change accountants was approved by the
Board of Directors. There were no disagreements with the former accountants on
any matter of accounting principles or practices, or auditing scope or
procedure. Ernst & Young LLP has not audited or otherwise expressed an opinion
on any of the financial statements included in this Registration Statement.
47
<PAGE> 49
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part) on
Form S-1 under the Securities Act with respect to the securities offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. Statements contained in this
Prospectus as to the content of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference and the
exhibits and schedules thereto. The Company affirms that the material terms of
such contracts and other documents are accurately described in this Prospectus.
The Registration Statement and those exhibits and schedules can be inspected and
copied at the public reference facilities maintained by the Commission at its
principal office at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the Commission's regional offices located at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 66061 and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of that material can also
be obtained from the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 29549, at prescribed rates. The
Commission also maintains a Web site (address http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that filed electronically with the Commission.
The Company intends to furnish its shareholders with annual reports
containing consolidated financial statements audited by its independent
certified public accountants and with quarterly reports containing unaudited
condensed consolidated financial statements for each of the first three quarters
of each fiscal year.
48
<PAGE> 50
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
International Total Services, Inc. and Subsidiaries
Report of Independent Certified Public Accountants.................................. F-2
Consolidated Balance Sheets at March 31, 1997 and 1996 and June 30, 1997............ F-3
Consolidated Statements of Earnings for the years ended March 31, 1997, 1996 and
1995 and for the three months ended June 30, 1997 and 1996....................... F-4
Consolidated Statements of Shareholders' Equity for the years ended March 31, 1997,
1996 and 1995 and for the three months ended June 30, 1997....................... F-5
Consolidated Statements of Cash Flows for the years ended March 31, 1997, 1996 and
1995 and for the three months ended June 30, 1997 and 1996....................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
Intex Aviation Services, Inc.
Report of Independent Certified Public Accountants.................................. F-16
Balance Sheets at December 31, 1996 and 1995 and March 31, 1997..................... F-17
Statements of Earnings for the years ended December 31, 1996, 1995 and 1994 and for
the three months ended March 31, 1997 and 1996................................... F-18
Statements of Shareholders' Equity for the years ended December 31, 1996, 1995 and
1994 and for the three month period ended March 31, 1997......................... F-19
Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 and
for the three months ended March 31, 1997 and 1996............................... F-20
Notes to Financial Statements....................................................... F-21
</TABLE>
F-1
<PAGE> 51
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
SHAREHOLDERS AND BOARD OF DIRECTORS
INTERNATIONAL TOTAL SERVICES, INC.
We have audited the accompanying consolidated balance sheets of International
Total Services, Inc. and subsidiaries as of March 31, 1997 and 1996, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for each of the three years in the period ended March 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
International Total Services, Inc. and subsidiaries as of March 31, 1997 and
1996, and the consolidated results of their operations and their consolidated
cash flows for each of the three years in the period ended March 31, 1997 in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Cleveland, Ohio
May 9, 1997, except for the first paragraph of
Note A and the second and third paragraphs
of Note J for which the date is June 17, 1997
F-2
<PAGE> 52
INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
JUNE 30, ---------------------------
1997 1997 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 1,711,160 $ 1,452,028 $ 1,872,787
Accounts receivable -- net of allowance for doubtful
accounts of $100,000 in each year......................... 14,998,628 11,784,252 9,075,726
Deferred taxes.............................................. 1,493,521 1,493,521 1,284,901
Other current assets........................................ 2,536,279 1,555,988 1,175,646
----------- ----------- -----------
Total current assets................................. 20,739,588 16,285,789 13,409,060
Notes Receivable from Officers................................ 462,782 445,119 2,271,949
Property and Equipment
Security equipment.......................................... 2,873,029 2,758,716 2,385,900
Service equipment........................................... 1,720,457 1,657,055 1,565,135
Computer equipment.......................................... 1,769,686 1,758,405 1,320,141
Furniture and fixtures...................................... 941,615 859,933 547,761
Leasehold improvements...................................... -- 56,387 56,387
Autos....................................................... 502,710 499,835 203,581
----------- ----------- -----------
7,807,497 7,590,331 6,078,905
Less accumulated depreciation and amortization.............. 4,498,442 4,335,864 2,740,118
----------- ----------- -----------
3,309,055 3,254,467 3,338,787
Intangibles, less accumulated amortization of $648,480 and
$440,783 in 1997 and 1996, respectively..................... 9,859,568 4,345,518 1,792,973
Security Deposits and Other................................... 99,359 2,670,244 79,329
----------- ----------- -----------
9,958,927 7,015,762 1,872,302
----------- ----------- -----------
$34,470,352 $27,001,137 $20,892,098
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to bank....................................... $ 2,400,000 $ 2,400,000 $ 4,753,424
Current maturities of long-term obligations................. 63,790 120,536 52,281
Trade accounts payable...................................... 5,943,240 2,747,803 2,784,346
Accrued payroll and payroll taxes........................... 8,203,564 8,702,819 7,337,828
Other accrued expenses...................................... 1,793,965 1,417,662 1,030,259
Income taxes payable........................................ 996,622 572,875 401,704
----------- ----------- -----------
Total current liabilities............................ 19,401,181 15,961,695 16,359,842
Deferred Tax Liability........................................ 288,827 288,827 390,207
Long-Term Obligations......................................... 10,754,938 7,555,649 164,140
Commitments and Contingencies................................. -- -- --
STOCKHOLDERS' EQUITY
Class A preferred stock, $2,000 par value -- authorized 50
shares, issued 10 shares in 1996........................ -- -- 20,000
Class E preferred stock, $1,000 par value -- authorized
300 shares, issued and outstanding 200 shares in 1996... -- -- 200,000
Common stock, without par value, stated at $.01 per
share -- authorized 20,000,000 shares, issued 3,660,357
and 6,446,310 shares in 1997 and 1996, respectively..... 36,540 36,604 64,463
Additional paid-in capital................................ 450,456 472,892 362,193
Cumulative translation adjustment......................... (98,854) (98,854) (78,174)
Retained earnings......................................... 3,637,264 2,784,324 3,998,377
----------- ----------- -----------
4,025,406 3,194,966 4,566,859
Less treasury stock, 10 shares Class A preferred stock and
806,727 shares of common stock in 1996.................. -- -- 588,950
----------- ----------- -----------
4,025,406 3,194,966 3,977,909
----------- ----------- -----------
$34,470,352 $27,001,137 $20,892,098
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 53
INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30, FOR THE YEARS ENDED MARCH 31,
--------------------------- ------------------------------------------
1997 1996 1997 1996 1995
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating revenues......... $ 38,363,508 $ 24,106,130 $115,241,516 $ 95,462,891 $ 92,654,181
Cost of operating
revenues................. 31,823,578 20,474,630 98,337,729 81,340,962 79,981,094
------------ ------------ ------------ ------------ ------------
Gross profit.......... 6,539,930 (3,631,500) 16,903,787 14,121,929 12,673,087
Selling, general and
administrative
expenses................. 4,639,249 2,772,825 13,333,545 11,603,393 12,654,456
------------ ------------ ------------ ------------ ------------
Operating profit...... 1,900,681 853,675 3,570,242 2,518,536 18,631
Other expense (income)
Interest expense......... 421,949 133,044 764,845 654,057 332,772
Interest income.......... (7,948) (34,509) (127,510) (131,531) (144,361)
------------ ------------ ------------ ------------ ------------
414,001 98,535 637,335 522,526 188,411
------------ ------------ ------------ ------------ ------------
Earnings (loss) before
income taxes........ 1,486,680 760,140 2,932,907 1,996,010 (169,780)
Income taxes............... 633,740 318,020 1,237,117 958,427 547,852
------------ ------------ ------------ ------------ ------------
NET EARNINGS (LOSS)... $ 852,940 $ 442,120 $ 1,695,790 $ 1,037,583 $ (717,632)
------------ ------------ ------------ ------------ ------------
Earnings (loss) per
share.................... $ 0.23 $ 0.07 $ 0.33 $ 0.18 $ (0.12)
============ ============ ============ ============ ============
Weighted average number of
shares................... 3,654,985 5,945,022 5,089,480 5,775,880 6,292,976
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 54
INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995 AND THE THREE MONTHS ENDED
JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED
CLASS A CLASS E ADDITIONAL LOSS ON CUMULATIVE
PREFERRED PREFERRED COMMON PAID-IN MARKETABLE TRANSLATION
STOCK STOCK STOCK CAPITAL SECURITIES ADJUSTMENT
--------- --------- ------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT APRIL 1, 1994......................... $20,000 $ 200,000 $64,463 $362,193 $(27,893) $ (24,480)
Translation adjustment........................... -- -- -- -- -- 15,002
Unrealized loss on securities.................... -- -- -- -- (23,624) --
Purchase of 10 shares of Class A Preferred Stock
and 572,198 shares of common stock for
treasury....................................... -- -- -- -- -- --
Issuance of 25,785 common shares from treasury... -- -- -- -- -- --
Net loss......................................... -- -- -- -- -- --
------- -------- ------- -------- -------- --------
BALANCE AT MARCH 31, 1995........................ 20,000 200,000 64,463 362,193 (51,517) (9,478)
Translation adjustment........................... -- -- -- -- -- (68,696)
Sale of marketable securities.................... -- -- -- -- 51,517 --
Purchase of 286,099 shares of common stock for
treasury....................................... -- -- -- -- -- --
Issuance of 25,785 common shares from treasury... -- -- -- -- -- --
Net earnings..................................... -- -- -- -- -- --
------- -------- ------- -------- -------- --------
BALANCE AT MARCH 31, 1996........................ 20,000 200,000 64,463 362,193 -- (78,174)
Purchase of 2,028,477 shares of common stock for
treasury....................................... -- -- -- -- -- --
Issuance of 45,124 common shares from treasury... -- -- -- 171,000 -- --
Translation adjustment........................... -- -- -- -- -- (20,680)
Dividends declared -- Class E Preferred Stock.... -- -- -- -- -- --
Redemption Class E Preferred Stock............... -- (200,000) -- -- -- --
Merger of NBC Leasing............................ -- -- -- 34,862 -- --
Retirement of Treasury Stock..................... (20,000) -- (27,859) (95,163) -- --
Net earnings..................................... -- -- -- -- -- --
------- -------- ------- -------- -------- --------
BALANCE AT MARCH 31, 1997........................ $ -- $ -- $36,604 $472,892 $ -- $ (98,854)
Purchase of 6,446 shares......................... -- -- (64) (22,436) -- --
Net earnings..................................... -- -- -- -- -- --
------- -------- ------- -------- -------- --------
BALANCE AT JUNE 30, 1997 (UNAUDITED)............. $ -- $ -- $36,540 $450,456 $ -- $ (98,854)
======= ======== ======= ======== ======== ========
<CAPTION>
TOTAL
RETAINED TREASURY STOCKHOLDERS'
EARNINGS STOCK EQUITY
---------- ---------- ------------
<S> <C> <C> <C>
BALANCE AT APRIL 1, 1994......................... $3,678,426 $ -- $4,272,709
Translation adjustment........................... -- -- 15,002
Unrealized loss on securities.................... -- -- (23,624)
Purchase of 10 shares of Class A Preferred Stock
and 572,198 shares of common stock for
treasury....................................... -- (425,000) (425,000)
Issuance of 25,785 common shares from treasury... -- 18,025 18,025
Net loss......................................... (717,632) -- (717,632)
---------- ---------- ----------
BALANCE AT MARCH 31, 1995........................ 2,960,794 (406,975) 3,139,480
Translation adjustment........................... -- -- (68,696)
Sale of marketable securities.................... -- -- 51,517
Purchase of 286,099 shares of common stock for
treasury....................................... -- (200,000) (200,000)
Issuance of 25,785 common shares from treasury... -- 18,025 18,025
Net earnings..................................... 1,037,583 -- 1,037,583
---------- ---------- ----------
BALANCE AT MARCH 31, 1996........................ 3,998,377 (588,950) 3,977,909
Purchase of 2,028,477 shares of common stock for
treasury....................................... -- (1,226,584) (1,226,584)
Issuance of 45,124 common shares from treasury... -- 31,544 202,544
Translation adjustment........................... -- -- (20,680)
Dividends declared -- Class E Preferred Stock.... (52,000) -- (52,000)
Redemption Class E Preferred Stock............... -- -- (200,000)
Merger of NBC Leasing............................ (1,219,513) 2,638 (1,182,013)
Retirement of Treasury Stock..................... (1,638,330) 1,781,352 --
Net earnings..................................... 1,695,790 -- 1,695,790
---------- ---------- ----------
BALANCE AT MARCH 31, 1997........................ $2,784,324 $ -- $3,194,966
Purchase of 6,446 shares......................... -- -- (22,500)
Net earnings..................................... 852,940 -- 852,940
---------- ---------- ----------
BALANCE AT JUNE 30, 1997 (UNAUDITED)............. $3,637,264 $ -- $4,025,406
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 55
INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30, FOR THE YEARS ENDED MARCH 31,
-------------------------- -----------------------------------------
1997 1996 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings........................ $ 852,940 $ 442,120 $ 1,695,790 $ 1,037,583 $ (717,632)
Adjustments to reconcile net
earnings to net cash provided by
(used in) operating activities:
Depreciation...................... 243,513 206,171 837,466 897,291 771,950
Amortization...................... 241,436 83,129 207,697 268,321 166,812
Loss (gain) on disposal of
equipment....................... 3,321 137,822 297,719 (113,998) (14,583)
Gain on sale of marketable
securities...................... -- -- -- (27,251) --
Deferred income taxes............. -- -- (310,000) (294,785) (313,914)
Stock compensation................ -- -- 202,544 18,025 18,025
Changes in operating assets and
liabilities:
Accounts receivable............. (3,214,376) 16,731 (2,708,526) (500,940) (1,322,894)
Other current and noncurrent
assets....................... (551,798) 85,916 (518,417) 11,827 (880,673)
Trade accounts payable.......... 151,929 (308,111) 314,826 404,191 430,293
Accrued expenses................ (300,796) 346,431 1,923,565 263,658 1,704,441
----------- ----------- ----------- ----------- -----------
Net cash provided by (used
in) operating activities... (2,573,831) 1,010,209 1,942,664 1,963,922 (158,175)
INVESTING ACTIVITIES:
Additions to property and
equipment......................... (298,100) (246,039) (1,051,649) (900,599) (1,518,057)
Proceeds received from sale of
equipment......................... 11,020 20,009 160,278 542,844 220,200
Proceeds from sale of marketable
securities........................ -- -- -- 109,185 --
Payments for acquisitions of
businesses, primarily by purchase
of security contracts............. -- -- (2,760,242) -- (2,838,365)
Deposit on acquisition of business
of Intex Aviation Services,
Inc............................... -- -- (2,570,886) -- --
----------- ----------- ----------- ----------- -----------
Net cash (used in) investing
activities................. (287,080) (226,030) (6,222,499) (248,570) (4,136,222)
FINANCING ACTIVITIES:
Net borrowings (payments) on note
payable to bank................... 3,218,676 (109,932) 2,005,072 (819,021) 5,108,880
Borrowings on subordinated debt..... -- -- 3,000,000 -- --
Borrowings on long-term debt........ -- -- 153,550 77,763 343,200
Principal payments on long-term
debt.............................. (76,133) (18,713) (52,282) (99,364) (135,922)
Purchase of treasury stock.......... (22,500) -- (1,226,584) (200,000) (425,000)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used
in) financing activities... 3,120,043 (128,645) 3,879,756 (1,040,622) 4,891,158
Effect of exchange rates on cash...... -- -- (20,680) (68,696) 15,002
----------- ----------- ----------- ----------- -----------
NET (DECREASE) INCREASE IN
CASH....................... 259,132 655,534 (420,759) 606,034 611,763
Cash and cash equivalents at beginning
of year............................. 1,452,028 1,872,787 1,872,787 1,266,753 654,990
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of
year................................ $ 1,711,160 $ 2,528,321 $ 1,452,028 $ 1,872,787 $ 1,266,753
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for:
Interest.......................... $ 421,949 $ 142,218 $ 782,382 $ 610,333 $ 331,474
=========== =========== =========== =========== ===========
Income taxes...................... $ 188,502 $ 214,758 $ 1,230,953 $ 1,137,953 $ 1,312,282
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 56
INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995 AND JUNE 30, 1997 AND 1996 (UNAUDITED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the combined financial statements follows. All share and per
share amounts have been adjusted for the 12,892.62 for 1 stock split declared on
June 17, 1997.
Presentation
The interim financial statements as of June 30, 1997 and 1996 and the three
months then ended as included herein are unaudited. However, in the opinion of
management, such information reflects all adjustments, consisting only of normal
recurring accruals necessary for a fair presentation of the information shown.
The interim financial statements for the periods stated and notes presented
herein do not contain certain information included in the Company's annual
financial statements and notes as also herein presented. Results for interim
periods are not necessarily indicative of results expected for the full year.
Revenue Recognition
The Company recognizes revenues from services provided under contracts as
those services are performed; revenues from sales of screening systems and other
products are recognized when those products are shipped to customers.
Business
International Total Services, Inc. (the Company) is a provider of
commercial security and aviation services, providing personnel and management
support to airlines at airports primarily in the United States and Europe. One
airline customer accounted for 18.9%, 18.4% and 27.6% of operating revenues for
the years ended March 31, 1997, 1996 and 1995, respectively. Another airline
customer accounted for 11.8%, 15% and 13.6% of operating revenues for the same
periods. Furthermore, five airline customers, including the two noted above,
accounted for approximately 51%, 51% and 56% of operating revenues for the years
ended March 31, 1997, 1996 and 1995, respectively, and 35%, 39% and 42%,
respectively, of accounts receivable at those dates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned foreign and domestic subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
International Transport Security, Inc. (Transport) was a corporation under
common ownership with the Company until it was dissolved in March 1996. The sole
function of Transport was to pay compensation to the officers and other
corporate personnel of the Company for which Transport received a management
fee. Accordingly, Transport's accounts have been included in the consolidated
financial statements through the date of dissolution. Upon dissolution of
Transport, the Company began paying all compensation directly.
NBC Leasing, Inc. (NBC) was a corporation under common ownership until it
was acquired by and merged into the Company on March 31, 1997. The acquisition
was accounted for in a manner similar to a pooling; as such, NBC's assets and
liabilities were recorded at historical cost as of the date of acquisition.
NBC leased machinery and equipment to the Company on a month-to-month
basis. Lease payments for the years ended March 31, 1997, 1996 and 1995 amounted
to $138,384, $205,297 and $260,862, respectively. The Company provided
management and financial consulting services to NBC and recognized management
fee income in the amount of $60,000 in all three years.
F-7
<PAGE> 57
INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Cash Flow Statement
For purposes of the Statement of Cash Flows, the Company considers all
short-term, highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
During the year ended March 31, 1997, the Company entered into the
following noncash transactions:
(1) The Company redeemed 200 shares of Class E preferred stock from
its principal shareholder in exchange for a $200,000 note receivable from
the shareholder. In addition, the Company declared $52,000 in dividends,
including all dividend arrearages, on the preferred shares and paid the
dividends by reducing the accrued interest receivable due on the note.
(2) The Company acquired NBC by issuing from treasury 4,126 shares of
common stock to its principal shareholder, paying $12,500 to the other NBC
shareholders and by offsetting $1,695,414 in notes and accrued interest
receivable due from the shareholders of NBC against corresponding
obligations of NBC to the shareholders. The notes and interest receivable
included $1,271,560 due from the Company's principal shareholder. The
shareholders of NBC were also officers of the Company.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments (SFAS 107), requires disclosure of the following
information about the fair value of certain financial instruments for which it
is practicable to estimate that value. For purposes of the following disclosure,
the fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced sale or liquidation. These amounts represent management's best
estimates of fair value.
The carrying value of cash and cash equivalents, net trade receivables and
payables approximate fair value due to the relatively short period to maturity
of these instruments. The carrying value of long-term debt approximates fair
value based on borrowing rates currently available to the Company for debt with
comparable maturities. The carrying value of notes receivable from officers
approximates fair value based on the interest rates on the notes compared to
rates available to the Company for comparable investments.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided over
the estimated useful lives of the respective assets, principally five or seven
years, using the straight-line method.
Intangibles
During fiscal years ended March 31, 1997 and 1995, the Company acquired
various aviation service businesses, primarily through the assumption of certain
security service contracts for approximately $2,795,000 and $2,838,000,
respectively. A substantial portion of the purchase price was allocated to
intangibles, the balance of which are noted below:
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1997 1996
----------- ----------
<S> <C> <C>
Goodwill................................................ $ 2,309,000 $1,678,000
Service contracts....................................... 251,000 187,000
Covenant not to compete................................. 200,000 200,000
----------- ----------
$ 2,760,000 $2,065,000
=========== ==========
</TABLE>
F-8
<PAGE> 58
INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
In fiscal 1997, the Company changed its estimate of the useful life of
acquired goodwill from 5 and 10 years to 20 years based upon what management
believes is a better approximation of the life of the contracts, including
renewals, based on the Company's retention rate and the additional business
obtained as a result of entering new markets through the acquisition of existing
contracts. As a result, amortization expense for 1997 was approximately $140,000
less than what it would have been under the previous methods. The service
contracts and covenants not to compete are being amortized over their remaining
lives of up to five years. Amortization of intangibles was $207,697, $268,321
and $166,812 for the fiscal years ended March 31, 1997, 1996 and 1995,
respectively.
Management of the Company assesses the recoverability of its long-lived
assets by using projected undiscounted future cash flows to determine whether
the carrying amount of the asset can be recovered over its remaining life. The
evaluation of long-lived assets also takes into consideration operating results
and trends and prospects of the Company. Based on the assessments made,
management believes no impairment of the Company's intangible and tangible
assets has occurred.
The Company's methodology is consistent with the provisions of Statement of
Financial Accounting Standards No. 121 (SFAS 121), Accounting for the Impairment
of Long-Lived Assets and Assets To Be Disposed Of.
Research and Development
During the fiscal year ended March 31, 1995, the Company incurred and
charged to expense approximately $500,000 in research and development costs. No
such costs were incurred in the fiscal years ended March 31, 1997 or 1996.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Supplemental Pro Forma Net Earnings and Net Earnings Per Share
The Company's supplemental pro forma net earnings and net earnings per
share for the year ended March 31, 1997 and the three months ended June 30, 1997
are $2,136,000 and $1,098,000 and $.35 and $.22, respectively.
The supplemental pro forma net earnings and net earnings per share reflect
the issuance of shares necessary to retire $13,068,000 and $9,758,000 of notes
payable and the resulting increase in net earnings in the amount of $440,000 and
$245,000 for the year ended March 31, 1997 and the three months ended June 30,
1996, respectively. The calculation is based on the weighted average shares
outstanding used in the calculation of net earnings per share, adjusted for the
estimated shares at each date that would be issued by the Company, i.e. 998,016
and 1,336,552 shares, respectively, at $11.00 per share to retire these
obligations.
NOTE B -- CAPITAL STOCK
Through March 31, 1997 the Company had authorized five classes of preferred
stock (A through E), at which date there were 50 authorized shares of Class A
preferred. Ten of the Class A preferred had been issued, all of which were
reacquired for $25,000 in 1995 and retired in 1997. Class A shares had 6%
cumulative dividend rights and were redeemable at the Company's option. There
also were 300 authorized shares of Class E preferred. The 200 shares issued and
outstanding at March 31, 1996 and 1995 were redeemed and retired in
F-9
<PAGE> 59
INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1997. Class E shares had 8% cumulative dividend rights. In March 1997, the
Company declared and paid dividends on Class E preferred shares in the amount of
$52,000 which included all dividends in arrears at that date. Additionally there
were 100 authorized shares each of Class B, C and D nonvoting preferred stock,
none of which were issued.
During 1995, 1996 and 1997, the Company reacquired 572,198 shares, 286,099
shares and 2,028,477 shares of its common stock. During the three years, the
Company reissued 96,694 of those shares, including 45,124 shares valued at
$202,544 granted to certain officers in November 1996. The Company retired all
treasury shares as of March 31, 1997. In April 1997 the Company reacquired and
retired 6,446 shares from a former employee for $9,000.
NOTE C -- FINANCING ARRANGEMENTS
The Company has a committed credit facility secured by all domestic
accounts receivable, equipment, and other assets. The facility consists of a
revolving promissory note of $10,500,000, a $2,000,000 term loan and a $900,000
term loan. The revolving promissory note bears interest at 1.25% over the bank's
prime rate (8 1/2% at March 31, 1997). The credit facility provides the Company
with a credit line based upon 80% of domestic and 50% of foreign outstanding
accounts receivable less than 90 days past due and carries an annual commitment
fee of .2% on the daily average unused amount of the commitments. Effective
March 31, 1997, the revolving promissory note was amended and the maturity date
was extended until March 31, 1999. Accordingly, the note has been classified as
long-term debt and excluded from the table below at March 31, 1997.
The $2,000,000 term loan bears interest at a fixed rate of 9.832% and
requires monthly principal payments of $41,667 beginning May 1997 with a final
lump sum payment of $1,749,998 due November 1, 1997. The $900,000 term loan
bears interest at 2% over the bank's prime rate. The unpaid balance on the
$900,000 term loan is due December 31, 1997.
Notes payable to bank consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Revolving promissory note................................ $ -- $3,853,424
$2,000,000 term loan..................................... 2,000,000 --
$900,000 term loan....................................... 400,000 900,000
---------- ----------
$2,400,000 $4,753,424
========== ==========
</TABLE>
F-10
<PAGE> 60
INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE D -- INCOME TAXES
The provision for income taxes consists of the following for the years
ended March 31:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Pretax Income
Domestic................................ $ 2,497,259 $ 1,898,242 $ 481,855
Foreign................................. 435,648 361,078 227,002
----------- ----------- -----------
Total (A)............................ $ 2,932,907 $ 2,259,320 $ 708,857
=========== =========== ===========
Current
Federal................................. $ 1,095,000 $ 883,738 $ 460,128
State................................... 253,000 232,702 145,704
Foreign................................. 199,117 136,772 67,863
Settlement of federal liability......... -- -- 188,071
----------- ----------- -----------
Total current........................ 1,547,117 1,253,212 861,766
Deferred
Federal................................. (260,000) (250,567) (263,632)
State................................... (50,000) (44,218) (50,282)
----------- ----------- -----------
Total deferred....................... (310,000) (294,785) (313,914)
----------- ----------- -----------
Total Provision...................... $ 1,237,117 $ 958,427 $ 547,852
=========== =========== ===========
</TABLE>
- ---------------
(A) Excludes Transport's loss as an "S-Corporation", $263,310 in 1996 and
$878,637 in 1995.
Deferred income taxes reflect the tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and for income tax purposes. Significant components of deferred tax
assets and liabilities relate to the following at March 31:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Deferred compensation................... $ 428,000 $ 360,000 $ 360,000
Accrued workers' compensation........... 359,950 400,283 209,818
Accrued legal expenses.................. 535,762 324,078 293,577
Other accruals not currently
deductible........................... 179,738 163,864 70,872
Amortization of intangibles............. 51,470 21,798 7,765
Allowance for doubtful accounts......... 40,000 40,000 40,498
State income taxes...................... 45,866 30,578 25,820
Other................................... 50,045 54,630 40,280
----------- ----------- -----------
Total deferred tax assets............ $ 1,690,831 $ 1,395,231 $ 1,048,630
=========== =========== ===========
Deferred tax liabilities:
Depreciation............................ $ 340,297 $ 412,005 $ 446,333
Deferred expenses....................... 111,514 57,144 --
Other................................... 34,326 31,388 2,388
----------- ----------- -----------
Total deferred tax liabilities....... $ 486,137 $ 500,537 $ 448,721
=========== =========== ===========
Net deferred tax assets.............. $ 1,204,694 $ 894,694 $ 599,909
=========== =========== ===========
</TABLE>
F-11
<PAGE> 61
INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A reconciliation of the provision for income taxes with the U.S. Federal
Statutory tax rate is as follows:
<TABLE>
<CAPTION>
1997 PERCENT 1996 PERCENT 1995 PERCENT
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Statutory tax rates
Federal rate............................ $ 997,188 34.0% $ 768,169 34.0% $ 241,011 34.0%
State income tax -- net of federal
tax................................... 128,460 4.4% 124,399 5.5% 62,979 8.9%
Effective rates of foreign tax.......... 50,997 1.8% 14,005 0.6% (9,318) (1.3%)
Non deductible items.................... 59,848 2.0% 64,988 2.9% 69,842 9.9%
Settlement of income tax liability for
years ended March 31, 1990-1992
resulting from an Internal Revenue
Service examination................... -- -- -- -- 188,071 26.5%
Other -- net............................ 624 0.0% (13,134) (0.6%) (4,733) (0.7%)
---------- ----- ---------- ----- ---------- -----
$1,237,117 42.2% $ 958,427 42.4% $ 547,852 77.3%
========== ===== ========== ===== ========== =====
</TABLE>
NOTE E -- LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at March 31:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Revolving bank note........................ $ 4,358,496 $ -- $ --
Subordinated debt.......................... 3,000,000 -- --
Capital lease obligations.................. 164,140 216,421 186,836
Other...................................... 153,549 -- 51,186
---------- ---------- ----------
7,676,185 216,421 238,022
Less current portion..................... 120,536 52,281 85,942
---------- ---------- ----------
$ 7,555,649 $ 164,140 $ 152,080
========== ========== ==========
</TABLE>
The revolving bank note represents borrowings under the Company's domestic
credit facility as described in Note C. The note matures March 31, 1999.
The subordinated debt consists of a note payable, due in twelve quarterly
principal installments of $250,000, beginning February 1999. Quarterly interest
payments are made on a current basis at a fixed rate of 20%. The note is
subordinated to all borrowings provided under the bank credit facility contained
in Note C.
The capital lease obligations relate to equipment used in the Company's
operations. The cost of property and equipment at March 31, 1997, 1996 and 1995
includes $280,963, $280,963 and $203,200, respectively, related to these capital
leases, while accumulated depreciation includes $86,265, $48,649 and $8,711,
respectively.
The following is a schedule by years of future minimum lease payments under
capital leases together with the present value of the net minimum lease payments
as of March 31, 1997:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------
<S> <C>
1998................................................................ $ 71,642
1999................................................................ 71,642
2000................................................................ 44,285
--------
Total minimum lease payments........................................ 187,569
Less amount representing interest................................... 23,429
--------
Present value of net minimum lease payments......................... $164,140
========
</TABLE>
F-12
<PAGE> 62
INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Aggregate maturities for all long-term obligations at March 31, 1997 are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------
<S> <C>
1998.............................................................. $ 120,536
1999.............................................................. 4,726,773
2000.............................................................. 1,078,876
2001.............................................................. 1,000,000
2002.............................................................. 750,000
----------
$7,676,185
==========
</TABLE>
NOTE F -- LEASE OBLIGATIONS
The Company leases certain equipment and facilities under operating leases
which expire at various dates through December 31, 2001. The future minimum
lease commitments under these operating leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------
<S> <C>
1998.............................................................. $1,036,576
1999.............................................................. 708,338
2000.............................................................. 559,247
2001.............................................................. 520,718
2002.............................................................. 363,239
----------
$3,188,118
==========
</TABLE>
Rent expense incurred under operating leases was $1,440,274, $1,721,867 and
$1,653,709 for the years ended March 31, 1997, 1996 and 1995, respectively.
NOTE G -- RELATED PARTY TRANSACTIONS
The notes receivable from officers at March 31, 1997 consist of two notes
from the Company's principal shareholder, plus accrued interest thereon. One
note, in the amount of $252,720, bears interest at the rate of 8.15% and is
secured by a mortgage on the shareholder's home. The other note, in the amount
of $70,000, is unsecured and bears interest at the rate of 10%. Both notes
provide for monthly payments of principal and interest, which payments were
delinquent at March 31, 1997. The shareholder will repay his indebtedness to the
Company at the time of consummation of the Offering referred to in Note J.
Interest income on shareholder notes amounted to $119,285, $136,737 and $136,105
in the years ended March 31, 1997, 1996 and 1995, respectively.
NOTE H -- LITIGATION
The Company is subject to on-going legal proceedings and claims which arise
in the ordinary course of its business. While the ultimate outcome of these
matters cannot be reasonably estimated at this time, these actions, when
ultimately settled or adjudicated, will not, in the opinion of management, have
a material adverse effect on the financial condition or results of operations of
the Company. The Company has accrued for matters where management has determined
that it is probable a liability for which a loss or range of loss can be
reasonably estimated has been incurred.
F-13
<PAGE> 63
INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE I -- COMMITMENT
The Company carries high deductible workers' compensation insurance that
provides coverage to all employees except for those in states that require
coverage under the state's workers' compensation funds. The coverage has a
deductible of $250,000 per occurrence and an aggregate deductible of $950,000
per policy. Under the terms of the insurance agreements, the Company has $90,000
in cash on deposit with insurance carriers and an outstanding letter of credit
in the amount of $922,000 on deposit with one carrier at March 31, 1997 under an
old policy. These funds and letter of credit serve as collateral for any claims
incurred but not reported. The Company has an accrued liability for unpaid
claims and claims incurred but not reported of $861,402, $714,124 and $558,149
at March 31, 1997, 1996 and 1995, respectively.
NOTE J -- SUBSEQUENT EVENTS
Effective April 1, 1997, the Company, through the assumption of various
contracts, acquired substantially all of the aviation service business of Intex
Aviation Services, Inc. for approximately $5,805,000, which amount included the
assumption of $663,000 of liabilities related to the contracts. A deposit of
approximately $2,571,000 was paid prior to that date and has been recorded in
"Other Assets" on the March 31, 1997 balance sheet. The remaining amount due of
$2,571,000 is payable in 105 days and is subject to adjustments based upon
billings during that period on the contracts acquired.
On June 17 1997, the Company's Board of Directors approved the filing of a
Registration Statement under the Securities Act of 1933 for a public offering of
up to 3,248,750 shares of common stock. Net proceeds from the sale of common
stock are estimated to be approximately $25.4 million. The Company will use a
portion of the proceeds to reduce its outstanding borrowings. The remainder of
the proceeds will be used for general corporate purposes, including working
capital to support the Company's growth and possible acquisitions.
Also on June 17, 1997, the shareholders of the Company approved an
amendment to the Company's Articles of Incorporation increasing the authorized
shares of stock to 20,000,000 common shares and 5,000,000 serial preferred
shares.
NOTE K -- EARNINGS PER SHARE
Earnings (loss) per share are determined by dividing net earnings (loss) by
the weighted average number of common shares outstanding during each period,
after giving effect to preferred dividend requirements. In February 1997, the
Financial Accounting Standards Board issued SFAS No. 128 "Earnings per Share".
This statement simplifies the standards for computing earnings per share ("EPS")
and makes them comparable to international EPS standards. This statement is
effective for financial statements issued for periods ending after December 15,
1997. The Company does not believe adoption of this standard will have a
significant impact on reported EPS.
NOTE L -- ACCQUISTIONS OF OPERATING CONTRACTS
During the fiscal year ended March 31,1997, the Company acquired security
operating contracts from six entities for an aggregate purchase price of
approximately $2.8 million. The Company believes the purchase of these contracts
to be substantially equivalent to the purchase of a business. The purchase
prices have been allocated to the contracts based upon their estimated fair
market values; the excess of the purchase prices over the contract values have
been allocated to goodwill.
F-14
<PAGE> 64
INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following pro forma results of operations give effect to the above
acquisitions as though they had been made at the beginning of the fiscal years
shown below.
<TABLE>
<CAPTION>
MARCH 31,
----------------------
1997 1996
--------- ---------
(IN THOUSANDS, EXCEPT
FOR PER SHARE AMOUNTS)
<S> <C> <C>
Revenue........................................................ $124,133 $116,246
Net earnings................................................... $2,159 $2,341
Earnings per share............................................. $0.42 $0.41
</TABLE>
The pro forma results of operations have been prepared for comparative
purposes only and do not purport to present actual operating results had the
acquisitions been made at the begining of each year,or of results which may
occur in the future.
F-15
<PAGE> 65
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
SHAREHOLDERS AND BOARD OF DIRECTORS
INTEX AVIATION SERVICES, INC.
We have audited the accompanying balance sheets of Intex Aviation Services, Inc.
as of December 31, 1996 and 1995, and the related statements of earnings,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Intex Aviation Services, Inc.
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Cleveland, Ohio
April 18, 1997
F-16
<PAGE> 66
INTEX AVIATION SERVICES, INC.
- --------------------------------------------------------------------------------
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------------------
1997 1996 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents......................... $ 974,500 $ 733,214 $ 290,898
Accounts receivable............................... 5,850,500 5,692,734 9,546,396
Prepaid expenses.................................. 364,500 749,372 420,470
----------- ----------- -----------
Total current assets...................... 7,189,500 7,175,320 10,257,764
PROPERTY AND EQUIPMENT
Furniture and fixtures............................ 42,400 42,370 51,394
Machinery and equipment........................... 481,500 481,567 381,931
----------- ----------- -----------
523,900 523,937 433,325
Less accumulated depreciation..................... 362,000 338,023 311,662
----------- ----------- -----------
161,900 185,914 121,663
----------- ----------- -----------
$ 7,351,400 $ 7,361,234 $10,379,427
=========== =========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Notes payable to bank............................. $ 5,687,000 $ 5,562,000 $ 8,280,000
Current portion of long-term debt................. 49,200 48,982 47,832
Deposit on sale of contracts...................... 2,570,900 -- --
Trade accounts payable............................ 200,300 120,825 190,782
Accrued liabilities............................... 749,800 956,040 1,110,782
State income taxes payable........................ -- 4,160 75,852
----------- ----------- -----------
Total current liabilities................. 9,257,200 6,692,007 9,705,248
LONG-TERM DEBT...................................... 89,000 101,411 150,394
SHAREHOLDER'S EQUITY
Common stock, par value $1 per
share -- authorized -- 100,000 shares, issued
and outstanding 11,250 shares.................. 11,250 11,250 11,250
Retained earnings (deficit)....................... (2,006,050) 556,566 512,535
----------- ----------- -----------
(1,994,800) 567,816 523,785
----------- ----------- -----------
$ 7,351,400 $ 7,361,234 $10,379,427
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-17
<PAGE> 67
INTEX AVIATION SERVICES, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE YEARS ENDED DECEMBER 31,
------------------------ ---------------------------------------
1997 1996 1996 1995 1994
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating revenues............... $8,789,000 $12,490,000 $41,161,899 $48,552,512 $22,714,733
Cost of operating revenues....... 7,882,000 11,169,000 35,877,280 42,393,448 18,595,731
---------- ----------- ----------- ----------- -----------
Gross profit........... 907,000 1,321,000 5,284,619 6,159,064 4,119,002
Selling, general and
administrative expenses........ 995,000 656,000 3,247,915 2,875,072 1,482,154
---------- ----------- ----------- ----------- -----------
Operating profit
(loss)............... (88,000) 665,000 2,036,704 3,283,992 2,636,848
Other expense (income):
Interest expense............... 114,000 170,000 532,717 504,910 58,299
Other.......................... -- -- (55,850) (21,194) 826
---------- ----------- ----------- ----------- -----------
114,000 170,000 476,867 483,716 59,125
---------- ----------- ----------- ----------- -----------
Earnings (loss) before
income taxes......... (202,000) 495,000 1,559,837 2,800,276 2,577,723
Provision for state income
taxes.......................... 20,000 64,000 40,280 95,589 97,674
---------- ----------- ----------- ----------- -----------
NET EARNINGS (LOSS).... $ (222,000) $ 431,000 $ 1,519,557 $ 2,704,687 $ 2,480,049
========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-18
<PAGE> 68
INTEX AVIATION SERVICES, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND THE THREE MONTH PERIOD ENDED MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1994.......................... $ 11,250 $ 426,915 $ 438,165
Net earnings...................................... -- 2,480,049 2,480,049
Distributions paid to shareholder................. -- (2,208,120) (2,208,120)
----------- ----------- -----------
BALANCE AT DECEMBER 31, 1994........................ 11,250 698,844 710,094
Net earnings...................................... -- 2,704,687 2,704,687
Distributions paid to shareholder................. -- (2,890,996) (2,890,996)
----------- ----------- -----------
BALANCE AT DECEMBER 31, 1995........................ 11,250 512,535 523,785
Net earnings...................................... -- 1,519,557 1,519,557
Distributions paid to shareholder................. -- (1,475,526) (1,475,526)
----------- ----------- -----------
BALANCE AT DECEMBER 31, 1996........................ $ 11,250 $ 556,566 $ 567,816
Net loss.......................................... -- (222,000) (222,000)
Distributions paid to shareholder................. -- (2,340,616) (2,340,616)
----------- ----------- -----------
BALANCE AT MARCH 31, 1997 (UNAUDITED)............... $ 11,250 $(2,006,050) $(1,994,800)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE> 69
INTEX AVIATION SERVICES, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, FOR THE YEARS ENDED DECEMBER 31,
------------------------- -----------------------------------------
1997 1996 1996 1995 1994
----------- ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss)................. $ (222,000) $ 431,000 $ 1,519,557 $ 2,704,687 $ 2,480,049
Adjustments to reconcile net
earnings (loss) to net cash
provided by (used in) operating
activities:
Depreciation...................... 24,014 23,650 83,784 80,255 73,122
Changes in operating assets and
liabilities:
Accounts receivable............ (157,766) 1,560,911 3,853,662 (4,672,996) (3,550,519)
Prepaid expenses............... 384,872 297,634 (328,902) (216,403) (172,372)
Accounts payable............... 79,475 (125,859) (69,957) (19,469) 157,686
Accrued liabilities............ (206,240) (239,796) (154,742) 346,954 522,242
Accrued state taxes............ (4,160) (75,852) (71,692) 4,639 (22,922)
---------- --------- ---------- ---------- ----------
Net cash provided by (used
in) operating activities... (101,805) 1,871,688 4,831,710 (1,772,333) (512,714)
INVESTING ACTIVITIES
Purchases of property and
equipment -- net.................. -- (449) (148,035) (76,580) (69,515)
FINANCING ACTIVITIES
Principal payments on long-term
debt.............................. (12,193) (13,000) (47,833) (46,682) (45,536)
Proceeds (payments) on note payable
to bank -- net.................... 125,000 (315,000) (2,718,000) 4,655,000 3,125,000
Deposit on sale of contracts........ 2,570,900 -- -- -- --
Distributions paid to shareholder... (2,340,616) (531,087) (1,475,526) (2,890,996) (2,208,120)
---------- --------- ---------- ---------- ----------
Net cash (used in) provided
by financing activities.... 343,091 (859,087) (4,241,359) 1,717,322 871,344
---------- --------- ---------- ---------- ----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS....... 241,286 1,012,152 442,316 (131,591) 289,115
Cash and cash equivalents at beginning
of year............................. 733,214 290,898 290,898 422,489 133,374
---------- --------- ---------- ---------- ----------
Cash and cash equivalents at end of
year................................ $ 974,500 $1,303,050 $ 733,214 $ 290,898 $ 422,489
========== ========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE> 70
INTEX AVIATION SERVICES, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
AND MARCH 31, 1997 AND 1996 (UNAUDITED)
NOTE A -- BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES
Presentation
The interim financial statements as of March 31, 1997 and 1996 and the
three months then ended as included herein are unaudited. However, in the
opinion of management, such information reflects all adjustments, consisting
only of normal recurring accruals necessary for a fair presentation of the
information shown. The interim financial statements for the periods stated and
notes presented herein do not contain certain information included in the
Company's annual financial statements and notes as also herein presented.
Results for interim periods are not necessarily indicative of results expected
for the full year.
Revenue Recognition
The Company recognizes revenues from services provided under contracts as
those services are performed; revenues from sales of screening systems and other
products are recognized when those products are shipped to customers.
Background
Intex Aviation Services, Inc. (the "Company"), which was incorporated as a
South Carolina corporation on December 7, 1988, cleans and services airplanes
and airport terminals under contracts with airlines at various locations in the
United States. Approximately 92% of revenues are earned through services for a
single airline. Substantially all trade accounts receivable at December 31, 1996
and 1995 were due from this customer. The Company does not generally require
collateral.
Subsequent to December 31, 1996, the Company sold to International Total
Services, Inc. ("ITS") approximately 50 contracts which represented
approximately 98% of sales in 1996 and 1995 and 100% of sales in 1994. The
selling price of the contracts was $5,805,000, which included the assumption by
ITS of $663,000 of liabilities related to the contracts. The Company received
$2,571,000 cash as a down payment on March 31, 1997. The remaining amount due of
$2,571,000 is payable in 105 days and is subject to adjustments based upon
billings on the contracts sold during that period.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided over
the estimated useful lives of the respective assets, principally five to seven
years, using accelerated methods.
Income Taxes
The Company's sole shareholder has elected under Subchapter S of the
Internal Revenue Code and under Section 12-7-235 of the South Carolina Code of
laws to include the Company's income in his own income for income tax purposes.
The Company is still subject to income taxes in certain states.
Income tax payments totaled approximately $41,000, $96,000 and $121,000 in
1996, 1995 and 1994, respectively.
Cash Flow Statement
For purposes of the Statement of Cash Flows, the Company considers all
short-term, highly liquid investments with a maturity of three months or less to
be cash equivalents.
F-21
<PAGE> 71
INTEX AVIATION SERVICES, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Values of Financial Instruments
The carrying amounts of cash and cash equivalents, notes payable to banks
and long-term debt approximate their fair value. Interest rates on notes payable
to banks adjust monthly to market rates. The fair value of long-term debt was
estimated based on the Company's current incremental borrowing rates for a
similar type of arrangement.
NOTE B -- NOTES PAYABLE TO BANKS
The Company is party to a revolving loan agreement with a bank under which
it may borrow $6,000,000. Interest is payable monthly on the principal amount of
advances outstanding at the bank's prime rate. The agreement is guaranteed by
the Company's sole shareholder. Under the agreement, the Company has pledged
substantially all of its accounts receivable and property and equipment as
collateral.
The Company is also party to a line of credit with another bank under which
it may borrow up to $5,000,000. Interest is payable monthly on the principal
outstanding at the bank's prime rate. The agreement is guaranteed by the
Company's sole shareholder.
Interest paid was approximately $533,000, $505,000 and $59,000 in 1996,
1995 and 1994, respectively.
NOTE C -- LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Note payable to former shareholder.......................... $ 49,285 $ 65,714
Due to former shareholder under non-compete agreement....... 101,108 132,512
-------- --------
150,393 198,226
Less current maturities..................................... 48,982 47,832
-------- --------
$101,411 $150,394
======== ========
</TABLE>
The note payable to former shareholder is payable in quarterly installments
of $4,107 plus interest at 7% per annum. The obligation arose in connection with
the purchase and retirement of the Company's common stock held by the former
shareholder.
The non-compete obligation was incurred in connection with the buy-back of
shares noted above and is payable in quarterly installments ranging from $8,023
to $8,817 over the non-compete period which ends on November 3, 1999.
F-22
<PAGE> 72
INTEX AVIATION SERVICES, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Principal maturities of long-term debt subsequent to December 31, 1996 are
as follows:
<TABLE>
<S> <C>
1997................................................................ $ 48,982
1998................................................................ 50,133
1999................................................................ 51,278
--------
150,393
Less current portion................................................ 48,982
--------
$101,411
========
</TABLE>
NOTE D -- RELATED PARTY TRANSACTIONS
The Company leases its corporate office from its principal shareholder
under a month-to-month agreement for $2,500 per month. Rent expense under this
lease totaled $30,000 in 1996, 1995 and 1994.
NOTE E -- COMMITMENTS AND CONTINGENCIES
The Company has been named as a defendant in various lawsuits filed by
certain former employees. The lawsuits include claims of race discrimination and
worker's compensation. The Company believes the suits are completely without
merit and intends to vigorously defend its position in each case; however, the
ultimate outcome of the lawsuits cannot presently be determined. Accordingly, no
provision for any liability that may result has been made in the accompanying
financial statements.
F-23
<PAGE> 73
============================================================
NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY COMMON SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVER OF THIS PROSPECTUS OR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................... 3
Risk Factors..................................... 6
Use of Proceeds.................................. 13
Dividend Policy.................................. 13
Dilution......................................... 14
Capitalization................................... 15
Pro Forma Financial Data......................... 16
Selected Consolidated Financial Information...... 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 21
Business......................................... 26
Management....................................... 36
Certain Transactions............................. 42
Principal and Selling Shareholders............... 43
Description of Capital Shares.................... 44
Shares Eligible for Future Sale.................. 45
Underwriting..................................... 46
Legal Matters.................................... 47
Experts.......................................... 47
Additional Information........................... 48
Index to Financial Statements.................... F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON SHARES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
============================================================
============================================================
2,825,000 SHARES
[ITS LOGO]
INTERNATIONAL TOTAL SERVICES, INC.
COMMON SHARES
------------------------
PROSPECTUS
------------------------
MCDONALD & COMPANY
SECURITIES, INC.
MORGAN KEEGAN
& COMPANY, INC.
, 1997
============================================================
<PAGE> 74
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. 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 offered hereby. Except for the
Securities and Exchange Commission registration fee, the NASD filing fee and the
Nasdaq National Market listing fee, all amounts are estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........................ $11,814
The Nasdaq Stock Market Listing Fee........................................ *
National Association of Securities Dealers, Inc. Filing Fee................ 4,399
Blue Sky Fees and Expenses (including counsel)............................. *
Printing and Engraving Expenses............................................ *
Accounting Fees and Expenses............................................... *
Legal Fees and Expenses.................................................... *
Director and Officer Liability Insurance................................... *
Transfer Agent's and Registrar's Fees and Expenses......................... *
Miscellaneous.............................................................. *
-------
Total................................................................. $ *
=======
</TABLE>
- ---------------
* To be filed by Amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Code of Regulations of the Company provides for indemnification of any
director, officer or employee in certain instances, as permitted under Section
1701.13(E) of the Ohio Revised Code, against expenses, judgments, decrees,
fines, penalties or amounts paid in settlement in connection with the defense of
any action, suit or proceeding, criminal or civil, to which he was, is or may be
a party by reason of his status as such director, officer or employee.
A director, officer or employee is entitled to indemnification only if a
determination is made (i) by the directors of the Company acting at a meeting at
which a quorum consisting of directors who neither were nor are parties to or
threatened with any such action, suit or proceeding is present, (ii) if such a
quorum is not obtainable or if a majority vote of a quorum of disinterested
directors so directs, in a written opinion by independent legal counsel, (iii)
by the shareholders or (iv) by the Court of Common Pleas or the court in which
such action, suit or proceeding was brought, that such director, officer or
employee (a) was not, and has not been adjudicated to have been, negligent or
guilty of misconduct in the performance of his duty to the Company, (b) acted in
good faith and in a manner he reasonably believed to be in the best interest of
the Company and (c) in any matter the subject of a criminal action, suit or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
Additionally, Section 1701.13(E)(5)(a) of the Ohio Revised Code provides
that, unless prohibited by specific reference in a corporation's articles of
incorporation or code of regulations, a corporation shall pay a director's
expenses, including attorneys' fees, incurred in defending an action, suit or
proceeding brought against a director in such capacity, whether such action,
suit or proceeding is brought by a third party or by or in the right of the
corporation, provided the director delivers to the corporation an undertaking to
(a) repay such amount if it is proved in a court of competent jurisdiction that
his action or failure to act was undertaken with deliberate intent to injure the
corporation or with reckless disregard for the best interests of the corporation
and (b) reasonably cooperate with the corporation in such action, suit or
proceeding.
Section 1701.13(E)(7) of the Ohio Revised Code provides that a corporation
may purchase insurance or furnish similar protection for any director, officer
or employee against any liability asserted against him in any such capacity,
whether or not the corporation would have power to indemnify him under Ohio law.
Such
II-1
<PAGE> 75
insurance may be purchased from or maintained with a person in which the
corporation has a financial interest.
ITEM 15. SALES OF UNREGISTERED SECURITIES
The Company issued 0.50 Common Shares to each of four employees on March
31, 1995 and 0.50 Common Shares to each of four employees on March 31, 1996. The
Company also issued 2.00 Common Shares to one employee and 0.75 Common Shares to
two employees on November 27, 1996. Each issuance was made in consideration of
services rendered to the Company, was valued at $57,870 per Common Share, and
was made in reliance on the exemption from registration set forth in Section
4(2) of the Securities Act of 1933. The Company issued 0.32 Common Shares to
Robert A. Weitzel, its Chief Executive Officer, in a merger transaction
effective March 31, 1997, in exchange for his 75% interest in NBC Leasing, Inc.,
a former provider of leasing services to the Company. This issuance was valued
at $117,000 per Common Share and was made in reliance on the exemption from
registration set forth in Section 4(2) of the Securities Act of 1933.
The numbers and per share values of Common Shares set forth above do not
give effect to the 12,892.62 for 1 share split described in the Prospectus
included in this registration statement.
II-2
<PAGE> 76
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The following is a list of exhibits in this Registration
Statement.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------------------------
<S> <C>
* *1 Form of Underwriting Agreement.
* 3.1(i) Amended and Restated Articles of Incorporation of the Registrant.
3.1(ii) Code of Regulations of the Registrant.
3.2 Form of Amended and Restated Code of Regulations of the Registrant.
* *4 Specimen Certificate representing Common Shares.
5 Opinion of Counsel to the Registrant.
10.1 Asset Purchase Agreement dated as of March 7, 1997, between the Company and
Intex Aviation Services, Inc.
10.2 Third Amended And Restated Consolidated Replacement Credit Facility And
Security Agreement, dated as of March 31, 1997, by and between Bank One,
Cleveland, N.A., and the Company.
10.3 Term Promissory Note, dated March 31, 1997, by the Company to Bank One,
Cleveland, N.A.
10.4 Revolving Promissory Note, dated March 31, 1997 by the Company to Bank One,
Cleveland, N.A.
10.5 Note Purchase Agreement, dated as of November 25, 1996, by and among Seidler
Capital Partners L.P. and the Company.
10.6 First Amendment to Note Purchase Agreement, dated as of March 31, 1997, by and
among the Company and Seidler Capital Partners L.P.
10.7 Promissory Note, dated November 25, 1996, by the Company to Seidler Capital
Partners L.P.
10.8 Employment Agreement between the Company and Robert A. Weitzel.
10.9 Employment Agreement between the Company and James D. Singer.
10.10 Employment Agreement between the Company and Robert A. Swartz.
10.11 Employment Agreement between the Company and Scott E. Brewer.
10.12 Buy/Sell Agreement dated as of March 1, 1995 between the Company and Gene
Empey.
10.13 Buy/Sell Agreement dated as of January 26, 1996 between the Company and Scott
Brewer.
10.14 Buy/Sell Agreement dated as of January 26, 1996 between the Company and Bob
Swartz.
10.15 Buy/Sell Agreement dated as of November 27, 1996 between the Company and Bob
Swartz.
10.16 Buy/Sell Agreement dated as of February 27, 1997 between the Company and Scott
Brewer.
10.17 Buy/Sell Agreement dated as of February 27, 1997 between the Company and Bob
Swartz.
10.18 International Total Services, Inc. Directors' Deferred Compensation Plan.
10.19 International Total Services, Inc. Long Term Incentive Plan.
10.20 Form of Agreement for Airport Security Services, dated October 1, 1996, by and
between the Company and Delta Air Lines, Inc.
10.21 Form of Agreement for Skycap Services, dated October 1, 1996, by and between
the Company and Delta Airlines, Inc.
10.22 Form of Ground Services Agreement, dated December 1, 1996, by and between the
Company and Delta Airlines, Inc.
10.23 Passenger Screening and Airport Security Agreement, dated January 1, 1982, by
and between USAir, Inc. and the Company.
10.24 Agreement for Preboard Screening Services, dated October 1, 1990, by and
between the Company and Continental Airlines, Inc.
10.25 Core Agreement for Skycap and Wheelchair Services, dated October 1, 1990, by
and between the Company and Continental Airlines, Inc.
</TABLE>
II-3
<PAGE> 77
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------------------------
<S> <C>
10.26 Form of Agreement for Skycap and Baggage Handling Services by and between the
Company and United Airlines.
10.27 Form of Agreement for Preboard Screening Services by and between the Company
and United Airlines.
10.28 Form of Agreement for Airport Security and Screening Services by and between
the Company and Southwest Airlines Co.
10.29 Form of Aircraft Cleaning Services Agreement by and between the Company and
Southwest Airlines Co.
10.30 Form of Agreement to Provide Skycap Services by and between the Company and
Southwest Airlines Co.
10.31 Form of Contract for Pre-Departure Screening Services by and between the
Company and US Airways, Inc.
10.32 Agreement, dated December 1, 1984, by and between the Company and USAir, Inc.
10.33 Core Agreement for Baggage Search and Passenger Inspection, dated March 15,
1990, by and between the Company and Trans World Airlines, Inc.
11.1 Statement Regarding Computation of Per Share Earnings of International Total
Services, Inc.
11.2 Statement Regarding Computation of Per Share Earnings of Intex Aviation
System, Inc.
16 Letter from Ernst & Young LLP Regarding Change in Certifying Accountant.
21 Subsidiaries of the Registrant.
23.1 Consent of Grant Thornton LLP.
23.2 Consent of Counsel to the Registrant (included in Exhibit 5).
*24 Powers of Attorney (included on page II-5).
27 Financial Data Schedule.
*99.1 Consent of Ivan J. Winfield.
*99.2 Consent of Lee C. Howley, Jr.
*99.3 Consent of Jerry V. Jarrett.
</TABLE>
(b) Financial Statement Schedule:
<TABLE>
<CAPTION>
SCHEDULE
NUMBER DESCRIPTION OF DOCUMENT PAGE
-------- ----------------------------------------------------------------------- ----
<S> <C> <C>
Auditors Report on Financial Statement Schedule S-1
II Valuation and Qualifying Accounts S-2
</TABLE>
- ---------------
* Previously filed.
** To be filed by Amendment.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel that matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
II-4
<PAGE> 78
whether such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned 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 that 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-5
<PAGE> 79
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Cleveland, State of Ohio, on the 15th day of August, 1997.
INTERNATIONAL TOTAL SERVICES, INC.
By: /s/ ROBERT A. WEITZEL
------------------------------------
Robert A. Weitzel, Chairman of the
Board and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- --------------------------------------- ---------------
<C> <S> <C>
/s/ ROBERT A. WEITZEL Chairman of the Board, Chief Executive August 15, 1997
- ----------------------------------- Officer and Director (Principal
Robert A. Weitzel Executive Officer)
/s/ ROBERT A. SWARTZ Chief Financial Officer (Principal August 15, 1997
- ----------------------------------- Financial Officer and Principal
Robert A. Swartz Accounting Officer)
* Director August 15, 1997
- -----------------------------------
Jean Weitzel
/s/ JAMES O. SINGER Director August 15, 1997
- -----------------------------------
James O. Singer
</TABLE>
- ------------------------------------------------
* By Robert A. Weitzel, as attorney-in-fact
II-6
<PAGE> 80
EXHIBIT LIST
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------
<S> <C>
* *1 Form of Underwriting Agreement.
*3.1(i) Amended and Restated Articles of Incorporation of the Registrant.
3.1(ii) Code of Regulations of the Registrant.
3.2 Form of Amended and Restated Code of Regulations of the Registrant.
* *4 Specimen Certificate representing Common Shares.
5 Opinion of Counsel to the Registrant.
10.1 Asset Purchase Agreement dated as of March 7, 1997, between the Company and Intex
Aviation Services, Inc.
10.2 Third Amended And Restated Consolidated Replacement Credit Facility And Security
Agreement, dated as of March 31, 1997, by and between Bank One, Cleveland, N.A.,
and the Company.
10.3 Term Promissory Note, dated March 31, 1997, by the Company to Bank One, Cleveland,
N.A.
10.4 Revolving Promissory Note, dated March 31, 1997 by the Company to Bank One,
Cleveland, N.A.
10.5 Note Purchase Agreement, dated as of November 25, 1996, by and among Seidler
Capital Partners L.P. and the Company.
10.6 First Amendment to Note Purchase Agreement, dated as of March 31, 1997, by and
among the Company and Seidler Capital Partners L.P.
10.7 Promissory Note, dated November 25, 1996, by the Company to Seidler Capital
Partners L.P.
10.8 Employment Agreement between the Company and Robert A. Weitzel.
10.9 Employment Agreement between the Company and James D. Singer.
10.10 Employment Agreement between the Company and Robert A. Swartz.
10.11 Employment Agreement between the Company and Scott E. Brewer.
10.12 Buy/Sell Agreement dated as of March 1, 1995 between the Company and Gene Empey.
10.13 Buy/Sell Agreement dated as of January 26, 1996 between the Company and Scott
Brewer.
10.14 Buy/Sell Agreement dated as of January 26, 1996 between the Company and Bob
Swartz.
10.15 Buy/Sell Agreement dated as of November 27, 1996 between the Company and Bob
Swartz.
10.16 Buy/Sell Agreement dated as of February 27, 1997 between the Company and Scott
Brewer.
10.17 Buy/Sell Agreement dated as of February 27, 1997 between the Company and Bob
Swartz.
10.18 International Total Services, Inc. Directors' Deferred Compensation Plan.
10.19 International Total Services, Inc. Long Term Incentive Plan.
10.20 Form of Agreement for Airport Security Services, dated October 1, 1996, by and
between the Company and Delta Air Lines, Inc.
10.21 Form of Agreement for Skycap Services, dated October 1, 1996, by and between the
Company and Delta Airlines, Inc.
10.22 Form of Ground Services Agreement, dated December 1, 1996, by and between the
Company and Delta Airlines, Inc.
10.23 Passenger Screening and Airport Security Agreement, dated January 1, 1982, by and
between USAir, Inc. and the Company.
10.24 Agreement for Preboard Screening Services, dated October 1, 1990, by and between
the Company and Continental Airlines, Inc.
10.25 Core Agreement for Skycap and Wheelchair Services, dated October 1, 1990, by and
between the Company and Continental Airlines, Inc.
10.26 Form of Agreement for Skycap and Baggage Handling Services by and between the
Company and United Airlines.
10.27 Form of Agreement for Preboard Screening Services by and between the Company and
United Airlines.
10.28 Form of Agreement for Airport Security and Screening Services by and between the
Company and Southwest Airlines Co.
</TABLE>
<PAGE> 81
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------
<S> <C>
10.29 Form of Aircraft Cleaning Services Agreement by and between the Company and
Southwest Airlines Co.
10.30 Form of Agreement to Provide Skycap Services by and between the Company and
Southwest Airlines Co.
10.31 Form of Contract for Pre-Departure Screening Services by and between the Company
and US Airways, Inc.
10.32 Agreement, dated December 1, 1984, by and between the Company and USAir, Inc.
10.33 Core Agreement for Baggage Search and Passenger Inspection, dated March 15, 1990,
by and between the Company and Trans World Airlines, Inc.
11.1 Statement Regarding Computation of Per Share Earnings of International Total
Services, Inc.
11.2 Statement Regarding Computation of Per Share Earnings of Intex Aviation Systems,
Inc.
16 Letter from Ernst & Young LLP Regarding Change in Certifying Accountant.
21 Subsidiaries of the Registrant.
23.1 Consent of Grant Thornton LLP.
23.2 Consent of Counsel to the Registrant (included in Exhibit 5).
*24 Powers of Attorney (included on page II-5).
*27 Financial Data Schedule.
*99.1 Consent of Ivan J. Winfield.
*99.2 Consent of Lee C. Howley, Jr.
*99.3 Consent of Jerry V. Jarrett.
</TABLE>
- ---------------
* Previously filed.
** To be filed by Amendment.
<PAGE> 82
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULES
Shareholders and Board of Directors
International Total Services, Inc. and Subsidiaries
In connection with our audit of the financial statements of International Total
Services, Inc. referred to in our report dated May 9, 1997, we have also audited
Schedule II for each of the three years in the period ended March 31, 1997. In
our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
GRANT THORNTON LLP
Cleveland, Ohio
May 9, 1997
S-1
<PAGE> 83
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
For the years ended March 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
COLUMN C
----------------------
ADDITIONS
COLUMN B ------------------------
BALANCE COLUMN E
AT (1) (2) BALANCE
BEGINNING CHARGED TO CHARGED TO AT END
COLUMN A OF COSTS AND OTHER COLUMN D OF
YEAR DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----- -------------------------------- -------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1995 Allowance for doubtful accounts $100,000 $ 89,000 $ 89,000 $100,000
1996 Allowance for doubtful accounts $100,000 $111,000 $111,000 $100,000
1997 Allowance for doubtful accounts $100,000 $ 57,000 $ 57,000 $100,000
</TABLE>
S-2
<PAGE> 1
Exhibit 3.1(ii)
MINUTES OF FIRST SHAREHOLDERS' MEETING
OR
ACTION BY WRITTEN CONSENT OF SHAREHOLDERS
A Code of Regulations for the government of the Corporation was
presented by _______________________________________.
A vote was then taken upon the adoption of said regulations.
All shares were cast in favor of their adoption, -0- shares dissenting.
It appearing that a majority of the shares were in favor of the
adoption of said regulations, the chairman declared them adopted and ordered
them entered upon this record of proceedings.
Said regulations are in words and figures as follows:
CODE OF REGULATIONS
OF
INTERNATIONAL TOTAL SERVICES, INC.
adopted by its shareholders entitled to vote for the government of the
Corporation:
ARTICLE I
MEETING OF SHAREHOLDERS
(a) ANNUAL MEETINGS. The annual meeting of the shareholders of this
Corporation shall be held at the principal office of the Corporation, in
___________________, ___________________, on the second __________ in __________
of each year, at 10:00 o'clock A.M., if not a legal holiday, but if a legal
holiday, then on the day following at the same hour. The first annual meeting
of the Corporation shall be held in ________.
(b) SPECIAL MEETINGS of the shareholders of this Corporation shall be
called by the Secretary, pursuant to a resolution of the Board of Directors, or
upon the written request of two Directors, or by shareholders representing
_____% of the shares issued and entitled to vote. Calls for special meetings
shall specify the time, place and object or objects thereof, and no business
other than that specified in the call therefor shall be considered at any such
meetings.
(c) NOTICE OF MEETINGS. A written or printed notice of the annual or
any special meeting of the shareholders, stating the time and place and, in case
of special meetings, the objects thereof, shall be given to each shareholder
entitled to vote at such meeting appearing on the books of the Corporation, by
mailing same to his address as the same appears on the records of the
Corporation or of its Transfer Agent, or Agents, at least ____________________
(______) days before any such meeting; provided, however, that no failure or
irregularity of notice of any annual meeting shall invalidate the same or any
proceeding thereat.
<PAGE> 2
All notices with respect to any shares which persons are jointly
entitled may be given to that one of such persons who is named first upon the
books of the Corporation and notice so given shall be sufficient notice to all
the holders of such shares.
(d) QUORUM. A majority in number of the shares authorized, issued and
outstanding, represented by the holders of record thereof, in person or by
proxy, shall be requisite to constitute a quorum at any meeting of shareholders,
but less than such majority may adjourn the meeting of shareholders from time to
time and at any such adjourned meeting any business may be transacted which
might have been transacted if the meeting had been as originally called.
(e) PROXIES. Any shareholder entitled to vote at a meeting of
shareholders may be represented and vote thereat by proxy appointed by an
instrument in writing, subscribed by each shareholder, or by his duly authorized
attorney, and submitted to the Secretary at or before such meeting.
ARTICLE II
SEAL
The seal of the Corporation shall be circular, about two inches in
diameter, with the name of the Corporation engraved around the margin and the
word "SEAL" engraved across the center. It shall remain in the custody of the
Secretary, and it or a facsimile thereof shall be affixed to all certificates of
the Corporation's shares. If deemed advisable by the Board of Directors, a
duplicate seal may be kept and used by any other officer of the Corporation, or
by any Transfer Agent of its shares.
ARTICLE III
SHARES
SECTION 1.-CERTIFICATES. Certificates evidencing the ownership of
shares of the Corporation shall be issued to those entitled to them by transfer
or otherwise. Each certificate for shares shall bear a distinguishing number,
the signature of the President or Vice-President, and of the Secretary or an
Assistant Secretary, the seal of the Corporation, and such recitals as may be
required by law. The certificates for shares shall be of such tenor and design
as the Board of Directors from time to time may adopt.
SECTION 2.-TRANSFERS. (a) The shares may be transferred on the proper
books of the Corporation by the registered holders thereof, or by their
attorneys legally constituted, or their legal representatives, by surrender of
the certificate therefor for cancellation and a written assignment of the shares
evidenced thereby. The Board of Directors may, from time to time, appoint
Transfer Agents or Registrars of shares as it may deem advisable, and may define
their powers and duties.
(b) All endorsements, assignments, transfers, share powers or other
instruments of transfer of securities standing in the name of the Corporation
shall be executed for and in the
-2-
<PAGE> 3
name of the Corporation by any two of the following officers, to wit: the
President or a Vice President, and the Treasurer or Secretary, or an Assistant
Treasurer or an Assistant Secretary; or by any person or persons thereunto
authorized by the Board of Directors.
SECTION 3.-LOST CERTIFICATES. The Board of Directors may order a new
certificate or certificates of shares to be issued in place of any certificate
or certificates alleged to have been lost or destroyed, but in every such case
the owner of the lost certificate or certificates shall first cause to be given
to the Corporation a bond, with surety or sureties satisfactory to the
Corporation in such sum as said Board of Directors may in its discretion deem
sufficient as indemnity against any loss or liability that the Corporation may
incur by reason of the issuance of such new certificates; but the Board of
Directors may, in its discretion, refuse to issue such new certificate save upon
the order of some court having jurisdiction in such matters pursuant to the
statute made and provided.
SECTION 4.-CLOSING OF TRANSFER BOOKS. The share transfer books of the
Corporation may be closed by order of the Board of Directors for a period not
exceeding ten (10) days prior to any meeting of the shareholders, and for a
period not exceeding ten (10) days prior to the payment of any dividend. The
time during which the books may be closed shall, from time to time, be fixed by
the Board of Directors.
ARTICLES IV
DIRECTORS
The number of members of the Board of Directors shall be determined
pursuant to law, by resolution of the shareholders entitled to vote, but shall
not be less than three (3) members. The election of Directors shall be held at
the annual meeting of the shareholders, or at a special meeting called for that
purpose.
Directors shall hold office until the expiration of the term for which
they were elected and shall continue in office until their respective successors
shall have been duly elected and qualified.
ARTICLE V
VACANCIES IN THE BOARD
A resignation from the Board of Directors shall be deemed to take
effect upon its receipt by the Secretary, unless some other time is specified
therein. In case of any vacancy in the Board of Directors, through death,
resignation, disqualification, or other cause deemed sufficient by the Board,
the remaining Directors, through less than a majority of the whole Board, by
affirmative vote of a majority of those present at any duly convened meeting
may, except as hereinafter provided, elect a successor to hold office for the
unexpired portion of the term of the Director whose place shall be vacant, and
until the election and qualification of a successor.
-3-
<PAGE> 4
ARTICLE VI
REGULAR MEETINGS
Regular meetings of the Board of Directors shall be held monthly on
such dates as the Board may designate.
ARTICLE VII
SPECIAL MEETINGS
Special meetings of the Board of Directors shall be called by the
Secretary and held at the request of the President or any two of the Directors.
ARTICLE VIII
NOTICE OF MEETINGS
The Secretary shall give notice of each meeting of the Board of
Directors, whether regular or special, to each member of the Board.
ARTICLE IX
QUORUM
A majority of the Directors in office at the time shall constitute a
quorum at all meetings thereof.
ARTICLE X
PLACE OF MEETINGS
The Board of Directors may hold its meetings at such place or places
within or without the State of Ohio as the Board may, from time to time,
determine.
ARTICLE XI
COMPENSATION
Directors, as such, shall not receive any stated salary for their
services, but, on resolution of the Board, a fixed sum for expenses of
attendance, if any, may be allowed for attendance at each meeting, regular or
special, provided that nothing herein contained shall be construed to preclude
any Director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of either executive or special committees may be
allowed such compensation as the Board of Directors may determine for attending
committee meetings.
-4-
<PAGE> 5
ARTICLE XII
ELECTION OF OFFICERS
At the first meeting of the Board of Directors in each year (at which a
quorum shall be present) held next after the annual meeting of the shareholders,
and at any special meeting provided in Article VII, the Board of Directors shall
elect officers of the Corporation (including the President), and designate and
appoint such subordinate officers and employees as it shall determine. It may
also appoint an executive committee or committees from their number and define
its powers and duties.
ARTICLE XIII
OFFICERS
The officers of this Corporation shall be a President, who shall be a
Director, and also a Vice President, a Secretary, a Treasurer and a
____________________________________ who may or may not be Directors. Said
officers shall be chosen by the Board of Directors, and shall hold office for
one year, and until their successors are elected and qualified. Additional Vice
Presidents may be elected from time to time as determined by the Directors who
may also appoint one or more Assistant Secretaries, and one or more Assistant
Treasurers, and such other officers and agents of the Corporation as they may
from time to time determine.
Any officer or employee or appointed by the Board of Directors, other
than that of Director, may be removed at any time upon vote of the majority of
the whole Board of Directors.
The same person may hold more than one office, other than that of
President and Vice President, or Secretary and Assistant Secretary, or Treasurer
or Assistant Treasurer.
In case of the absence of any officer of the Corporation, or for any
other reason which the Board of Directors may deem sufficient, the Board of
Directors may delegate the powers or duties of such officer to any other officer
or to any Director, provided a majority of the whole Board of Directors concur
herein.
ARTICLE XIV
DUTIES OF OFFICERS
(a) PRESIDENT. The President shall preside at all meetings of
shareholders and Directors. He shall exercise, subject to the control of the
Board of Directors and the shareholders of the Corporation, a general
supervision over the affairs of the Corporation, and shall perform generally all
duties incident to the office and such other duties as may be assigned to him
from time to time by the Board of Directors.
-5-
<PAGE> 6
(b) VICE PRESIDENT. The Vice President shall perform all duties of the
President in his absence or during his inability to act, and shall have such
other and further powers, and shall perform such other and further duties as may
be assigned to him by the Board of Directors.
(c) SECRETARY. The Secretary shall keep the minutes of all proceedings
of the Board of Directors and of the shareholders and make a proper record of
the same, which shall be attested by him. He shall keep such books as may be
required by the Board of Directors, and shall take charge of the seal of the
Corporation, and generally perform such duties as may be required by the Board
of Directors.
(d) TREASURER. The Treasurer shall have the custody of the funds and
securities of the Corporation which may come into his hands, and shall do with
the same as may be ordered by the Board of Directors. When necessary or proper,
he may endorse on behalf of the Corporation for collection, checks, notes and
other obligations. He shall deposit the funds of the Corporation to its credit
in such banks and depositaries as the Board of Directors may, from time to time,
designate. The fiscal year of the Corporation shall be co-extensive with the
calendar year. He shall submit to the annual meeting of the shareholders, a
statement of the financial condition of the Corporation, and whenever required
by the Board of Directors, shall make and render a statement of his accounts,
and such other statements as may be required. He shall keep in books of the
Corporation, full and accurate accounts of all moneys received and paid by him
for account of the Corporation. He shall perform such other duties as may, from
time to time, be assigned to him by the Board of Directors.
ARTICLE XV
ORDER OF BUSINESS
1. Call meeting to order.
2. Selection of chairman and secretary.
3. Proof of notice of meeting.
4. Roll call, including filing of proxies with secretary.
5. Appointment of tellers.
6. Reading and disposal of previously unapproved minutes.
7. Reports of officers and committees.
8. If annual meeting or meeting called for that purpose, election of
Directors.
9. Unfinished business.
-6-
<PAGE> 7
10. New business.
11. Adjournment.
This order may be changed by the affirmative vote of a majority in
interest of the shareholders present.
ARTICLE XVI
AMENDMENTS
These regulations may be adopted, amended or repealed by the
affirmative vote of a majority of the shares empowered to vote thereon at any
meeting called and held for that purpose, notice of which meeting has been given
pursuant to law, or without a meeting by the written assent of the owners of
two-thirds of the shares of the Corporation entitled to vote thereon.
Thereupon, the following written assent to the adoption of the Code of
Regulations aforesaid was entered in these minutes and subscribed by majority of
the shareholders of this Corporation.
ASSENT TO THE ADOPTION OF REGULATIONS
________________________, 199___
We, the undersigned, being the owners of the number of shares of
INTERNATIONAL TOTAL SERVICES, INC. set opposite our respective names, do hereby
assent, in writing, to the adoption of the Code of Regulations hereinbefore set
forth for the government of this Corporation.
No. of No. of
Names Shares Names Shares
-7-
<PAGE> 1
Exhibit 3.2
CODE OF REGULATIONS
OF
INTERNATIONAL TOTAL SERVICES, INC.
ARTICLE I
---------
MEETINGS OF SHAREHOLDERS
------------------------
Section 1. ANNUAL MEETINGS. The annual meeting of shareholders
shall be held at such time and on such date as may be fixed by the Board of
Directors and stated in the notice of the meeting, for the election of
directors, the consideration of reports to be laid before such meeting and the
transaction of such other business as may properly come before the meeting.
Section 2. SPECIAL MEETINGS. Special meetings of the
shareholders shall be called upon the written request of the president, the
directors by action at a meeting, a majority of the directors acting without a
meeting, or of the holders of shares entitling them to exercise twenty-five
percent (25%) of the voting power of the Corporation entitled to vote thereat.
Calls for such meetings shall specify the purposes thereof. No business other
than that specified in the call shall be considered at any special meeting.
Section 3. NOTICES OF MEETINGS. Unless waived, written notice
of each annual or special meeting stating the time, place, and the purposes
thereof shall be given by personal delivery or by mail to each shareholder of
record entitled to vote at or entitled to notice of the meeting, not more than
sixty (60) days nor less than seven (7) days before any such meeting. If mailed,
such notice shall be directed to the shareholder at his address as the same
appears upon the records of the Corporation. Any shareholder, either before or
after any meeting, may waive any notice required to be given by law or under
these Regulations.
Section 4. PLACE OF MEETINGS. Meetings of shareholders shall
be held at the principal office of the Corporation unless the Board of Directors
determines that a meeting shall be held at some other place within or without
the State of Ohio and causes the notice thereof to so state.
Section 5. QUORUM. The holders of shares entitling them to
exercise a majority of the voting power of the Corporation entitled to vote at
any meeting, present in person or by proxy, shall constitute a quorum for the
transaction of business to be considered at such meeting; provided, however,
that no action required by law or by the Articles of Incorporation or these
Regulations to be authorized or taken by the holders of a designated proportion
of the shares of any particular class or of each class may be authorized or
taken by a lesser proportion. The holders of a majority of the voting shares
represented at a meeting, whether or not a quorum is present, may adjourn such
meeting from time to time, until a quorum shall be present.
Section 6. RECORD DATE. The Board of Directors may fix a
record date for any lawful purpose, including without limiting the generality of
the foregoing, the determination of shareholders entitled to (i) receive notice
of or to vote at any meeting, (ii) receive payment of any dividend or
distribution, (iii) receive or exercise rights of purchase of or subscription
for, or exchange or conversion of, shares or other securities, subject to any
contract right with respect thereto, or (iv) participate in the execution of
written consents, waivers or releases. Said record date shall not be more than
sixty (60) days preceding the date of such meeting, the date fixed for the
payment of any dividend or distribution or the date fixed for the receipt or the
exercise of rights, as the case may be.
<PAGE> 2
If a record date shall not be fixed, the record date for the
determination of shareholders who are entitled to notice of, or who are entitled
to vote at, a meeting of shareholders, shall be the close of business on the
date next preceding the day on which notice of that meeting is given.
Section 7. PROXIES. A person who is entitled to attend a
shareholders' meeting, to vote thereat, or to execute consents, waivers or
releases, may be represented at such meeting or vote thereat, and execute
consents, waivers and releases, and exercise any of his other rights, by proxy
or proxies appointed by a writing signed by such person.
ARTICLE II
----------
DIRECTORS
---------
Section 1. NUMBER OF DIRECTORS. Until changed in accordance
with the provisions of this section (or as otherwise provided in the
Corporation's Articles of Incorporation, as amended from time to time), the
number of directors of the Corporation, none of whom need be shareholders, shall
be five (5). The number of directors may be fixed or changed (but in no case
shall the number be fewer than three (3) or more than fifteen (15)) at any
annual meeting or at any special meeting called for that purpose by the
affirmative vote of the holders of shares entitling them to exercise a majority
of the voting power of the Corporation on such proposal.
Section 2. ELECTION OF DIRECTORS. Directors shall be elected
at the annual meeting of shareholders, but when the annual meeting is not held
or directors are not elected thereat, they may be elected at a special meeting
called and held for that purpose. Such election shall be by ballot whenever
requested by any shareholder entitled to vote at such election; but, unless such
request is made, the election may be conducted in any manner approved at such
meeting.
At each meeting of shareholders for the election of directors,
the persons receiving the greatest number of votes shall be elected.
Section 3. TERM OF OFFICE. Each director shall hold office
until the annual meeting next succeeding his election and until his successor is
elected and qualified, or until his earlier resignation, removal from office or
death.
Section 4. REMOVAL. All the directors or any individual
director may be removed from office, without assigning any cause, by the vote of
the holders of a majority of the voting power entitling them to elect directors
in place of those to be removed, provided that unless all the directors are
removed, no individual director shall be removed if the votes of a sufficient
number of shares are cast against his removal which, if cumulatively voted at an
election of all the directors would be sufficient to elect at least one
director. In case of any such removal, a new director may be elected at the same
meeting for the unexpired term of each director removed.
Section 5. VACANCIES. Vacancies in the Board of Directors may
be filled by a majority vote of the remaining directors until an election to
fill such vacancies is had. Shareholders entitled to elect directors shall have
the right to fill any vacancy in the board (whether the same has been
temporarily filled by the remaining directors or not) at any meeting of the
shareholders called for that purpose, and any directors elected at any such
meeting of shareholders shall serve until the next annual election of directors
and until their successors are elected and qualified.
Section 6. QUORUM AND TRANSACTION OF BUSINESS. A majority of
the whole authorized number of directors shall constitute a quorum for the
transaction of business, except that a majority of the directors in office shall
constitute a quorum for filling a vacancy on the board. Whenever less than a
quorum is present at the time
-2-
<PAGE> 3
and place appointed for any meeting of the board, a majority of those present
may adjourn the meeting from time to time until a quorum shall be present. The
act of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the board.
Section 7. ANNUAL MEETING. Annual meetings of the Board of
Directors shall be held immediately following annual meetings of the
shareholders, or as soon thereafter as is practicable. If no annual meeting of
the shareholders is held, or if directors are not elected thereat, then the
annual meeting of the Board of Directors shall be held immediately following any
special meeting of the shareholders at which directors are elected, or as soon
thereafter as is practicable. If such annual meeting of directors is held
immediately following a meeting of the shareholders, it shall be held at the
same place at which such shareholders' meeting was held.
Section 8. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places, within or without the State of
Ohio, as the Board of Directors may, by resolution or by-law, from time to time,
determine. The secretary shall give notice of each such resolution or by-law to
any director who was not present at the time the same was adopted, but no
further notice of such regular meeting need be given.
Section 9. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the chairman of the board, the president, any vice
president, or any two members of the Board of Directors, and shall be held at
such times and places, within or without the State of Ohio, as may be specified
in such call.
Section 10. NOTICE OF ANNUAL OR SPECIAL MEETINGS. Notice of
the time and place of each annual or special meeting shall be given to each
director by the secretary or by the person or persons calling such meeting. Such
notice need not specify the purpose or purposes of the meeting and may be given
in any manner or method and at such time so that the director receiving it may
have reasonable opportunity to participate in the meeting. Such notice shall, in
all events, be deemed to have been properly and duly given if mailed at least
forty-eight (48) hours prior to the meeting and directed to the residence of
each director as shown upon the secretary's records and, in the event of a
meeting to be held through the use of communications equipment, if the notice
sets forth the telephone number at which each director may be reached for
purposes of participation in the meeting as shown upon the secretary's records
and states that the secretary must be notified if a director desires to be
reached at a different telephone number. The giving of notice shall be deemed to
have been waived by any director who shall participate in such meeting and may
be waived, in a writing, by any director either before or after such meeting.
Section 11. COMPENSATION. The directors, as such, shall be
entitled to receive such reasonable compensation for their services as may be
fixed from time to time by resolution of the board, and expenses of attendance,
if any, may be allowed for attendance at each annual, regular or special meeting
of the board. Nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of the executive committee or of any standing or
special committee may by resolution of the board be allowed such compensation
for their services as the board may deem reasonable, and additional compensation
may be allowed to directors for special services rendered.
Section 12. BY-LAWS. For the government of its actions, the
Board of Directors may adopt by-laws consistent with the Articles of
Incorporation and these Regulations.
ARTICLE III
COMMITTEES
----------
Section 1. EXECUTIVE COMMITTEE. The Board of Directors may
from time to time, by resolution passed by a majority of the whole board, create
an executive committee of three or more directors, the members of which shall be
elected by the Board of Directors to serve during the pleasure of the board. If
the Board of Directors
-3-
<PAGE> 4
does not designate a chairman of the executive committee, the executive
committee shall elect a chairman from its own number. Except as otherwise
provided herein and in the resolution creating an executive committee, such
committee shall, during the intervals between the meetings of the Board of
Directors, possess and may exercise all of the powers of the Board of Directors
in the management of the business and affairs of the Corporation, other than
that of filling vacancies among the directors or in any committee of the
directors. The executive committee shall keep full records and accounts of its
proceedings and transactions. All action by the executive committee shall be
reported to the Board of Directors at its meeting next succeeding such action
and shall be subject to control, revision and alteration by the Board of
Directors, provided that no rights of third persons shall be prejudicially
affected thereby. Vacancies in the executive committee shall be filled by the
directors, and the directors may appoint one or more directors as alternate
members of the committee who may take the place of any absent member or members
at any meeting.
Section 2. MEETINGS OF EXECUTIVE COMMITTEE. Subject to the
provisions of these Regulations, the executive committee shall fix its own rules
of procedure and shall meet as provided by such rules or by resolutions of the
Board of Directors, and it shall also meet at the call of the president, the
chairman of the executive committee or any two members of the committee. Unless
otherwise provided by such rules or by such resolutions, the provisions of
Section 10 of Article II relating to the notice required to be given of meetings
of the Board of Directors shall also apply to meetings of the executive
committee. A majority of the executive committee shall be necessary to
constitute a quorum. The executive committee may act in a writing, or by
telephone with written confirmation, without a meeting, but no action by writing
of the executive committee shall be effective unless concurred in by all members
of the committee.
Section 3. AUDIT COMMITTEE. The Audit Committee shall consist
of three directors not employed by the Corporation, as the Board of Directors
may designate from time to time, and otherwise shall operate under the rules set
forth in Sections 1 and 2 of this Article III for an executive committee. The
Audit Committee shall make recommendations concerning the engagement of
independent public accountants, review with the independent public accounts the
plans and results of the audit engagement, approve professional services
provided by the independent public accountants, review the independence of the
independent public accountants, consider the range of audit and nonaudit fees,
review the independent public accountants' letter of comments and management's
responses, review the adequacy of the Company's internal accounting controls,
and review major accounting or reporting changes contemplated or made.
Section 4. COMPENSATION COMMITTEE. The Compensation Committee
shall consist of three directors not employed by the Corporation, as the Board
of Directors may designate from time to time, and otherwise shall operate under
the rules set forth in Sections 1 and 2 of this Article III for an executive
committee. The Compensation Committee shall determine compensation for senior
management and advise the Board of Directors on the adoption and administration
of employee benefit and compensation plans.
Section 5. OTHER COMMITTEES. The Board of Directors may by
resolution provide for such other standing or special committees as it deems
desirable, and discontinue them at its pleasure. Each such committee shall have
such powers and perform such duties, not inconsistent with law, as may be
delegated to it by the Board of Directors. The provisions of Section 1 and
Section 2 of this Article shall govern the appointment and action of such
committees so far as the same are consistent with such appointment and unless
otherwise provided by the Board of Directors. Vacancies in such committees shall
be filled by the Board of Directors or as the Board of Directors may provide.
-4-
<PAGE> 5
ARTICLE IV
----------
OFFICERS
--------
Section 1. GENERAL PROVISIONS. The Board of Directors shall
elect a president, such number of vice presidents as the board may from time to
time determine, a secretary and a treasurer and, in its discretion, a chief
executive officer. The Board of Directors may from time to time create such
offices and appoint such other officers, subordinate officers and assistant
officers as it may determine. Any Chairman of the Board shall be, but the other
officers need not be, chosen from among the members of the Board of Directors.
Any two of such offices, other than that of president and vice president, may be
held by the same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity.
Section 2. TERM OF OFFICE. The officers of the Corporation
shall hold office during the pleasure of the Board of Directors, and, unless
sooner removed by the Board of Directors, until the organization meeting of the
Board of Directors following the date of their election and until their
successors are chosen and qualified. The Board of Directors may remove any
officer at any time, with or without cause. A vacancy in any office, however
created, shall be filled by the Board of Directors.
ARTICLE V
---------
DUTIES OF OFFICERS
------------------
Section 1. CHIEF EXECUTIVE OFFICER. The chief executive
officer, if one be elected, shall preside at all meetings of the Board of
Directors and shall have such other powers and duties as may be prescribed by
the Board of Directors.
Section 2. PRESIDENT. The president shall exercise supervision
over the business of the Corporation and over its several officers, subject,
however, to the control of the Board of Directors. He shall preside at all
meetings of shareholders, and, in the absence of the chief executive officer, or
if a chief executive officer shall not have been elected, shall also preside at
meetings of the Board of Directors. He shall have authority to sign all
certificates for shares and all deeds, mortgages, bonds, agreements, notes, and
other instruments requiring his signature; and shall have all the powers and
duties prescribed by Chapter 1701 of the Revised Code of Ohio and such others as
the Board of Directors may from time to time assign to him.
Section 3. VICE PRESIDENTS. The vice presidents shall have
such powers and duties as may from time to time be assigned to them by the Board
of Directors, the chief executive officer or the president. At the request of
the president, or in the case of his absence or disability, the vice president
designated by the president (or in the absence of such designation, the vice
president designated by the board) shall perform all the duties of the president
and, when so acting, shall have all the powers of the president. The authority
of vice presidents to sign in the name of the Corporation certificates for
shares and deeds, mortgages, bonds, agreements, notes and other instruments
shall be coordinate with like authority of the president.
Section 4. SECRETARY. The secretary shall keep minutes of all
the proceedings of the shareholders and Board of Directors and shall make proper
record of the same, which shall be attested by him; shall have authority to
execute and deliver certificates as to any of such proceedings and any other
records of the Corporation; shall have authority to sign all certificates for
shares and all deeds, mortgages, bonds, agreements, notes and other instruments
to be executed by the Corporation which require his signature; shall give notice
of meetings of shareholders and directors; shall produce on request at each
meeting of shareholders a certified list of shareholders arranged in
alphabetical order; shall keep such books and records as may be required by law
or by the Board of
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<PAGE> 6
Directors; and, in general, shall perform all duties incident to the office of
secretary and such other duties as may from time to time be assigned to him by
the Board of Directors or the president.
Section 5. TREASURER. The treasurer shall have general
supervision of all finances; he shall receive and have in charge all money,
bills, notes, deeds, leases, mortgages and similar property belonging to the
Corporation, and shall do with the same as may from time to time be required by
the Board of Directors. He shall cause to be kept adequate and correct accounts
of the business transactions of the Corporation, including accounts of its
assets, liabilities, receipts, disbursements, gains, losses, stated capital and
shares, together with such other accounts as may be required, and upon the
expiration of his term of office shall turn over to his successor or to the
Board of Directors all property, books, papers and money of the Corporation in
his hands; and shall have such other powers and duties as may from time to time
be assigned to him by the Board of Directors or the president.
Section 6. ASSISTANT AND SUBORDINATE OFFICERS. The Board of
Directors may appoint such assistant and subordinate officers as it may deem
desirable. Each such officer shall hold office during the pleasure of the Board
of Directors, and perform such duties as the Board of Directors or the president
may prescribe.
The Board of Directors may, from time to time, authorize any
officer to appoint and remove subordinate officers, to prescribe their authority
and duties, and to fix their compensation.
Section 7. DUTIES OF OFFICERS MAY BE DELEGATED. In the absence
of any officer of the Corporation, or for any other reason the Board of
Directors may deem sufficient, the Board of Directors may delegate, for the time
being, the powers or duties, or any of them, of such officer to any other
officer or to any director.
ARTICLE VI
----------
INDEMNIFICATION AND INSURANCE
-----------------------------
Section 1. INDEMNIFICATION IN NON-DERIVATIVE ACTIONS. The
Corporation 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, other
than an action by or in the right of the Corporation, by reason of the fact that
he is or was a director or officer of the Corporation, or is or was serving at
the request of the Corporation as a director, trustee, officer, employee, or
agent of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, against expenses,
including attorneys' fees, judgments, fines, and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit, or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit, or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and with respect to any
criminal action or proceeding, that he had reasonable cause to believe that his
conduct was unlawful.
Section 2. INDEMNIFICATION IN DERIVATIVE ACTIONS. The
Corporation 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 or suit by or
in the right of the Corporation to procure a judgment in its favor by reason of
the fact that he is or was a director or officer of the Corporation, or is or
was serving at the request of the Corporation as a director, trustee, officer,
employee, or agent of another corporation, domestic or foreign, nonprofit or for
profit, partnership, joint venture, trust, or other enterprise against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, except that no indemnification
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<PAGE> 7
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the Corporation unless, and only to the extent that
the Court of Common Pleas, or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability,
but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as the Court of Common Pleas
or such court shall deem proper.
Section 3. DETERMINATION OF CONDUCT. Any indemnification under
Section 1 or 2 of this Article VI, unless ordered by a court, shall be made by
the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, trustee, officer, employee, or agent is
proper in the circumstances because he has met the applicable standard of
conduct set forth in Section 1 or 2 of this Article VI. Such determination shall
be made (a) by a majority vote of a quorum consisting of directors of the
Corporation who were not and are not parties to or threatened with any such
action, suit, or proceeding, or (b) if such a quorum is not obtainable or if a
majority vote of a quorum of disinterested directors so directs, in a written
opinion by independent legal counsel, other than an attorney or a firm having
associated with it an attorney who has been retained by or who has performed
services for the Corporation or any person to be indemnified within the past
five years, or (c) by the shareholders or (d) by the Court of Common Pleas or
the court in which such action, suit, or proceeding was brought. Any
determination made by the disinterested directors under Section 3(a) or by
independent legal counsel under Section 3(b) of this Article VI shall be
promptly communicated to the person who threatened or brought the action or
suit, by or in the right of the Corporation under Section 2 of this Article VI,
and within ten days after receipt of such notification, such person shall have
the right to petition the Court of Common Pleas or the court in which such
action or suit was brought to review the reasonableness of such determination.
Section 4. ADVANCE PAYMENT OF EXPENSES. Expenses, including
attorneys' fees, incurred in defending any action, suit, or proceeding referred
to in Sections 1 or 2 of this Article VI, may be paid by the Corporation in
advance of the final disposition of such action, suit, or proceeding as
authorized by the directors in the specific case upon receipt of an undertaking
by or on behalf of the director, trustee, officer, employee, or agent to repay
such amount, unless it shall ultimately be determined that he is entitled to be
indemnified by the Corporation as authorized in this Article VI.
Section 5. NONEXCLUSIVITY. The indemnification provided by
this Article VI shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under the Articles of Incorporation or
the Code of Regulations or any agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office and shall continue as to a
person who has ceased to be a director, trustee, officer, employee, or agent and
shall inure to the benefit of the heirs, executors, and administrators of such a
person.
Section 6. LIABILITY INSURANCE. The Corporation may purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee, or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article VI or
of Chapter 1701 of the Ohio Revised Code.
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<PAGE> 8
ARTICLE VII
-----------
CERTIFICATES FOR SHARES
-----------------------
Section 1. FORM AND EXECUTION. Certificates for shares,
certifying the number of fully paid shares owned, shall be issued to each
shareholder in such form as shall be approved by the Board of Directors. Such
certificates shall be signed by the president or a vice president and by the
secretary or an assistant secretary or the treasurer or an assistant treasurer;
provided, however, that if such certificates are countersigned by a transfer
agent or registrar, the signatures of any of said officers and the seal of the
Corporation upon such certificates may be facsimiles, engraved, stamped or
printed. If any officer or officers who shall have signed, or whose facsimile
signature shall have been used, printed or stamped on any certificate or
certificates for shares, shall cease to be such officer or officers, because of
death, resignation or otherwise, before such certificate or certificates shall
have been delivered by the Corporation, such certificate or certificates, if
authenticated by the endorsement thereon of the signature of a transfer agent or
registrar, shall nevertheless be conclusively deemed to have been adopted by the
Corporation by the use and delivery thereof and shall be as effective in all
respects as though signed by a duly elected, qualified and authorized officer or
officers, and as though the person or persons who signed such certificate or
certificates, or whose facsimile signature or signatures shall have been used
thereon, had not ceased to be an officer or officers of the Corporation.
Section 2. TRANSFER AND REGISTRATION OF CERTIFICATES. The
Board of Directors shall have authority to make such rules and regulations, not
inconsistent with law, the Articles of Incorporation or this Code of
Regulations, as it deems expedient concerning the issuance, transfer and
registration of certificates for shares and the shares represented thereby.
Section 3. LOST, DESTROYED OR STOLEN CERTIFICATES. A new share
certificate or certificates may be issued in place of any certificate
theretofore issued by the Corporation which is alleged to have been lost,
destroyed or wrongfully taken upon (i) the execution and delivery to the
Corporation by the person claiming the certificate to have been lost, destroyed
or wrongfully taken of an affidavit of that fact, specifying whether or not, at
the time of such alleged loss, destruction or taking, the certificate was
endorsed, and (ii) the furnishing to the Corporation of indemnity and other
assurances satisfactory to the Corporation and to all transfer agents and
registrars of the class of shares represented by the certificate against any and
all losses, damages, costs, expenses or liabilities to which they or any of them
may be subjected by reason of the issue and delivery of such new certificate or
certificates or in respect of the original certificate.
Section 4. REGISTERED SHAREHOLDERS. A person in whose name
shares are of record on the books of the Corporation shall conclusively be
deemed the unqualified owner and holder thereof for all purposes and to have
capacity to exercise all rights of ownership. Neither the Corporation nor any
transfer agent of the Corporation shall be bound to recognize any equitable
interest in or claim to such shares on the part of any other person, whether
disclosed upon such certificate or otherwise, nor shall they be obliged to see
to the execution of any trust or obligation.
ARTICLE VIII
------------
FISCAL YEAR
-----------
The fiscal year of the Corporation shall end on March 31 of
each year, or on such other date as may be fixed from time to time by the Board
of Directors.
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<PAGE> 9
ARTICLE IX
----------
SEAL
----
The Board of Directors may provide a suitable seal containing
the name of the Corporation. If deemed advisable by the Board of Directors,
duplicate seals may be provided and kept for the purposes of the Corporation.
ARTICLE X
---------
AMENDMENTS
----------
This Code of Regulations may be amended, or new regulations
may be adopted, at any meeting of shareholders called for such purpose by the
affirmative vote of, or without a meeting by the written consent of, the holders
of shares entitling them to exercise a majority of the voting power of the
Corporation on such proposal.
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<PAGE> 1
Exhibit 5
________________, 1997
Board of Directors
International Total Services, Inc.
Crown Centre
5005 Rockside Road
Independence, Ohio 44131
Re: REGISTRATION STATEMENT ON FORM S-1 WITH RESPECT TO THE
REGISTRATION ON FORM S-1 OF UP TO 2,825,000 COMMON SHARES,
WITHOUT PAR VALUE, OF
INTERNATIONAL TOTAL SERVICES, INC.
Ladies and Gentlemen:
We have acted as counsel to International Total Services, Inc., an
Ohio corporation (the "Company"), in connection with its Registration Statement
on Form S-1 (the "Registration Statement") filed under the Securities Act of
1933, as amended (the "Act"), relating to the proposed public offering by the
Company of up to 2,825,000 of the Company's Common Shares (the "Firm Shares") to
be offered and sold by the Company and up to 423,750 Common Shares (the
"Overallotment Shares") subject to an option given to the Representative (as
defined below) by the Company to cover overallotments, if any.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents as we have deemed necessary
for the purpose of this opinion including, without limitation, the respective
form of Amended and Restated Articles of Incorporation and Code of Regulations
of the Company and the form of Underwriting Agreement (the "Underwriting
Agreement"), by and between the Company and McDonald & Company Securities, Inc.,
as representative of the several underwriters (the "Representative"), each of
which is filed (or incorporated by reference) as an Exhibit to the Registration
Statement.
Based on the foregoing, we are of the opinion that:
1. The Company is validly existing as a corporation in good
standing under the laws of the State of Ohio.
<PAGE> 2
Board of Directors
International Total Services, Inc.
______________, 1997
Page 2
2. When the Firm Shares are issued and sold in accordance with
the Underwriting Agreement, with the blanks therein
appropriately filled in, and in the manner contemplated by
the Registration Statement, the Firm Shares will be legally
issued, fully paid and nonassessable.
3. When the Overallotment Shares are issued and sold in
accordance with the Underwriting Agreement, with the blanks
therein appropriately filled in, and in the manner
contemplated by the Registration Statement, the
Overallotment Shares will be legally issued, fully paid and
nonassessable.
This opinion is limited to matters of federal law and Ohio law.
Accordingly, we express no opinion as to the law of any other jurisdiction.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our name under "Legal Matters" in
the prospectus comprising part of the Registration Statement.
Very truly yours,
Baker & Hostetler LLP
<PAGE> 1
Exhibit 10.1
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") made as of the 7th
day of March, 1997, by and between INTERNATIONAL TOTAL SERVICES,
INC. ("Buyer" and/or ITS. Inc.), an Ohio corporation, and INTEX
AVIATION SERVICES, INC. a South Carolina corporation ("Seller").
WITNESSETH THAT:
----------------
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase
from Seller, subject to the terms and conditions hereof, certain assets of
Seller.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. PURCHASE AND SALE OF ACQUIRED CONTRACTS AND ACQUIRED
----------------------------------------------------
ASSETS.
-------
Subject to the terms and conditions hereof, on the Closing Date (as
defined in Article 6), Seller shall sell, transfer and assign to Buyer, and
Buyer shall purchase and acquire from Seller, all the right, title and interest
of Seller in and to the Acquired Contracts and the Acquired Assets (as
respectively defined in Section 1.1).
1.1 ACQUIRED CONTRACTS AND ACQUIRED ASSETS. The "Acquired Contracts"
shall mean those certain Aviation Services Contracts performed by Seller as
listed on Schedule A. As used herein, "Acquired Assets" shall mean those certain
assets listed on Schedule B.
1.2 LEASE AGREEMENTS. At the Closing, Seller shall transfer to Buyer
any and all rights under Lease Agreements as reflected on Schedule C.
<PAGE> 2
1.3 SCHEDULES EXCLUSIVE. Other than those assets specifically described
and set forth in Schedules A, B, and C to this Agreement, the parties hereto
acknowledge and agree that Seller s not transferring to Buyer under this
Agreement any other assets or rights of Seller.
1.4 ASSURANCES. After the Closing, for no further consideration, Seller
shall perform all such other acts (including without limitation the use of
Seller's reasonable efforts to obtain or achieve transfer of the Acquired
Contracts and the Acquired Assets as contemplated by this Agreement) and shall
execute, acknowledge and deliver all such assignments, transfers, consents and
other documents as Buyer or its counsel may reasonably request to vest in Buyer,
and perfect and protect Buyer's right, title and interest in, and enjoyment of,
the Acquired Contracts and the Acquired Assets. Buyer shall similarly perform
all such other actions and shall execute, acknowledge and deliver all such other
documents as Seller or its counsel may reasonably request to perfect and protect
Seller's rights under this Agreement. Seller hereby acknowledges and agrees that
the Acquired Contracts and the Acquired Assets are unique and not available on
the open market and that Buyer shall have, in addition to all other legal
remedies available to it, the right to enforce the terms of this Agreement by a
decree of specific performance. Seller shall cooperate with Buyer to the extent
Buyer may reasonably request in the defense of any proceeding seeking to
invalidate or set aside the sale and purchase of the Acquired Contracts or the
Acquired Assets.
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<PAGE> 3
1.5 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors, legal representatives
and assigns, but this Agreement may not be assigned by any party without the
prior written consent of the other party.
2. ASSUMPTION OF OBLIGATIONS AND LIABILITIES.
------------------------------------------
2.1 CONTRACTS ASSUMED. Buyer shall assume as of the Closing, and
perform when due, Seller's obligations to be performed after the Closing Date
under the following Contracts (as hereinafter defined): all the Acquired
Contracts reflected in Schedule A hereto; and all other contracts, leases and
Lease Agreements as listed on Schedules B and C hereto; all such Contracts
described in this paragraph, to the extent assumed by Buyer, being referred to
hereinafter as "Assumed Contracts". If Seller fails to obtain any consent
necessary for the assignment of any Assumed Contract to Buyer, Seller will use
reasonable efforts to obtain for, and provide to Buyer the benefits under such
Assumed Contract, including enforcement of any and all rights of Seller against
the other parties thereto.
2.2 NON-ASSUMPTION OF LIABILITIES. Notwithstanding Section 2.1, Buyer
will not by the execution or performance of this Agreement, by the exercise of
any rights with respect to the Acquired Assets, or by any other action, assume,
become responsible for or incur any liability or obligation of any nature of
Seller, matured or unmatured, liquidated or unliquidated, fixed or contingent,
or known or unknown, and whether arising out of occurrences prior to, at or
after the Closing; and Seller shall indemnify and hold harmless Buyer, its
successors and assigns, and
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<PAGE> 4
the Acquired Assets against and from, such liabilities and obligations of Seller
and against and from any and all claims asserted, and costs and expenses
(including reasonable attorneys' fees) incurred with respect to the same;
provided, however, that Buyer shall assume all obligations of Seller remaining
unperformed on the Closing date under the Assumed Contracts. Without limiting
the generality of the foregoing, Buyer shall not assume, become responsible for
or incur any liability of obligation of any nature arising from occurrences
prior to the Closing with respect to:
(a) any liability whatsoever arising out of Seller's service
contracts;
(b) any and all tax liability prior to closing including
without limitation Federal, State, and Local Taxes, payroll and withholding
taxes, worker's compensation and unemployment taxes;
(c) any taxes (including amounts attributable to depreciation
and investment tax credit recapture) relating to or arising out of the
transactions contemplated by this Agreement;
(d) salaries and related expenses of Seller's employees prior
to the Closing Date, fees, costs, expenses, premiums, commissions and charges to
be paid by Seller as provided in Section 4.6; and
(e) any Contract with, or liability or obligation to, any
affiliate of Seller.
3. PURCHASE PRICE.
------------------
3.1 DETERMINATION OF PURCHASE PRICE. The purchase price ("Purchase
Price") for the Acquired Contracts and Acquired Assets shall be $5,141,772
provided, however, that the Purchase Price
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<PAGE> 5
shall be subject to adjustment pursuant to Section 6.3 of this Agreement.
3.2 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be payable
as follows:
(a) $2,570,886 at Closing payable to Seller;
(b) the balance due one hundred and five (105) days from the
Effective Date payable to Seller; subject to adjustment pursuant to Section 6.3
of this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF SELLER.
--------------------------------------------
Seller represents and warrants to Buyer that:
4.1 ORGANIZATION AND OWNERSHIP. Seller corporation validly exists and
is in good standing under the laws of the State of South Carolina. Seller is
qualified as a foreign corporation in each state where its activities would
require it to qualify as a foreign corporation in such State.
4.2 AUTHORITY; BINDING EFFECT. Seller has full power and authority (a)
to own the Acquired Assets and (b) to execute, deliver and perform this
Agreement and the other instruments, agreements and documents to be executed by
it hereunder, and to perform its obligations hereunder and thereunder and to
consummate the transactions provided for herein and therein. Such execution,
delivery and performance have been duly authorized by all necessary action on
the part of Seller, and do not and will not (a) contravene the Articles of
Incorporation or By-Laws of Seller; (b) result in the creation or imposition of
any security interest, lien, easement, right-of-way, charge, assessment,
encumbrance, claim, restriction or title defect of any nature whatsoever upon
any of the Acquired Assets or (c) result in any violation of any
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<PAGE> 6
law, rule or regulation applicable to Seller, the Acquired Contracts or the
Acquired Assets. Seller is not a party to, or subject to or bound by, and none
of the Acquired Assets are subject to or bound by, any judgment, injunction or
decree of any court or governmental authority which may restrict or interfere
with the performance of this Agreement, or such other instruments, agreements
and documents as are to be executed by Seller, in connection herewith on or
prior to the Closing Date. This Agreement is, and each of such other
instruments, agreements and documents will be when executed and delivered, a
valid and binding obligation of Seller.
4.3 FINANCIAL INFORMATION. Seller will deliver to Buyer prior to the
Closing, financial information to be mutually designated in the process of
Buyer's due diligence.
4.4 ACQUIRED ASSETS.
(a) TITLE. Except for those assets covered under leases to be assumed
by Buyer, Seller as of the Closing Date will convey to Buyer good title to all
the Acquired Assets and the Acquired Contracts free and clear of all title
defects and objections, security interests, liens, charges and encumbrances of
any nature whatsoever, including without limitation, leases, mortgages, deeds of
trust, security interests, pledges, liens conditional sales agreements, claims,
restrictions, reservations, covenants, encumbrances, charges, special or other
assessments, restraints on transfer or other title defect; except, however, no
warranty is given as to assignability of the Aviation Services Contracts. In
addition, no financing statement under the Uniform Commercial Code with respect
to any of the Acquired Assets has been filed in any
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<PAGE> 7
jurisdiction, and Seller has not signed any such financing statements or any
Security Agreement authorizing any secured party thereunder to file any such
financing statement, which will not be released as of the date of closing.
(b) INSURANCE. Seller has maintained a reasonable and customary program
of insurance with respect to the Acquired Assets, and the Acquired Contracts and
have insured the Acquired Assets, and the Acquired Contracts with reputable
insurance companies in such manner as may be required pursuant to any
franchises, agreements, licenses or permits applicable to the Acquired Assets,
and the Acquired Contracts.
(c) PERMITS. Schedule D hereto sets forth a complete and accurate list
of all material Permits used or held for use in connection with the conduct of
the Acquired Contracts. Except as set forth on Schedule D, Seller has all
Permits, the absence of which would have a material adverse effect on the
Acquired Contracts. Except as indicated on such schedule, all Permits listed
thereon may be freely assigned or transferred to Buyer at the Closing. To the
extent that such Permits may not be assigned, Seller shall maintain the same
until such time as Buyer obtains its own permits.
4.5 CONTRACTS. Schedule A hereto contains a true and complete list of
the Acquired Contracts being transferred to Buyer by Seller. To the best of
Seller's knowledge (i) each Assumed Contract is valid and binding upon each
party thereto and is in full force and effect and (ii) there is no default or
claim of default under any provision of any such Assumed Contract, and no event
has occurred which, with the passage of time or the giving of
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<PAGE> 8
notice (or both), would constitute a default by Seller (or, to the best of
Seller's knowledge, by any other party thereto) under any provision thereof, or
would permit modification, acceleration or termination of such Assumed Contract
by any party thereto. Neither the consummation of the transactions contemplated
hereby nor the transfer of any such Assumed Contract hereunder will constitute
such a default or event. Seller has delivered to Buyer a true, correct and
complete copy of each Assumed Contract. Seller has not received any notice that
any person intends or desires to modify, waive, amend, rescind, release, cancel
or terminate any Assumed Contract.
4.6 EMPLOYEES; LABOR RELATIONS. Schedule E contains a complete list of
wage rates and commission arrangements for all employees of Seller are employed
with respect to the Acquired Assets and the Acquired Contracts, together with
information as to any employment, consulting or other compensation contracts,
arrangements and policies, written and oral, relating to any such employees,
including without limitation any bonus, vacation or severance policies or
arrangements. Seller has paid or made provision for the payment of all salaries
and wages through the Effective Date for the benefit of such employees on
Schedule E and has complied in all material respects with all applicable laws,
rules and regulations relating to the employment of labor, including those
relating to wages, hours, collective bargaining and the payment and withholding
of taxes, and has withheld and paid to the appropriate governmental authority,
or is holding for payment not yet due to such authority, all amounts required by
law or
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<PAGE> 9
agreement to be withheld from the wages or salaries of such employees.
4.7 TAXES. Seller has filed on a timely basis all federal, state, local
and foreign tax returns, reports and declarations required to be filed by it.
Seller has paid all taxes, interest and penalties which were due pursuant to
such returns or otherwise due, levied or assessed against Seller or its Assets,
other than taxes or charges, the payment of which is not yet due (or which, if
due, is not yet delinquent or is being contested in good faith or has not been
finally determined). There is no agreement for the extension of the time of any
assessment of any tax with respect to Seller and no notice of any federal tax
lien relating to Seller has been filed against them or any of its Assets in any
jurisdiction. Seller has not had any tax deficiency or claim outstanding, and
all required deposits with respect to employees' withholding taxes have been
duly made. No examination of Seller or the Acquired Contracts or the Acquired
Assets by the Internal Revenue Service or any state, local or foreign tax
authority is currently in progress.
4.8 BROKERS AND FINDERS. Neither Seller nor any affiliate of Seller has
dealt with anyone in a fashion that would incur any broker's, finder's or
similar fees or commissions in connection with the transactions contemplated by
this Agreement.
4.9 FULL DISCLOSURE. All documents and other papers delivered by or on
behalf of Seller in connection with this Agreement are true, complete and
authentic. No representation or warranty of the Seller contained in this
Agreement contains an untrue statement of a material fact or omits to state a
material
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fact necessary to make the statements made, in the context in which made, not
materially false or misleading.
5. REPRESENTATIONS AND WARRANTIES.
-------------------------------
Buyer hereby represents and warrants to Seller that:
5.1 ORGANIZATION. Buyer is a corporation validly existing and in good
standing under the laws of the State of Ohio.
5.2 AUTHORITY; BINDING EFFECT. Buyer has full power and authority to
execute, deliver and perform this Agreement and the other instruments,
agreements and documents to be executed by it hereunder and to consummate the
transactions provided for herein and therein. Such execution, delivery and
performance have been duly authorized by all necessary action on the part of
Buyer and do not and will not (i) contravene the Articles of Incorporation or
By-Laws of Buyer, (ii) conflict with, result in a breach of, or entitle any
party (with due notice or lapse of time or both) to terminate, accelerate or
call a default with respect to any agreement or instrument to which Buyer is a
party or by which Buyer or any of its assets are bound; or (iii) result in any
violation of any law, rule or regulation applicable to Buyer. The Buyer is not a
party to or is subject to or bound by, any judgment, injunction or decree of any
court or governmental authority which may restrict or interfere with the
performance of this Agreement or such other instruments, agreements and
documents as are to be executed by Buyer in connection herewith on or prior to
the Closing Date. This Agreement is, and each of such other instruments,
agreements and documents will be when executed and delivered a valid and binding
obligation of Buyer.
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<PAGE> 11
5.3 CONSENTS. No consent, approval, authorization or order of, or
registration, qualification or filing with, any court, regulatory authority or
other governmental body is required for the execution, delivery and performance
by Buyer of this Agreement and the other instruments, agreements and documents
required or contemplated hereunder or the consummation by Buyer of the
transactions contemplated hereby and thereby. No consent of any person
(including without limitation any party to any contract, mortgage, indenture,
agreement or other arrangement to which Buyer is a party or by which it is
bound) is required for the execution, delivery and performance by Buyer of this
Agreement and such other instruments, agreements and documents or the
consummation of the transactions contemplated hereby and thereby.
5.4 BROKERS AND FINDERS. Buyer has not dealt with anyone in a fashion
that would incur any broker's, finder's or similar fees or commissions in
connection with the transactions contemplated by this Agreement.
6. CLOSING
-------
The transfers and deliveries to be made pursuant to this Agreement (the
"Closing") shall take place by facsimile or mail by March 27, 1997, or at such
other time and place as the parties shall agree; to be effective at 12:01 A.M.
on April 1, 1997 (the "Effective Date"). The date on which the Closing is to
occur is herein referred to as the "Closing Date". Time is of the essence with
respect to closing.
6.1 DELIVERIES BY SELLERS. Seller shall deliver to Buyer at the
Closing:
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<PAGE> 12
(a) Bills of sale, instruments of transfer, assignment and conveyance,
required consents thereto and other instruments in boron and substance
satisfactory to Buyer and sufficient to convey, transfer, and assign to Buyer
and effectively vest in Buyer all of Seller's right, title and interest in and
to the Acquired Contracts and the Acquired Assets;
(b) All written contracts and lease Agreements;
(c) All Permits listed on Schedule D, to the extent such Permits are
assignable;
(d) Certification that each of Seller's representations and warranties
contained in this Agreement are true and correct at and as of the Closing Date
and that the Acquired Assets shall remain on its locations; and
(e) Such other instruments and documents as may be reasonably requested
by, and in form and substance satisfactory to, Buyer and Buyer's counsel.
6.2 DELIVERIES BY BUYER.
Buyer shall deliver to Seller at the Closing:
(a) Cash in the amount required pursuant to Section 3.2; and
(b) Such other instruments and documents as may be reasonably requested
by, and in form and substance satisfactory to Seller and Seller's counsel.
6.3 POST-CLOSING ADJUSTMENT.
(a) That portion of the Purchase Price payable to Seller pursuant to
Section 3.2(b), above, shall be adjusted as follows:
(i) The actual billings generated by the Acquired
Contracts as set forth on Schedule A during the
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<PAGE> 13
three month period after the Effective Date shall be
totaled, and then divided by 3 to obtain a monthly
average. This average shall then be multiplied by 2.
(ii) This amount shall be reduced by any loss of revenue
caused by the loss of any of the Acquired Contracts
during the three month adjustment period, dollar for
dollar, to arrive at the Adjusted Purchase Price.
(iii) The Adjusted Purchase Price shall be compared to the
Purchase Price set forth in Section 3.1, above, for
the purpose of calculating the final payment to be
paid by Buyer. The final payment shall be
accompanied by a statement from Buyer providing, in
reasonable detail, the calculations used in
determining the Adjusted Purchase Price and such
final payment.
(b) Any applicable sales, liquidation or use tax shall be
borne by Seller.
(c) Any nonrecurring or nonregular offsets taken against the
monthly revenue and which relate to Seller's operations prior
to closing, shall be deducted from the balance due. Buyer
shall provide sufficient notice to Seller of any such offsets
prior to deduction.
7. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION.
---------------------------------------------
7.1 SURVIVAL. All representations, warranties, covenants, indemnities
and agreements contained in or made pursuant to this Agreement (including any
exhibit, certificate, document or statement delivered pursuant hereto) shall
survive (and not be
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<PAGE> 14
affected in any respect by) the Closing and any investigation conducted by any
party or any information which any party may have from time to time, subject to
the applicable statute of limitations.
7.2 INDEMNIFICATION.
(a) BUYER. Buyer agrees to indemnify and hold Seller harmless from, and
to reimburse Seller for, any loss, fee, cost, expense, damage, liability or
claim (including, without limitation, any and all fees, costs and expenses
whatsoever, reasonably incurred by them, or their counsel in investigating,
preparing for, defending against, or providing evidence, producing documents or
taking any other action in respect of any threatened or asserted claim) arising
out of, based upon or resulting from (i) the inaccuracy as of the Closing Date
of any representation or warranty of Buyer which is contained in or made
pursuant to this Agreement; (ii) Buyer's breach of or failure to perform any of
their covenants or agreements contained in or made pursuant to this Agreement;
(iii) any and all liability relating to the operation of "Acquired Contracts"
arising from occurrences after closing.
(b) SELLER. Seller hereby agrees to indemnify and hold Buyer harmless
from, and to reimburse Buyer for, any loss, fee, cost, expense, damage,
liability or claim (including, without limitation, any and all fees, costs and
expenses whatsoever, reasonably incurred by Buyer, or its counsel in
investigating, preparing for, defending against, or providing evidence,
producing documents or taking any other action in respect of any threatened or
asserted claim) ("Liabilities") arising out of, based upon or resulting from (i)
the inaccuracy as of the Closing Date of any representation or
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<PAGE> 15
warranty of Seller which is contained in or made pursuant to this Agreement;
(ii) Seller's breach of or failure to perform any of their covenants or
agreements to be performed after the Closing, contained in or made pursuant to
this Agreement; (iii) any and all liability arising from acts of Seller and/or
resulting from any conduct of Seller, including but not limited to violations of
Federal, State or Local laws. Proof of liability insurance for the period prior
to Closing, and thereafter, to be provided and accepted by Buyer prior to
closing; (iv) any and all liability arising from its relationship with
employees, prior to date of closing resulting from injuries and/or damages
sustained as a result of the employment relationship.
(c) Liquidation or Dissolution of Seller. The liquidation or
dissolution of Seller shall not terminate, modify or otherwise affect the rights
of Buyer to indemnification pursuant to this Section.
(e) Right of Offset. Should Buyer have the right to offset amounts
owing to the Seller hereunder against Liabilities for which Buyer is entitled to
be indemnified pursuant to Section 7.2(b), then Buyer agrees to give Seller
sufficient notice of said offset prior to taking the offset.
8. CONDUCT OF CONTORTS PENDING CLOSING.
------------------------------------
8.1 AFFIRMATIVE COVENANTS PENDING CLOSING. During the period from the
date of this Agreement to the Closing Date, Seller shall:
(a) INSPECTION OF BOOKS AND RECORDS. Afford Buyer and its authorized
representatives reasonable access to all Acquired Assets and Acquired Contracts,
files, books, records, contracts, agreements and other documents of Seller
during normal business
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<PAGE> 16
hours, permit the reasonable copying of any of the foregoing and furnish or
cause to be furnished to Buyer and its authorized representatives all financial,
commercial, operating and other information of Seller as Buyer may reasonably
request.
(b) OPERATION OF CONTRACTS. Keep each of the Assumed Contracts in full
force and effect without modification or amendment and conduct the Acquired
Contracts in compliance with all applicable laws, rules and regulations,
maintain its books of account and records in a manner consistent with past
practice, prepare properly and file on or prior to the due date thereof all tax
returns or reports required by any jurisdiction and pay all taxes due for any
period ending prior to or at the Closing Date, and exercise due diligence in
safeguarding, repairing, replacing and maintaining the Acquired Assets.
(c) PRESERVATION OF ORGANIZATION. Use its best efforts (without making
any commitment on behalf of Buyer) to preserve the Assumed Contracts intact and
to preserve its relationship with employees, agents, suppliers, customers and
others having contracts relations with it.
8.2 NEGATIVE COVENANTS PENDING CLOSING. From and after the date of this
Agreement until the Closing Date, except with the prior written approval of the
Buyer, Seller shall not:
(a) GENERAL. Carry on the Acquired Contracts other than in the usual
and ordinary course.
(b) SALES OR PURCHASES OF PROPERTY. Seller shall in no way diminish or
waste the assets made a party of this Agreement and to be assumed by Buyer.
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<PAGE> 17
(c) INSURANCE. Fail to carry at all times between the date hereof and
the Closing Date insurance in accordance with Section 4.4(c).
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
--------------------------------------------
The obligations of Buyer to be performed at the Closing shall be
subject to the satisfaction at or before the Closing of all of the following
conditions (unless waived by Buyer in writing):
9.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Seller set forth in Article 4 of this Agreement shall have been true and
correct in all respects when made and shall be true and correct in all respects
at and as of the Closing Date as though such representations and warranties were
made at and as of such date.
9.2 PERFORMANCE. Seller shall have, in all material respects, performed
and complied with, or caused the performance of and compliance with, all
obligations under this Agreement which are to be performed or complied with by
it or on its behalf at or prior to the Closing.
9.3 CERTIFICATES. Seller shall have delivered to Buyer at the closing,
a Certificate of its President to the effect that the conditions set forth in
this Article 9 have been satisfied.
9.4 LITIGATION. There shall be no pending or threatened claim,
litigation, action, suit, proceeding, investigation or inquiry, judicial or
administrative (i) which, if adversely determined, would materially and
adversely affect the Acquired Assets, or the Acquired Contracts; or (ii) which
has been brought or threatened for the purpose of enjoining or preventing the
consummation of this Agreement or the transactions contemplated
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<PAGE> 18
hereby, which otherwise claims that this Agreement or the consummation of the
transactions contemplated hereby is improper or which asserts that Buyer would
be liable as a transferee of the Acquired Assets to any creditor or creditors of
Seller or any affiliate of Seller.
9.5 NO MATERIAL ADVERSE EFFECT. Neither the Acquired Contracts nor the
Acquired Assets shall have been materially adversely affected as a result of any
change, occurrence, circumstance, condition, loss, damage or destruction
(whether or not covered by insurance) of any character, or any combination
thereof, and there shall exist no change, occurrence, circumstance, condition,
loss, damage or destruction (whether or not covered by insurance) of any
character, or any combination thereof, which might reasonably be expected to
result in any such material adverse effect. In the event any loss, damage,
condemnation, or destruction with respect to the Acquired Contracts or the
Acquired Assets should occur and, notwithstanding such occurrence, the
transactions contemplated by this Agreement are consummated, any insurance
recovery or condemnation award, or the right of Seller thereto, in respect of
any such loss, damage condemnation or destruction, shall be paid, or assigned,
as the case may be, to Buyer at the Closing as part of the Acquired Assets, or
as promptly thereafter as practical.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER.
----------------------------------------------
The obligations of Seller to be performed at the Closing shall be
subject to the satisfaction at or before the Closing of the following
conditions:
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10.1 REPRESENTATIONS AND WARRANTIES. Buyer's representations and
warranties contained in Article 5 of this Agreement shall have been true and
correct in all respects when made and shall be true and correct in all respects
at and as of the Closing Date as though such representations and warranties were
made at and as of such date.
10.2 PERFORMANCE. Buyer shall have, in all material respects, performed
and complied with, or caused the performance of and compliance with, its
obligations under this Agreement which are to be performed or complied with by
it or on its behalf at or prior to the Closing.
10.3 CERTIFICATES. Buyer shall have delivered to Seller at the closing,
a Certificate of its President to the effect that the conditions set forth in
this Article 10 have been satisfied.
10.4 LITIGATION. At the Closing, there is no pending or threatened
claim, litigation, action, suit, proceeding, judicial or administrative against
Buyer for the purpose of enjoining or preventing the consummation of this
Agreement or otherwise claiming that this Agreement or the consummation hereof
is improper.
11. MISCELLANEOUS PROVISIONS AND AGREEMENTS.
----------------------------------------
11.1 TRANSFER AND OTHER EXPENSES. Seller shall pay all costs incurred,
whether at or subsequent to the Closing, in connection with transferring the
Acquired Contracts and the Acquired Assets to Buyer as contemplated in this
Agreement, including, without limitation, all sales, use, and other transfer
taxes.
11.2 ACCESS TO RECORDS AND PERSONNEL. After the Closing, Buyer shall
provide Seller with access at reasonable times and upon reasonable prior notice
to such documents and records acquired by
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<PAGE> 20
Buyer hereunder as are necessary for Seller's tax, accounting or legal purposes.
11.3 CONDUCT FOLLOWING CLOSING.
(a) Buyer shall have no obligation to employ any existing
employees of Seller prior to, at or after the Closing.
(b) Seller warrants that it will not hire any present Seller
employee retained by Buyer for a period of one year from the
date of Closing.
(c) Buyer warrants that it will in no way use or maintain the
name "Intex Aviation Services" following the 90-day
period after the Effective Date. During said 90-day
period, Seller hereby grants to Buyer a nontransferable,
nonexclusive license to use the Intex name. Said license
shall automatically terminate at the end of the 90-day
period after the Effective Date. Buyer shall indemnify
Seller from any liability arising from the use of the
Intex name.
(d) At its discretion, Buyer will retain any and all personnel and
management at the existing account locations, and their
regional offices, including the general manager of the
operations. Seller assumes responsibility for any accrued
benefits for its employees or termination obligations.
(e) Buyer and Seller shall enter into a Noncompetition
Agreement in the form attached hereto as Exhibit A.
11.4 NOTICES. All notices, requests, demands and other communications
made hereunder shall be in writing and shall be deemed duly given when
personally delivered, sent by facsimile or
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<PAGE> 21
sent by registered or certified mail, postage prepaid, as follows, or to such
other address or person as any party may designate by notice to the other party:
If to Seller:
Intex Aviation Services, I nc.
252 South Pleasantburg Dr.
P.O. Box 16479
Greenville, SC 29606-7479
Facsimile No.: (864) 235-0385
If to Buyer:
ITS, Inc.
Crown Centre
5005 Rockside Rd.
Cleveland, Ohio 44131
Attn: Legal Department
Facsimile No.: (216) 642-4539
11.5 AMENDMENTS. This Agreement cannot be changed or terminated orally
and no waiver of compliance with any provision or condition hereof and no
consent provided for herein shall be effective unless evidenced by an instrument
in writing duly executed by Seller and Buyer.
11.6 ENTIRE AGREEMENT; CAPTIONS; COUNTERPARTS. This Agreement and the
Exhibits attached hereto, the Schedules delivered pursuant hereto and the other
writings specifically identified herein or contemplated hereby contain the
agreement among the parties hereto with respect to the transactions contemplated
herein and supersede all previous written or oral negotiations, commitments and
writings. The Section headings of this Agreement are for convenience of
reference only and do not form a party hereof and do not in any way modify,
interpret or construe the intentions of the parties. This Agreement may be
executed in two or more counterparts, and all such counterparts shall constitute
one and the same instrument.
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11.7 APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Ohio.
11.8 SEC AUDIT. Because of Buyer's impending Initial Public Offering
(IPO) the Securities and Exchange Commission (SEC) may require an audit of this
transaction and Seller's last three years of financial statements. Should this
occur, Seller agrees to cooperate with the Buyer in conducting the audit and
will use all reasonable efforts to obtain any and all information required by
Buyer in completing the audit and complying with all SEC requirements. Buyer
shall bear all costs associated with the audit or complying with all SEC
requirements.
(The rest of this page is intentionally left blank.)
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<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
BUYER: INTERNATIONAL TOTAL SERVICES, INC.
(AN OHIO CORPORATION)
By:________________________________
Its: Robert A. Weitzer, President and CEO
Witness:____________________________
SELLER: INTEX AVIATION SERVICES, INC.
(A SOUTH CAROLINA CORPORATION)
By:_________________________________
Its:________________________________
Witness:____________________________
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<PAGE> 1
EXHIBIT 10.2
THIRD AMENDED AND RESTATED CONSOLIDATED REPLACEMENT
---------------------------------------------------
CREDIT FACILITY AND SECURITY AGREEMENT
--------------------------------------
THIS THIRD AMENDED AND RESTATED CONSOLIDATED REPLACEMENT CREDIT
FACILITY AND SECURITY AGREEMENT is made as of the 3 1 st day of March, 1997, by
and between BANK ONE, CLEVELAND, NA, a national banking association organized
and existing under the laws of the United States of America ("Lender"), with its
principal place of business located at 600 Superior Avenue, Cleveland, Ohio
44114 and INTERNATIONAL TOTAL SERVICES, INC., a corporation organized and
existing under the laws of the State of Ohio ("Borrower"), with its principal
place of business and executive offices located at Crown Centre, 5005 Rockside
Road, Cleveland, Ohio 44131 (the "Principal Business Location").
WITNESSETH:
-----------
WHEREAS, the Borrower, Lender, NBD Bank ("Bank") and the Lender as
agent for the Lender and the Bank ("Agent") are parties to that certain Second
Amended and Restated Replacement Credit Agreement dated as of August 11, 1995;
as amended by that certain First Amendment to Second Amended and Restated
Replacement Credit Agreement dated as of February 1, 1996; as amended by that
certain Second Amendment to Second Amended and Restated Replacement Credit
Agreement dated as of June 30, 1996; as amended by that certain Third Amendment
to Second Amended and Restated Replacement Credit Agreement dated as of August
23, 1996 and as amended by that certain Fourth Amendment to Second Amended and
Restated Replacement Credit Agreement dated as of November 5, 1996 (the "Loan
Agreement"), pursuant to which Lender has made a $900,000 Domestic Term Loan to
the Borrower evidenced by a Domestic Term Loan Promissory Note dated February 1,
1996 to Lender, the final installment of principal thereunder originally payable
on June 30, 1996, but now payable on December 31, 1997; and Lender and the Bank
have agreed to make Domestic Loans to the Borrower aggregating $6,500,000 and
the Bank has agreed to make Eurocurrency Loans to the Borrower aggregating
$1,500,000 until the Termination Date, which Eurocurrency Loans are evidenced by
an Amended and Restated Replacement International Revolving Demand Note dated
August 11, 1995 to NBD in the amount of $1,500,000 and which Domestic Loans are
evidenced by Third Amended and Restated Replacement Domestic Revolving Demand
Promissory Notes dated November 5, 1996 to the Bank and Lender in the amounts of
$2,600,000 and $3,900,000 respectively, each such Third Amended and Restated
Replacement Domestic Revolving Demand Promissory Note being payable on demand;
and
WHEREAS, the obligations and indebtedness of Borrower under the Loan
Agreement are secured by a Second Amended and Restated Replacement Security
Agreement (ITS) dated as of August II, 1995 between Borrower and Agent (the
"Borrower Security Agreement"); and
WHEREAS, Transport Security, Inc., an Ohio corporation ("Transport")
entered into an Amended and Restated Replacement Guaranty Agreement dated as of
August II, 1995 in favor of Lender, Bank and Agent, pursuant to which Transport
agreed to guaranty payment and performance of the obligations and indebtedness
of Borrower under the Loan Agreement and Amended Notes (as defined in the Loan
Agreement); and
<PAGE> 2
WHEREAS, NBC Leasing, Inc., an Ohio corporation and affiliate of
Borrower ("NBC") entered into an Amended and Restated Replacement Guaranty
Agreement dated as of August 11, 1995 in favor of Lender, Bank and Agent,
pursuant to which NBC agreed to guaranty payment and performance of the
obligations and indebtedness of Borrower under the Loan Agreement and Amended
Notes; and
WHEREAS, the entities listed on SCHEDULE 1 attached hereto and made a
part hereof (the "Affiliates") each entered into a Guaranty Agreement dated as
of August 11, 1995 in favor of Lender, Bank and Agent, pursuant to which each
Affiliate agreed to guaranty payment and performance of the obligations and
indebtedness of Borrower under the Loan Agreement and Amended Notes; and
WHEREAS, Robert A. Weitzel entered into a Limited Guaranty Agreement
dated as of August 11, 1995, a Limited Guaranty Agreement dated as of February
1, 1996, each as amended and restated by an Amended and Restated Limited
Guaranty Agreement dated as of November 5, 1996 in favor of Lender, Bank and
Agent guarantying payment of the Domestic Term Loan Promissory Note and a
Limited Guaranty Agreement dated as of November 5, 1996 in favor of the Lender,
Bank and Agent guarantying payment of a portion of the Domestic Loans; and
WHEREAS, the obligations of NBC and Transport under their respective
Amended and Restated Replacement Guaranty Agreements are secured by Amended and
Restated Replacement Guarantor Security Agreements dated as of August 11, 1995
between NBC, Transport and Agent, respectively, and the obligations of each
Affiliate under its respective Guaranty Agreement are secured by a Guarantor
Security Agreement dated as of August II, 1995 between each such Affiliate and
Agent; and
WHEREAS, the Borrower and Lender have agreed to consolidate, amend and
restate the Loan Agreement and Borrower Security Agreement (i) to replace the
Eurocurrency Loans facility with a $2,000,000 six month Term Loan; (ii) to
delete the Bank and Agent as parties to the Loan Agreement and Borrower Security
Agreement and to modify certain provisions of the Loan Agreement and Borrower
Security Agreement; and (iii) to replace the Domestic Loans with a two year
$10,500,000 Revolving Loan; and
WHEREAS, NBC, Transport and the Affiliates have agreed to acknowledge,
consent and agree that their respective guarantys and security agreements
continue as valid and binding obligations of each of them in favor of Lender,
enforceable in accordance with their terms and guarantying or securing all
obligation of Borrower to Lender under the Loan Agreement and Borrower Security
Agreement, as consolidated, amended, restated and replaced by this Agreement;
and
WHEREAS, Robert A. Weitzel has agreed to execute and deliver to Lender
a Limited Guaranty Agreement of even date herewith; and
WHEREAS, the Borrower has agreed to pay the Lender, one-half at closing
and one-half on July 31, 1997, a restructure and documentation fee of $120,000;
and
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<PAGE> 3
WHEREAS, Borrower desires, from time to time hereafter, to borrow from
Lender, and Lender is willing and may, from time to time hereafter, be willing
to make loans to Borrower, subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the terms and conditions contained
herein, and of any extension of credit heretofore, now or hereafter made by
Lender to Borrower, the parties hereto hereby agree as follows:
1. GENERAL
-------
1.1 DEFINED TERMS. When used herein, the following terms shall
have the following meanings:
ACCOUNTS - All of Borrower's accounts, contracts, contract
rights, notes, bills, drafts, acceptances, general intangibles, choses in
action, and all other debts, obligations and liabilities in whatever form owing
to Borrower from any Person, whether now existing or hereafter arising, now or
hereafter received by or belonging or owing to Borrower, for goods sold or
leased or for services rendered, whether or not earned by performance and
whether or not evidenced by contracts, instruments or documents, or however
otherwise the same may have been established or created, all guarantees and
security therefor, all right, title and interest of Borrower in the merchandise
or services which gave rise thereto, including the rights of reclamation and
stoppage in transit, and all rights of an unpaid seller of merchandise or
services.
ACCOUNT DEBTOR - Any person who is or may become obligated to
Borrower under, with respect to, or on account of an Account.
AFFILIATE - The Affiliates and each Subsidiary and each
executive officer and director of the Borrower or any other Person:
(i) Which, directly or indirectly, through one or more
intermediaries controls, or is controlled by, or is under common
control with, Borrower;
(ii) Which owns or controls, on an aggregate basis, including
all beneficial ownership and ownership or control as a trustee,
guardian or other fiduciary, at least ten percent (10%) or more of any
class of the Voting Stock of Borrower; or
(iii) Ten percent (10%) or more of the Voting Stock (or in the
case of a Person which is not a corporation, ten percent (10%) or more
of the equity interest) of which is beneficially owned or held by
Borrower.
The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of Voting Stock, by contract
or otherwise.
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<PAGE> 4
AGREEMENT - This Third Amended and Restated Consolidated
Replacement Credit Facility and Security Agreement, as it may be amended from
time to time pursuant to Section 13.1 hereof.
BANKRUPTCY LAWS - All statutes, rules, regulations and other
forms of law, federal, state or otherwise, including, without limitation, the
provisions of Title 11 of the United States Code, in each instance as in effect
from time to time, relating to the bankruptcy, insolvency, liquidation or
reorganization of debtors or the modification or alteration of the rights of
creditors.
BASE RATE - The Lender's Prime Rate for commercial loans, as
in effect from time to time, or such other designation announced in replacement
of such Prime Rate for commercial loans, which in either instance may not
necessarily be the most favorable or lowest or best rate offered by Lender.
CAPITAL EXPENDITURES - Amounts expended or which Borrower
becomes obligated to expend, without regard to the manner in which such amounts
or the instrument pursuant to which they are made are characterized by any
Person, (i) for the acquisition, construction or installation of properties that
are to be included as fixed assets on Borrower's books, (ii) for the lease of
any property that would be capitalized under GAAP, (iii) for the incurrence of
any other capitalized cost or (iv) for any additions to or replacements of any
of the foregoing.
CASH COLLATERAL ACCOUNT - A commercial deposit account
designated "cash collateral account" maintained by Borrower with Lender, without
liability by Lender to pay interest thereon, from which Cash Collateral Account
Lender shall have the exclusive right to withdraw funds until all Obligations
are paid, performed, satisfied, enforced and observed in full.
CODE - The Uniform Commercial Code as adopted and in force in
the State of Ohio as from time to time in effect.
COLLATERAL - The Fixed Collateral and Revolving Collateral,
collectively together with all of the Property and interests of Borrower therein
otherwise described in Section 4.1 of this Agreement and all other Properly of
the Borrower now or at any time or times hereafter subject to a Lien in favor of
Lender.
COLLATERAL LOCATION - The Principal Business Location and such
other locations as may be identified on EXHIBIT B attached hereto, if any,
together with such other locations at which any Collateral consisting of
tangible personal property may be located provided Lender has, in writing,
approved and designated such location as a Collateral Location hereunder,
subject to any conditions which Lender may designate and provided:
(i) Such location is a location as to which Borrower gives
Lender prior written notice at least forty-five (45) days prior to
using such location; and
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(ii) Such location is located within the United States of
America; and
(iii) Borrower has executed and delivered to Lender
appropriate financing statements with respect to the Collateral located
at such location showing Borrower as debtor and Lender as secured
party; and
(iv) A search of all filings made against Borrower or such
Collateral in the jurisdiction in which the location is located, made
after the filing of the financing statements referred to in (iii)
above, confirms that the Lender's security interest in the Collateral
at such location constitutes a first priority Lien on such Collateral
(subject to any Permitted Liens); and
(v) Lender has obtained a written lien waiver in favor of
Lender from each lessor, mortgagee, bailee, warehouseman or similar
Person who may, by operation of law or otherwise, have any Lien in or
upon such Collateral at such location, in such form and containing such
assurances as may be requested by Lender.
COMMITMENT - Lender's letter to Borrower dated March 21, 1997,
as accepted by Borrower on March 25, 1997.
COMMITMENT FEE - As defined in Section 2.12 of this Agreement.
CONTRACT RATE - A fluctuating rate equal to one and one-half
percentage points (1.5%) above the Base Rate; provided, however, if Borrower has
not completed an initial public offering of its stock prior to December 31,
1997, the Contract Rate shall be modified in accordance with paragraph 13 of the
Commitment.
CONTRACT YEAR - The twelve (12) month period which commences
on each anniversary of the execution of this Agreement.
CREDIT DOCUMENTS - This Agreement, the Notes, and all other
agreements, instruments and documents (including, without limitation, all
assignments, security agreements, mortgages, deeds of trust, lien waivers,
subordinations, guarantees, pledges, powers of attorney and consents)
heretofore, now or hereafter executed by Borrower or any other Person and/or
delivered to Lender in respect of the transactions contemplated by this
Agreement, in each instance as amended from time to time.
DEBT INSTRUMENTS - Any contract, agreement, instrument or
other document or arrangement under which the Borrower has (i) any indebtedness,
obligation or liability (including, without limitation, any contingent liability
under any Guaranty) for borrowed money or for the deferred portion of the
purchase price of any capital asset or for other capital financing or (ii) the
right or obligation to incur any such indebtedness, obligation or liability.
DEFAULT RATE - A fluctuating rate of interest equal to six
percentage points (6.0%) above the Contract Rate.
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DEPOSITORY ACCOUNT - As defined in Section 5.2(A) of this
Agreement.
DEPOSITORY AGREEMENT - As defined in Section 5.2(A) of this
Agreement.
DEPOSITORY BANK - As defined in Section 5.2(A) of this
Agreement.
DISTRIBUTION - In respect of Borrower means:
(i) The payment of any dividends or other distributions,
whether in cash, by transfer of property or otherwise, on capital stock
of Borrower (except distributions of such stock); and
(ii) The redemption or acquisition of any Securities of
Borrower.
DOMESTIC TERM LOAN - The Tenn Loan by Lender to Borrower
evidenced by the Domestic Term Loan Promissory Note dated January 1, 1996, in
the original principal amount of $900,000 with a current outstanding principal
amount of $400,000 due on December 31, 1997.
ELIGIBLE ACCOUNTS - Accounts of the Borrower due and payable
within thirty (30) days from the date of billing to the extent arising out of
the completed bona fide sale or lease of goods or rendition of services by
Borrower in the ordinary course of Borrower's business and in accordance with
the terms and conditions of all purchase orders, contracts or other documents
relating thereto, subject to Lender's perfected security interest and no other
Lien or security interest except Permitted Liens, and for a liquidated without
maturing as stated in an invoice or other documentary evidence relating thereto
which has been provided, and is in form satisfactory, to Lender, provided, that,
unless Lender otherwise agrees, no such Account shall be an Eligible Account if:
(i) It arises out of a sale made by Borrower to an Affiliate
of Borrower or to a Person controlled by an Affiliate of Borrower; or
(ii) It is due or unpaid more than ninety (90) days after the
invoice date thereof, or
(iii) It is payable by an Account Debtor which, at any time
while such Account remains unpaid, is liable to Borrower in respect of
any other Account which is not other%vise deemed an Eligible Account
hereunder; or
(iv) The Account Debtor claims any right of credit, allowance
or adjustment with respect to such Account by the Account Debtor,
except a discount allowed for prompt payment, or such Account is
otherwise disputed or contingent in any respect; or
(v) The Account Debtor has returned any of the goods from the
sale of which the Account arose; or
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(vi) There exist any facts, events or circumstances which in
any way impair the validity, collectability or enforcement of such
Account or would tend to reduce the amount payable thereunder from the
face value of the invoice related thereto; or
(vii) The Account Debtor is also Borrower's creditor or
supplier or the Account otherwise is or may become subject to any right
of offset by the Account Debtor; or
(viii) The Account Debtor has commenced a voluntary case under
any Bankruptcy Laws, as now constituted or hereafter amended, or made
an assignment for the benefit of creditors, or a decree or order for
relief has been entered by a court having jurisdiction in the premises
in respect of the Account Debtor in an involuntary case under any
Bankruptcy Laws or any other petition or other application for relief
under any Bankruptcy Laws has been filed against the Account Debtor, or
the Account Debtor has failed, suspended business, ceased to be
solvent, or consented to or suffered a receiver, trustee, liquidator or
custodian to be appointed for it or for all or a significant portion of
its assets or affairs; or
(ix) The sale to the Account Debtor is on a bill-and-hold,
guaranteed sale, sale-and-return, sale on approval, consignment or any
other repurchase or return basis or is evidenced by chattel paper; or
(x) Lender believes that collection of such Account is
insecure or that such Account may not be paid by reason of the Account
Debtor's financial inability to pay; or
(xi) The Account Debtor is the United States of America or any
department, agency or instrumentality thereof, unless Borrower assigns
its fight to payment of such Account to Lender pursuant to the
Assignment of Claims Act of 1940, as amended; or
(xii) The goods giving rise to such Account have not been
shipped and delivered to and accepted by the Account Debtor or the
services giving rise to such Account have not been fully performed by
Borrower and accepted by the Account Debtor or the Account otherwise
does not represent a final sale; or
(xiii) The Account, when added to the aggregate balance of all
other Accounts of the Account Debtor, exceeds a credit limit determined
by Lender, in its sole discretion, to the extent such Account exceeds
such limit; or
(xiv) Lender in its reasonable credit judgment otherwise deems
such Account to be ineligible or that such Account or the Account
Debtor is unsatisfactory in any respect.
Eligible Accounts with respect to which the account debtor is
not a resident of the United States are Eligible Accounts - Foreign and Eligible
Accounts with respect to which the account debtor is a resident of the United
States are Eligible Accounts - Domestic.
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ERISA - The Employee Retirement Income Security Act of 1974,
as amended from time to time, and all rules and regulations from time to time
promulgated thereunder.
EVENT OF DEFAULT - As defined in Section I 1. I of this
Agreement.
FINANCIAL STATEMENTS - The consolidated balance sheet of the
Borrower, NBC, Transport and the Affiliates as of December 31, 1996 and the
related statements of income and cash flows for the fiscal period then ended,
copies of which are attached hereto as EXHIBIT D.
FIXED COLLATERAL - All fixed assets (including real property)
of the Borrower including, without limitation, all machinery, equipment,
furniture, furnishings, fixtures, tools, dies, molds, parts, motor vehicles,
material handling equipment, supplies of every kind and description, now or
hereafter owned by the Borrower, or in which the Borrower may have or may
hereafter acquire any interest, wheresoever located, including, without
limitation, the items of Fixed Collateral described in EXHIBIT E attached to
this Agreement.
GAAP - Generally accepted accounting principles consistently
applied.
GUARANTY - All obligations of any Person (the "guarantor")
which guarantee, or in effect guarantee, or assure the payment of, or
performance with respect to, any indebtedness, liability, or other obligation of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including but not limited to, obligations incurred by such guarantor
through an agreement, contingent or otherwise:
(i) To purchase such indebtedness, liability or obligation
or any Property or assets constituting security therefor; or
(ii) To advance or supply funds:
(a) For the purchase or payment of such
indebtedness, liability or obligation; or
(b) To maintain working capital or other balance
sheet condition or otherwise to advance or make available
funds for the purchase or payment of such indebtedness,
liability or obligations; or
(iii) To lease Property or to purchase any Security or other
Property or services primarily for the purpose of assuring the owner of
such indebtedness, liability or obligation of the ability of the
primary obligor to make payment of the indebtedness, liability or
obligations; or
(iv) Otherwise to assure the owner of the indebtedness,
liability or obligation of the primary obligor against loss in respect
thereof.
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INDEBTEDNESS - All Borrower's present and future obligations,
liabilities, debts, claims and indebtedness, contingent, fixed or otherwise,
however evidenced, created, incurred, acquired, owing or arising (whether under
written or oral agreement, by operation of law or otherwise), including, without
limitation, (i) the Obligations, (ii) any obligations or liabilities of any
Person which are secured by any Lien upon Property of the Borrower, even though
Borrower has not assumed or otherwise become liable for the payment thereof,
(iii) any obligations or liabilities created or arising under any lease
(including capitalized leases) or under any conditional sales contract or other
title retention agreement with respect to Property used or acquired by Borrower,
even though the rights and remedies of the lessor, seller or lender are limited
to repossession, (iv) any obligations or liabilities arising under any lease or
other contractual arrangement relating to security deposits, advance payments or
other prepaid funds in the hands of or held by the Borrower subject to return or
refund to any Person, (v) all unfunded pension fund obligations and liabilities
and (vi) deferred taxes of any nature.
INVENTORY - All inventory now owned or hereafter acquired by
Borrower, including without limitation, all goods, merchandise, work in process,
raw materials, finished goods, and all other materials, supplies and tangible
personal property of any kind, nature or description held for sale or lease or
for display or demonstration, or furnished or to be furnished under contracts of
service or which are or which might be used or consumed in connection with the
manufacturing, packing, shipping, advertising, selling, leasing or furnishing of
such goods, merchandise or other personal property and all documents of title or
other documents pertaining thereto.
LENDER'S ACCOUNT - As defined in Section 5.2(C) of this
Agreement.
LIEN - Any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common LAW, statute or contract, including, but not
limited to, the security interest or lien arising from a mortgage, encumbrance,
pledge, conditional sale, trust receipt or lease, consignment or bailment for
security purposes.
LOAN ACCOUNT - An account maintained by Lender on its books,
which shall evidence all advances under the Domestic Term Loan, the Revolving
Loan and the Term Loan, interest thereon, other amounts due Lender with respect
to the Domestic Term Loan, the Revolving Loan and the Term Loan, and all
payments thereof by Borrower.
LOCKBOX - As defined in Section 5.2(B) of this Agreement.
MATERIAL ADVERSE EFFECT - As to any events, occurrences or
conditions, if the result thereof would, either singly or in the aggregate, have
a material and adverse effect on (i) the Borrower's Property, business,
operations, prospects, profitability or condition (financial or otherwise), (ii)
Borrower's ability to repay the Obligations or (iii) Lender's Lien on the
Collateral or the priority thereof.
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<PAGE> 10
MATERIAL AGREEMENTS - Those contracts, agreements, documents
or other arrangements required to be disclosed under the provisions of Section
7. 1 (C) of this Agreement.
NOTES - The Domestic Tenn Loan Promissory Note, the Revolving
Note, the Term Note and any other promissory note or other instrument evidencing
the Borrower's obligation to repay any Obligations.
OBLIGATIONS - All debts, liabilities and obligations of the
Borrower to Lender under this Agreement and also any and all other debts,
liabilities and obligations of Borrower to Lender of every kind and description,
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, including without limiting the generality of the
foregoing, any debt, liability or obligation of Borrower to Lender under any
Guaranty, or of Borrower to any other Person which Lender may have obtained by
assignment or otherwise and all interest, fees, charges and expenses which at
any time may be payable by Borrower to Lender.
ORIGINATION FEE - As defined in Section 2.9 of this Agreement.
PENSION PLAN - Any pension plan, retirement payment plan,
profit-sharing plan, defined benefit or contribution plan or "employee pension
benefit plan" as defined in Section 3(2) of ERISA.
PERMITTED INDEBTEDNESS - As defined in Section 8.2(C) of this
Agreement.
PERMITTED LIENS - As defined in Section 8.2(G) of this
Agreement.
PERSON - An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
PRIME RATE - The interest rate established from time to time
by Lender as the Lender's Prime Rate, whether or not publicly announced, which
may not necessarily be the most favorable or lowest or best rate offered by
Lender.
PROPERTY - Any kind of property or asset, whether real,
personal or mixed, or tangible or intangible, or any interest, including,
without limitation, any leasehold interest, held in any such properties or
assets.
RESTRICTED INVESTMENT - As defined in Section 8.2(R) of this
Agreement.
REVOLVING COLLATERAL - All of Borrower's
(i) Inventory;
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<PAGE> 11
(ii) contract rights and general intangibles, including,
without limitation, goodwill, trademarks, trademark applications, trade
styles, trade names, patents, patent applications, and deposit accounts
whether now owned or hereafter created or acquired;
(iii) Accounts and other receivables, together with all
customer lists, original books and records, ledger and account cards,
computer tapes, discs, printouts and records, whether now in existence
or hereafter created; and
(iv) documents, warehouse receipts, instruments and chattel
paper, whether now owned or hereafter created.
REVOLVING LOAN - As defined in Section 2.3 of this Agreement.
REVOLVING NOTE - The revolving promissory note to be executed
by Borrower in the form attached as EXHIBIT C- I to this Agreement (with such
changes or modifications, if any, to which Lender may agree) evidencing the
Revolving Loan made by Lender pursuant to Section 2.3 of this Agreement,
together with all amendments thereto and all promissory notes issued in
substitution therefor or replacement thereof.
SECURITY - As defined in Section 2(l) of the Securities Act of
1933, as amended.
SEIDLER - Seidler Capital Partners L.P., a Delaware limited
partnership.
STOCKHOLDER'S EQUITY - At any time, the aggregate of
Subordinated Debt plus the sum of the following amounts set forth in a balance
sheet of the Borrower, prepared in accordance with GAAP:
(i) the par or stated value of all outstanding capital
stock; and
(ii) capital surplus; and
(iii) retained earnings.
SUBORDINATED DEBT - Such Indebtedness which is subordinated
and junior in right of payment to the Obligations to the extent, in such manner,
and pursuant to an instrument evidencing such subordination, acceptable to
Lender.
SUBSIDIARY - Any corporation of which more than 50% of the
Voting Stock is at any time, directly or indirectly, owned by Borrower and/or
one or more subsidiaries.
TANGIBLE NET WORTH - At any time, Stockholder's Equity, less
the sum of:
(i) any surplus resulting from any write-up of assets of
Borrower subsequent to December 31, 1996; and
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<PAGE> 12
(ii) good will, contracts and non-competition agreements,
including any amounts, however designated on a balance sheet of the
Borrower, representing the excess of the purchase price paid for assets
or stock acquired over the value assigned thereto on the books of the
Borrower; and
(iii) proprietary rights of Borrower, including all patents,
trademarks, trade names and copyrights; and
(iv) loans, including principal and accrued but unpaid
interest, and advances to stockholders, directors, officers or
employees of Borrower; and
(v) deferred expenses.
TERM LOAN - The Term Loan, as defined in Section 2.1 of this
Agreement.
TERM NOTE - The term promissory note to be executed by
Borrower in the form attached as EXHIBIT C-2 to this Agreement (with such
changes or modifications, if any, to which Lender may agree) evidencing the Term
Loan made by Lender pursuant to Section 2.1 of this Agreement, together with all
amendments thereto and all promissory notes issued in substitution therefor or
replacement thereof.
TREASURY RATE - A fixed rate equal to four hundred twenty-five
basis points over the six month Treasury Bill yield at the date hereof,
provided, however, that such rate shall not be lower than 9.7%.
VOTING STOCK - Securities of any class or classes of a
corporation which, at the time of reference thereto, entitle the holders to
elect a majority of the corporate directors.
1.2 ACCOUNTING TERMS. Any accounting terms used in this Agreement which
are not otherwise specifically defined shall have the meanings customarily given
them in accordance with GAAP.
1.3 OTHER TERMS. All other terms contained in this Agreement shall
have, unless the context indicates to the contrary, the meanings provided for by
the Code to the extent the same are used or defined therein.
1.4 USE OF PLURAL FORM. All definitions shall be equally applicable to
both the singular and plural forms of the defined terms.
2. LOANS AND ADVANCES
------------------
Subject to the terms and conditions of this Agreement and each of the
other Credit Documents, and otherwise provided that no loans or advances need be
made by Lender if, at the date of any request for a loan or advance hereunder by
Borrower, an Event of Default or event or condition which, with notice, lapse of
time or both, would constitute an Event of Default then
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<PAGE> 13
exists, Lender will provide the credit facility described in this Section 2 for
the account of Borrower.
2.1 TERM LOAN.
Lender will make a term loan (the "Term Loan") to Borrower in
the principal amount of Two Million Dollars ($2,000,000). The Tenn Loan shall be
subject to repayment in accordance with, and bear interest as provided in
Section 2.2 of this Agreement and shall otherwise be evidenced by, and repayable
in accordance with, the Term Note.
2.2 Payment Terms of Term Loan.
(A) INTEREST. The Term Loan shall bear interest on the unpaid
principal balance until the date paid at the Treasury Rate, such interest being
payable monthly on the I st day of each month, commencing May 1, 1997. Interest
on the Tenn Loan shall be computed on a 360- day year basis based upon the
actual number of days elapsed.
(B) FIXED PRINCIPAL INSTALLMENTS. Subject otherwise to the
terms and provisions of the Term Note, the principal balance of the Term Loan
shall be payable in six (6) consecutive equal monthly principal installments of
Forty-One Thousand Six Hundred Sixty-Seven Dollars ($41,667.00) each, commencing
May 1, 1997, and continuing on the 1st day of each month thereafter, and a final
principal installment of One Million Seven Hundred Forty-Nine Thousand Nine
Hundred Ninety-Eight Dollars ($1,749,998) on November 1, 1997.
2.3 REVOLVING LOAN.
(A) REVOLVING LOAN. Subject at all times to the terms hereof,
the Lender will, from and after April 1, 1997 until March 31, 1999 make such
loans to the Borrower as from time to time the Borrower requests (the "Revolving
Loan") consisting of advances made by Lender against the value of Eligible
Accounts-Domestic and Eligible Accounts-Foreign. Subject to the provisions of
Subsection (B) of this Section 2.3, the aggregate unpaid principal of the
Revolving Loan outstanding at any one time shall not exceed the lesser of (a)
the line of credit approved for Borrower, which is currently Ten Million Five
Hundred Thousand Dollars ($10,500,000), less the outstanding principal balance
of the Domestic Tenn Loan, one-half the outstanding principal balance of the
Term Loan and the face amount of all outstanding Letters of Credit issued by
Lender for the account of Borrower or (b) the sw-n of (i) eighty percent (80%)
of the unpaid face amount of Eligible Accounts Domestic (or such other
percentages of Eligible Accounts-Domestic as may from time to time be fixed by
the Lender upon notice to the Borrower) and (ii) the lesser of fifty percent
(50%) of the unpaid face amount of Eligible Accounts-Foreign (or such other
percentages of Eligible Accounts Foreign as may from time to time be fixed by
the Lender upon notice to the Borrower) or Three Hundred Fifteen Thousand
Dollars ($315,000) (or such other dollar amount as may from time to time be
fixed by the Lender upon notice to the Borrower).
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<PAGE> 14
(B) MAXIMUM BORROWINGS AVAILABLE UNDER REVOLVING LOAN.
Notwithstanding anything to the contrary contained in this Section 2.3, at no
time shall the loans outstanding at any time under the Revolving Loan exceed Ten
Million Five Hundred Thousand Dollars ($10,500,000).
(C) PAYMENT. The Revolving Loan shall be payable on March 31,
1999 and bear interest as provided in Section 2.3(D) of this Agreement and shall
otherwise be evidenced by, and repayable in accordance with, the Revolving Note,
but in the absence of such revolving promissory note shall be evidenced by the
Lender's record of disbursements and repayments.
(D) INTEREST ON REVOLVING LOAN. The Revolving Loan shall bear
interest on the unpaid principal balance from time to time outstanding until the
date paid at a rate per annum equal to the Contract Rate, such interest being
payable monthly on the I st day of each month, commencing May 1, 1997, and at
maturity. Any increase or decrease in the interest rate resulting from a change
in the Base Rate shall become effective on the date of such change. Interest
shall be computed on a 360-day year basis based upon the actual number of days
elapsed.
2.4 LETTERS OF CREDIT. Prior to the maturity of the Revolving Loan,
Borrower may request letters of credit ("Letters of Credit") be issued by the
Lender not to exceed the aggregate maximum face amount of One Million Five
Hundred Thousand Dollars ($1,500,000) at any one time outstanding, subject to
the following terms and conditions:
(A) Lender will issue a requested Letter of Credit if such
request is approved by the Lender, in its sole discretion, and no Default or
Event of Default shall then exist.
(B) Borrower shall pay to the Lender a letter of credit fee
equal to one and one-quarter percent (1.25%) per annum for each Letter of Credit
issued based upon the face amount thereof. Such fee shall be paid by Borrower
upon the issuance of any such Letter of Credit and upon any extension, renewal
or amendment of such Letter of Credit. Borrower shall execute and deliver to
Lender its standard form(s) pertaining to applications for Letters of Credit and
such other documents as the Lender in its sole discretion may from time to time
require (in form and substance satisfactory to the Lender) in issuing such
Letter of Credit.
(C) (i) No Letter of Credit will have an expiry date later
than three (3) days prior to the maturity of the Revolving Loan in effect at the
date of issuance of such Letter of Credit, and (ii) no Letter of Credit will
provide for any draft to be paid after the maturity of the Revolving Loan in
effect at the date of issuance of such Letter of Credit.
(D) All Letters of Credit issued hereunder will, except to the
extent otherwise expressly provided, be governed by the Uniform Customs and
Practice for Documentary Credits, International Chamber of Commerce Publication
No. 500 (effective January 1994), and any subsequent revisions thereof.
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<PAGE> 15
(E) In no event shall a Letter of Credit be issued hereunder
if, after giving effect to such issuance, the aggregate principal amount of the
Revolving Loan outstanding and the face amount of all issued and outstanding
Letters of Credit shall exceed the lesser of (i) the amount of the Revolving
Loan or (ii) the amount of the Revolving Loan available to Borrower under
Section 2.3(A)(b) hereof.
(F) Each Letter of Credit issued hereunder shall automatically
reduce the then aggregate unused amount of the Revolving Loan available to
Borrower under Section 2.3 (A)(a) hereof throughout the duration of such Letter
of Credit by an amount equal to the face amount of such Letter of Credit.
2.5 OPTIONAL CHARGE AGAINST REVOLVING LOAN. To the extent Borrower does
not remit, when due, any payments of interest or, in the case of loans other
than the Revolving Loan, any payment of principal, or any other payment required
to be made by Borrower to the Lender pursuant to the terms of any of the Credit
Documents, the Lender may, at its option, make such payment by increasing the
outstanding principal balance of the Revolving Loan in order to prevent such
amount from becoming past due, but it is expressly acknowledged and agreed that
Lender shall be under no obligation to do so.
2.6 LOAN ACCOUNT. Lender shall debit to the Loan Account the amount of
each advance under the Revolving Loan, all interest on the Revolving Loan and
the amount of all other compensation or fees payable to Lender in respect of the
Revolving Loan and shall credit to the Loan Account the amount of each payment
of principal and interest on the Revolving Loan and the amount of all payments
of any other amounts payable under the Revolving Loan by appropriate entries.
Any accounting rendered by the Lender to the Borrower shall be deemed correct
and presumptively binding upon the Borrower unless the Borrower notifies the
Lender by certified mail, return receipt requested, within thirty (30) calendar
days after the date when each such accounting is mailed or otherwise delivered
to the Borrower.
2.7 ALL ADVANCES TO CONSTITUTE ONE LOAN. The Revolving Loan, the Term
Loan, the Domestic Term Loan, and all other sums owed by Borrower to Lender
under this Agreement, whether or not evidenced by the Notes, shah constitute one
obligation of Borrower, secured by Lender's lien on and security interest in all
of the Collateral. Borrower shall be liable to Lender for all Obligations
hereunder, regardless of whether such Obligations arise as a result of advances
made directly to Borrower, it being stipulated and agreed that all monies
advanced by Lender hereunder inure to the benefit of Borrower, and that Lender
is relying on the liability of Borrower in extending credit and otherwise making
advances hereunder.
2.8 EARLY TERMINATION FEE. In the event that the Domestic Term Loan,
the Revolving Loan and/or the Tenn Loan are paid in full (other than as a result
of payment of the Domestic Tenn Loan or the Term Loan at maturity, or scheduled
reductions of the Tenn Loan by way of payments in accordance with the Tenn Note,
or the expiration of the Revolving Loan at maturity) as a result of a
refinancing, or in the event of any intentional noncompliance by Borrower with
any provisions of this Agreement which results in a termination of the Credit
Facility by Lender pursuant to Sections 11.2 or 11.4 hereof, Borrower will pay
Lender an early
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<PAGE> 16
termination fee of Two Hundred Forty Thousand Dollars ($240,000), in order to
compensate Lender for its reliance expenses and loss of anticipated profits. It
is acknowledged that this fee shall be deemed to be liquidated damages for loss
of a bargain and not a penalty and the same is acknowledged by Borrower to be an
integral part of the consideration for Lender to extend the Credit Facility
hereunder.
2.9 ORIGINATION FEE. In order to compensate Lender for its services in
preparing and reviewing this Agreement and the other Credit Documents and the
documentation relating thereto in connection with this Credit Facility, Borrower
shall pay to Lender an origination fee (the "Origination Fee") of One Hundred
Twenty Thousand Dollars ($120,000), payable one-half on the date of this
Agreement and one-half on July 31, 1997.
2.10 PREPAYMENT. Borrower shall have the right to prepay the Domestic
Ten-n Loan, Revolving Loan and Term Loan, in whole or in part, at any time
without fee or premium other than the Early Termination Fee. Any such prepayment
shall be applied to the installments of principal of the Domestic Term Loan and
Term Loan, as applicable, in the inverse order of their maturities.
2.11 CAPITAL ADEQUACY REQUIREMENT.
(A) In the event that Lender shall have determined that the
adoption of any law, rule or regulation regarding capital adequacy after the
date of this Agreement, or any change therein or in the interpretation or
application thereof after the date of this Agreement or compliance by Lender
with any request or directive regarding capital adequacy (whether or not having
the force of law) from any central bank or governmental authority after the date
of this Agreement does or shall have the effect of reducing the rate of return
on Lender's capital as a consequence of its obligations under this Agreement to
a level below that which Lender could have achieved but for such adoption,
change or compliance (taking into consideration Lender's policies with respect
to capital adequacy) by an amount deemed by Lender, in its sole discretion, to
be material, then from time to time, after submission by Lender to Borrower of a
written demand therefor, Borrower shall pay to Lender such additional amount or
amounts as will compensate Lender for such reduction.
(B) A certificate of Lender claiming entitlement to payment as
set forth above shall be conclusive in the absence of manifest error. Such
certificate shall set forth the nature of the occurrence giving rise to such
payment, the additional amount or amounts to be paid to Lender, and the method
by which such amounts were determined. In determining such amount Lender may use
any averaging and attribution method.
(C) In no contingency or event whatsoever shall the aggregate
of all amounts payable by Borrower to Lender pursuant to this Section 2.11 and
the other sections of this Agreement exceed the highest rate of interest
permissible under any law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto. To the fullest extent permitted
under applicable law, Borrower and Lender shall characterize any payments made
pursuant to this Section 2.11 as an expense, fee or premium rather than as
interest.
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2.12 COMMITMENT FEE. Borrower shall pay to Lender, quarterly in
arrears, on April 1, July 1, October 1 and January 1 of each calendar year and
at maturity of the Revolving Loan, and, if the Revolving Loan is hereafter
renewed, on the date of renewal and annually thereafter if renewed for a period
of more than one (1) year, a commitment fee (the "Commitment Fee") of one-fifth
of one percentage point (0.20%) of the daily average unused amount of the
maximum borrowings available under the Revolving Loan pursuant to Section 2.3(C)
of this Agreement, whether the Borrower shall be entitled to request such amount
pursuant to Section 2.3(A) of this Agreement or not.
3. DEFAULT INTEREST
----------------
Upon and after the occurrence of an Event of Default, and during the
continuation thereof, unless Lender otherwise agrees, the Obligations shall bear
interest, calculated daily on the basis of a three hundred and sixty (360) day
year, for the actual days elapsed, at the Default Rate.
4. COLLATERAL: GENERAL TERMS
-------------------------
4.1 GRANT OF SECURITY INTEREST. To secure the prompt payment and
performance of the Obligations, and in addition to any other Collateral securing
the Obligations, Borrower hereby grants to Lender a continuing security interest
in and to all of the following Property of Borrower, whether now owned or
existing or hereafter acquired or arising and wheresoever located:
(A) all Fixed Collateral;
(B) all Revolving Collateral;
(C) any and all deposits or other sums at any time credited by
or due from Lender to Borrower, whether in a Depository Account or other
account, together with any and all instruments, documents, policies and
certificates of insurance, securities, goods, Accounts, choses in action,
general intangibles, chattel paper, cash or other Property, and the proceeds of
each of the foregoing, to the extent owned by the Borrower or in which Borrower
has an interest and which now or hereafter are at any time in the possession or
control of the Lender or in transit by mail or carrier to or from Lender or in
the possession of any Person acting on Lender's behalf, without regard to
whether Lender received the same in pledge, for safekeeping, as agent for
collection or transmission or otherwise or whether Lender had conditionally
released the same, and any and all balances, sums, proceeds and credits of
Borrower with, and any claims of Borrower against, Lender;
(D) All accessions to, substitutions for and all replacements,
products and proceeds of the Property described in Subsections (A), (B) and (C)
above, including, without limitation, proceeds of insurance policies insuring
such Property; and
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(E) All books, records and other property (including without
limitation, credit files, programs, printouts and other materials and records)
of Borrower pertaining to any of the Property described in Subsections (A), (B),
(C) or (D) above.
4.2 REPRESENTATIONS, WARRANTIES AND COVENANTS -- COLLATERAL. Borrower
represents, warrants and covenants to Lender that, except as otherwise permitted
herein or in any of the other Credit Documents:
(A) The Collateral is now, and so long as Borrower is
obligated to Lender will be, owned solely by Borrower and no other Person has or
will have any right, title, interest, claim or Lien therein, thereon, or
thereto, whether by assignment or otherwise pursuant to any Lien, encumbrance or
security interest, other than pursuant to Liens constituting Permitted Liens
hereunder;
(B) Borrower shall pay and discharge when due all taxes,
levies, and other charges upon the Collateral and shall defend Lender against
and save Lender and the Collateral harmless from all claims of any Person with
respect thereto; and
(C) Borrower will at all times keep accurate and complete
records of all Collateral.
4.3 PERFECTION OF LENDER'S SECURITY INTEREST IN COLLATERAL. Borrower
agrees to execute such financing statements provided for by applicable law, and
to otherwise take such other action, and execute such assignments or other
instruments or documents, in each case as Lender may request, to evidence,
perfect or record Lender's security interest in the Collateral. Borrower hereby
authorizes Lender to execute and file any such financing statement or
continuation statement on Borrower's behalf if Borrower fails to do the same
promptly upon Lender's request. The parties agree that a carbon, photographic or
other reproduction of this Agreement shall be sufficient as a financing
statement.
4.4 LOCATION OF COLLATERAL. Borrower warrants and covenants that,
except for Inventory in transit and as otherwise approved by Lender in writing,
all Collateral is, and will remain, at all times, at a Collateral Location.
4.5 INSURANCE. Borrower will cause to be kept adequately insured,
either by (i) financially secure and reputable insurers or (ii) through self
insurance, all of its properties (both real and personal) with coverage similar
to that which is usually maintained by persons and/or businesses engaged in the
same or similar business as Borrower, as the case may be (but in no event less
than full insurable value thereof), against loss or damage resulting from fire
and other risks, and maintain in full force and effect public liability
insurance against claims for personal injury, death or property damage occurring
upon, in or about any property occupied or controlled by Borrower or arising in
any manner out of business carried on by Borrower in such amounts as Borrower
shall reasonably determine, naming the Lender as a co-insured or loss payee; and
Borrower shall provide the Lender with a certificate thereof. In addition,
Borrower will maintain policies of insurance issued by companies approved by the
Lender insuring the
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Collateral against loss caused by reasonably anticipated perils normally covered
by an extended coverage endorsement in an amount equal to the full insurable
replacement cost thereof or such other amount as Lender may approve. Such
policies shall name the Lender as an insured and shall have an endorsement
making loss payable directly to the Lender. Such policies shall provide that may
not be cancelled without at least 30 days' prior written notice to the Lender.
Borrower shall provide the Lender with a certificate of such coverage on demand.
Except during the continuance of a Default or an Event of Default proceeds of
property damage insurance (i) less than $25,000 shall be delivered to the
Borrower, (ii) in excess of $25,000 shall be paid directly to the Lender to be
either, (a) delivered to the Borrower for the purpose of preparing, replacing or
restoring the damaged or destroyed property or (b) applied to any of the
Obligations, whether or not such Obligation are due and payable. During the
continuance of a Default of Event of Default all proceeds from insurance
policies shall be delivered to the Lender and shall be applied by the Lender to
the Obligations, whether or not such Obligations are due and payable. Borrower
hereby appoints the Lender its attorney in fact to make proofs of loss, to
receipt for any sums collected under said policies and to endorse Borrower's
name to any draft in payment thereof and to take such further steps on behalf of
Borrower as may be necessary to realize such a claim.
4.6 PROTECTION OF COLLATERAL REIMBURSEMENT. All insurance expenses and
all expenses of protecting, storing, warehousing, insuring, handling,
maintaining, and shipping any Collateral, any and all excise, property, sales,
use or other taxes imposed by any state, federal or local authority on any of
the Collateral, or in respect of the sale thereof, or otherwise in respect of
Borrower's business operations which, if unpaid, could result in the imposition
of any Lien upon the Collateral, shall be borne and paid by Borrower. If
Borrower fails to promptly pay any portion thereof when due, except as may
otherwise be permitted hereunder or under any of the other Credit Documents,
Lender may, at its option, but shall not be required to, pay the same. All sums
so paid or incurred by Lender for any of the foregoing and any and all other
sums for which Borrower may become liable hereunder and al I costs and expenses
(including attorneys' fees, legal expenses, and court costs) which Lender may
incur in enforcing or protecting its Lien on or rights and interest in the
Collateral or any of its rights or remedies under this or any other agreement
between the parties hereto or in respect of any of the transactions to be had
hereunder shall be repayable on demand and, until paid by Borrower to Lender
with interest thereon at the Contract Rate, shall be additional Obligations
hereunder secured by the Collateral. Lender shall not be liable or responsible
in any way for the safekeeping of any of the Collateral or for any loss or
damage thereto or for any diminution in the value thereof, except gross
negligence or willful misconduct on the part of Lender while the Collateral is
in the possession of or under the control of Lender, or for any act or default
of an warehouseman, carrier, forwarding agency, or other Person whomsoever.
4.7 INSPECTION. Lender (by any of its officers, employees, agents or
representatives) shall have the right to inspect the Collateral, the premises
upon which any of the Collateral is located, and any and all books, records,
journals, orders, receipts or other correspondence (and to make extracts or
copies thereof as Lender may desire) to verify the amount, quality, quantity,
value and condition of, or any other matter relating to, the Collateral or the
financial condition of Borrower.
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<PAGE> 20
5. PROVISIONS RELATING TO ACCOUNTS
-------------------------------
5.1 CONDITIONS. With respect to Borrower's Accounts, Lender may rely,
in determining which Accounts are Eligible Accounts, on all reports, statements
or representations made by Borrower with respect to any such Account or
Accounts. In the event any Account is or becomes ineligible, Borrower shall
promptly notify Lender upon obtaining knowledge of the same and, in any event,
if any such report, statement or representation by Borrower is breached or
otherwise proves untrue, regardless of Borrower's knowledge thereof, Lender may
deem such Accounts ineligible, but Lender shall retain its security interest in
all Accounts, eligible and ineligible, until all Obligations are paid and
satisfied in full.
5.2 COLLECTION OF ACCOUNTS.
(A) All checks, drafts, cash and other proceeds realized from
the sale of any Inventory or otherwise from the sale or other disposition of any
of the other Collateral, including, without limitation, all proceeds realized
from the collection of the Accounts or otherwise pursuant to any contract right,
note, bill, draft, acceptance, chose in action and other like forms of general
intangibles, and all remittances received by Borrower in respect to the
foregoing, shall, upon receipt by the Borrower, be held by Borrower as trustee
of an express trust for Lender's sole benefit and subject to immediate deposit
(in their original form duly endorsed in blank) in the Cash Collateral Account
or in a special account over which Lender has the sole right and power of
withdrawal, maintained at a financial institution acceptable to Lender (such
financial institution and account being herein referred to as the "Depository
Bank" and "Depository Account" respectively). The Depository Account shall be
subject to the written agreement of the Depository Bank to waive any right of
setoff it might otherwise claim to have against any funds in the Depository
Account and to otherwise charge any costs relative to the Depository Account to
Borrower or such other account(s) as Borrower may maintain with the Depository
Bank, such agreement (the "Depository Agreement") to be in form and substance
acceptable to Lender. Lender assumes no responsibility for any claim of accord
and satisfaction or release with respect to funds which have been deposited in
the Depository Account.
(B) Borrower shall instruct all Account Debtors to mail their
payments directly to a designated post office lockbox (a "Lockbox") maintained
at Borrower's expense, with respect to which only Lender or, should Lender so
agree, a designated financial institution shall have the right of access and all
payments so received shall be subject to immediate deposit into the Depository
Account or Cash Collateral Account.
(C) All funds held in the Depository Account shall be subject
to transfer to the Cash Collateral Account, an account designated by the Lender
(the "Lender's Account") as set forth in the Depository Agreement or as
otherwise designated by Lender. The application of any funds to the payment of
the Obligations shall not occur until Lender's receipt of such funds in cleared
federal funds in the Cash Collateral Account or in Lender's Account. Lender
agrees that all funds received by Lender by wire transfer for the Borrower's
account prior to 10:00 a.m. on any business day of Lender shall be deemed
cleared federal funds in the Cash Collateral Account. Funds received by Lender
by wire transfer for the Borrower's account after
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10:00 a.m. on any business day of Lender shall be deemed cleared federal funds
in the Cash Collateral Account on the next business day of Lender. The order and
method of application of such payment shall be in the sole discretion of Lender.
(D) Lender reserves the right to notify Account Debtors and
other Persons indebted to Borrower of Lender's interest in any such amounts
payable to Borrower and to instruct such Account Debtors and other Persons to
remit the same directly to Lender and upon collection of the same and deposit in
the Cash Collateral Account, or in Lender's Account of all funds arising
therefrom (less any costs of collection and other charges or expenses incurred
in connection therewith as hereinafter provided) in cleared federal funds, the
same shall be subject to application to the Obligations.
5.3 VERIFICATION OF ACCOUNTS. Any of Lender's officers, employees, or
agents shall have the right, at any time or times hereafter, in the name of
Lender, any designee of Lender or in the name of Borrower, to verify the
validity, amount or any other matter relating to any Accounts by mail,
telephone, telegraph, or otherwise.
5.4 ASSIGNMENTS, RECORDS AND SCHEDULES OF ACCOUNTS. Borrower shall
execute and deliver to Lender, on forms supplied by Lender and no less
frequently than once a week, written assignments of all of its Accounts after
shipment of the subject goods, together with copies of invoices and/or invoice
registers related thereto as Lender may from time to time request and, on or
before the last day of each month from and after the date hereof, Borrower shall
deliver to Lender, in form and substance acceptable to Lender, a detailed aged
trial balance, dated as of the last day of the preceding month, of all then
existing Accounts specifying the names, face value and dates of invoices for
each Account Debtor obligated on an Account so listed. Borrower shall also
provide Lender on or before the 10th day of each month, a monthly reconciliation
of unbilled Accounts for the preceding month, and on or before the 30th day of
each month, a monthly reconciliation between Accounts as shown on its General
Ledger and all Borrowing Certificates for the preceding month, each in form
acceptable to Lender and including such detail as Lender shall require. In
addition, Borrower shall, upon Lender's request, furnish Lender with copies of
proof of delivery and the original copy of all documents relating to the
Accounts, including, without limitation, repayment histories and present status
reports, relating to the Accounts and such other matters and information
relating to the status of then existing Accounts as Lender shall reasonably
request.
6. PROVISIONS RELATING TO INVENTORY
--------------------------------
6.1 RETURNED INVENTORY. Borrower shall execute and deliver to Lender,
on forms supplied by Lender and no less frequently than once a week, a report of
all returns of any Inventory and as requested by Lender, provide to Lender
copies of any credit memorandums to the Account Debtor issued in respect
thereof. In all cases, Lender shall be promptly notified of all returns of
Inventory, the reason for such return and the location of such returned
Inventory.
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6.2 INVENTORY REPORTS. Borrower shall furnish Lender with such reports
regarding Inventory as Lender may request at least once each month. Such reports
shall be on forms requested or provided by Lender and shall contain such
detailed information satisfactory to Lender. Borrower shall otherwise conduct a
physical count of its Inventory at such reasonable intervals as Lender may
request, supplying Lender with a copy of such counts accompanied by a report of
the value (at the lower of cost or market value) thereof.
7. REPRESENTATIONS AND WARRANTIES
------------------------------
7.1 GENERAL REPRESENTATIONS AND WARRANTIES. As an inducement to Lender
to make advances hereunder, Borrower, on its own behalf and on behalf of NBC,
Transport and each Affiliate (Borrower, NBC, Transport and the Affiliates
sometimes referred to as an "Obligor" and collectively as the "Obligors" in this
Section 7), warrants, represents and covenants to Lender that:
(A) ORGANIZATION AND QUALIFICATION. Each Obligor is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation and has duly qualified and is authorized to do
business and is in good standing as a foreign corporation in each other state or
jurisdiction where the character of its Property or the nature of its activities
makes such qualification necessary, or in which the failure of Obligors to be so
qualified would have a Material Adverse Effect.
(B) CORPORATE POWERS. Each Obligor has the right and power and
is duly authorized and empowered to enter into, execute, deliver and perform
this Agreement, the Notes, and each of the other Credit Documents to which it is
a party. This Agreement, the Notes, and each of the other Credit Documents to
which any Obligor is a party have each been duly authorized and approved by the
Board of Directors of such Obligor, and are the legal, valid and binding
obligations of such Obligor, enforceable against such Obligor in accordance with
their respective terms. The execution, delivery and performance of this
Agreement and each of the other Credit Documents to which it is a party will not
conflict with or result in any breach of any of the provisions of, or constitute
a default under, or result in the creation of any Lien (other than Permitted
Liens) upon any Property of such Obligor under the provisions of, the Articles
of Incorporation or Code of Regulations of such Obligor or any Material
Agreement.
(C) MATERIAL AGREEMENTS. Except as disclosed on EXHIBIT F
hereto, no Obligor is a party to nor is any Obligor or any of its Property bound
by (i) any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality, (ii) any Debt Instrument, (iii) any
security agreement, mortgage, deed of trust, pledge, assignment or other
document or arrangement whereby any Lien upon any of such Obligor's Property
exists in favor of any Person other than Lender, (iv) any material lease
(capital, operating or otherwise), whether as lessee or lessor thereunder, (v)
any contract, commitment, agreement or other arrangement involving the purchase
or sale of any Inventory by such Obligor, or the license of any right to or by
such Obligor, which, if terminated for any reason, could result in a Material
Adverse Effect, (vi) any contract, commitment, agreement or other arrangement
with any Affiliate, (vii) any written management or employment contract or
contract for personal services
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with any Person, not otherwise an Affiliate, which is not otherwise terminable
at will or on less than ninety (90) days notice without liability, (viii) any
collective bargaining agreement, (ix) any Pension Plan or (x) any other
contract, agreement, understanding or arrangement which, if violated, could have
a Material Adverse Effect.
(D) GENERAL MATTERS. Except as disclosed on EXHIBIT G hereto,
each Obligor (i) has not, during the preceding five (5) years, been known as or
operated under or otherwise used any other corporate or fictitious name, trade
name or tradestyle, (ii) has not, during the preceding five (5) years, been the
surviving corporation of any merger or consolidation and has no Affiliates,
except for its officers and directors, (iii) has no lawsuits, actions,
investigations or other proceedings pending or currently threatened against it
of any nature whatsoever in any court or before any governmental authority,
arbitration board or other tribunal, (iv) holds all permits, certificates,
licenses, orders, registrations, franchises, authorizations and other approvals
from all federal, state, local and foreign governmental and regulatory bodies
necessary for the conduct of its business operations in compliance with
applicable law, (v) has fully complied with all applicable statutes, rules,
regulations and orders, federal, state, local or foreign, including, without
limitation, those relating to environmental protection, occupational safety and
health and equal employment practices, (vi) is not in violation of or in default
under any Material Agreement, (vii) has not received any notice to the effect
that it is not in full compliance with any of the requirements of ERISA or
(viii) has no grievances, disputes or controversies outstanding with any union
or other organization of its employees or threats of work stoppage, strike or
pending demands for collective bargaining.
(E) USE OF PROCEEDS. Borrower's uses of the proceeds of the
Domestic Term Loan, the Term Loan and the Revolving Loan made by Lender to
Borrower pursuant to this Agreement will be in accordance with the Commitment
and are, and will continue to be, legal and proper corporate uses, duly
authorized by the Board of Directors of Borrower, and such uses are and will
continue to be consistent with the Commitment and all applicable laws and
statutes, as in effect from time to time. Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of any regulation of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of the Domestic Tenn Loan,
Term Loan and Revolving Loan to Borrower will be used to purchase or carry (or
refinance any borrowing, the proceeds of which were used to purchase or carry)
any margin stock, or to extend credit to others for the purpose of purchasing or
carrying margin stock.
(F) PATENTS AND TRADEMARKS. Each Obligor owns or possesses all
the patents, trademarks, service marks, copyrights, licenses, and rights with
respect to the foregoing necessary for the conduct of its business without any
known conflict with the rights of others. All such patents, trademarks, service
marks, trade names, copyrights, licenses and other similar intellectual property
rights are listed on EXHIBIT H attached hereto.
(G) SOLVENT FINANCIAL CONDITION. As of the date hereof, and
after giving effect to the transactions contemplated by this Agreement, (i) the
fair saleable value of Borrower's assets is greater than the amount required to
pay its total liabilities, (ii) Borrower is able to pay
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its debts as they mature and is not otherwise insolvent in any respect and (iii)
Borrower's capital is sufficient and not unreasonably small for the business and
transactions in which Borrower is engaged or about to engage.
(H) TITLE TO PROPERTIES. Each Obligor has good, indefeasible
and marketable title to and ownership of all Property it purports to own, which,
in the case of the Collateral, is free and clear of all Liens, except those in
favor of Lender and any Permitted Liens.
(I) FINANCIAL STATEMENTS. The Financial Statements have each
been prepared in accordance with GAAP, consistently applied, and present fairly
the financial position of Obligors at such date and the results of Obligors
operations for such period. There has been no change in the condition, financial
or otherwise, of Obligors as shown on the Financial Statements and no change in
the aggregate value of machinery and equipment owned by Obligors, except changes
in the ordinary course of business, none of which individually or in the
aggregate will have a Material Adverse Effect.
(J) FULL DISCLOSURE. Neither this Agreement, nor any written
statement made by Obligors in connection herewith, contains any untrue statement
of a material fact or omits a material fact necessary to make the statements
contained therein or herein not misleading. There is no fact which any Obligor
has not disclosed to Lender which has, or will have, a Material Adverse Effect.
(K) TAX RETURNS. Each Obligor has filed all federal, state and
local tax returns and other reports it is required by law to file and has,
except as otherwise permitted herein, paid all taxes, assessments, fees and
other governmental charges that are due and payable. The provision for taxes on
the books of each Obligor is adequate for all years not closed by applicable
statutes and for its current fiscal year.
(L) SECURITIES LAWS. Each Obligor's execution and delivery of
this Agreement, the Notes, and each of the other Credit Documents to which it is
a party will not directly or indirectly violate or result in a violation of
Section 7 of the Securities Exchange Act of 1934, as amended, or any regulations
issued pursuant thereto.
(M) O.S.H,A. AND ENVIRONMENTAL MATTERS. Each Obligor has duly
complied with, and its facilities, business, assets, property, leaseholds and
equipment are in compliance in all respects with, the provisions of the Federal
Occupational Safety and Health Act as amended, the Environmental Protection Act
as amended, the Resource Conservation and Recovery Act as amended, the
Comprehensive Environmental Response Compensation and Liability Act of 1980 as
amended and all rules and regulations thereunder and all similar federal, state
and local laws, rules and regulations having jurisdiction over such Obligor's
business and there have been no outstanding citations, notices or orders of
non-compliance issued to such Obligor's or relating to its respective
facilities, business, assets, property, leaseholds or equipment under any such
laws, rules or regulations. Each Obligor has been issued all required federal,
state and local licenses, certificates or permits relating to such Obligor's
business and facilities, and each Obligor and its facilities, business, assets,
property, leaseholds and equipment
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are in compliance in all respects with, all applicable federal, state and local
laws, rules and regulations relating to air emissions, water discharge, noise
emissions, solid or liquid waste disposal, hazardous waste or materials, or
other environmental, health or safety matters. Borrower hereby agrees to
indemnify and hold Lender harmless from and against any liability, loss, damage,
suit, action or proceeding pertaining to solid or hazardous waste materials or
other waste-like or toxic substances, including, but not limited to, claims of
any federal, state or municipal government or quasi-governmental agency or any
third person, whether arising under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 as amended, the Resource Conservation
and Recovery Act as amended, or any other federal, state or municipal law or
regulation, or tort, contract or common law.
(N) TRADE RELATIONS. There exists no actual or threatened
termination, cancellation or limitation of, or any modification or change in,
the business relationship of Obligors and any customer or any group of customers
whose purchases individually or in the aggregate are material to the business of
Obligors, or with any material supplier, and there exists no present condition
or state of facts or circumstances which would have a Material Adverse Effect on
Obligors in any respect or prevent Obligors from conducting such business after
the consummation of the transactions contemplated by this Agreement in
substantially the same manner which it has heretofore been conducted.
(O) FIXED COLLATERAL. All Fixed Collateral is in good
operating condition and repair and all necessary replacements of and repairs to
the same have been made so that the value and operating efficiency thereof has
been maintained and preserved, reasonable wear and tear excepted. None of the
Fixed Collateral is an accession to any other personal property not otherwise a
part of the Collateral.
7.2 REAFFIRMATION. Each request for a loan or an advance made by
Borrower pursuant to this Agreement shall, unless Lender is otherwise notified
in writing prior to the time of such loan or advance, constitute (1) an
automatic representation and warranty by Borrower to Lender that there does not
then exist an Event of Default or any event or condition which, with notice,
lapse of time and/or the making of such loan or advance, would constitute an
Event of Default, and (ii) a reaffirmation as of the date of said request of all
of the representations and warranties of Borrower contained in this Agreement or
any of the other Credit Documents.
7.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower covenants,
warrants and represents to Lender that all representations and warranties of
Borrower contained in this Agreement and each of the other Credit Documents
shall be true at the time of Borrower's execution of this Agreement and such
other Credit Documents, and shall survive the execution, delivery and acceptance
thereof by Lender and the parties thereto and the closing of the transactions
described therein or related thereto.
8. COVENANTS AND CONTINUING AGREEMENTS
-----------------------------------
8.1 AFFIRMATIVE COVENANTS. So long as any Obligations remain
unsatisfied, Borrower covenants that, unless otherwise consented to by Lender in
writing, it will:
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(A) Pay to Lender, on demand, any and all fees, costs or
expenses which Borrower has agreed to pay to Lender, or which Borrower has
agreed to reimburse Lender for, under this Agreement and all fees, costs or
expenses which Lender pays to a bank or other similar institution arising out of
or in connection with (i) the forwarding by Lender to Borrower or any other
Person on behalf of Borrower of any proceeds of loans made by Lender pursuant to
this Agreement or, (ii) the depositing for collection, by Lender, of any check
or item of payment received and/or delivered to Lender on account of the
Obligations.
(B) Preserve and maintain its separate corporate existence and
all rights, privileges, and franchises in connection therewith, and maintain its
qualification and good standing in all states in which such qualification is
necessary in order for Borrower to conduct its business in such states or in
which the failure to so qualify would have a Material Adverse Effect.
(C) File all federal, state and local tax returns and other
reports Borrower is required by law to file, maintain adequate reserves for the
payment of all taxes, assessments, governmental charges, and levies imposed upon
it, its income, or its profits, or upon any Property belonging to it, and pay
and discharge all such taxes, assessments, governmental charges and levies prior
to the date on which penalties attach thereto, PROVIDED, HOWEVER, that Borrower
shall not be required to pay any such taxes, assessments, charges or claims so
long as the validity thereof shall be contested in good faith in a proceeding
promptly commenced and diligently prosecuted, if reserves adequate to cover the
amount thereof with penalties, interest and costs shall have been set aside on
the Borrower's books and the continuance of such contest shall neither result in
any property of the Borrower being made the subject of any proceeding in
foreclosure, or of any levy or execution, which shall not have been stayed or
dismissed, or the subject of any seizure or other loss, nor prevent the Lender
from acquiring a first priority security interest in such property.
(D) Maintain its Property in good condition and make all
necessary renewals, repairs, replacements, additions and improvements thereto so
as to maintain the value and operating efficiency thereof.
(E) Comply with all laws, ordinances, governmental rules and
regulations to which it is subject and obtain all licenses, permits, franchises,
or other governmental authorizations necessary to the ownership of its
Properties or to the conduct of its business.
(F) At all times make prompt payment of any and all
contributions required to meet the minimum funding standards set forth in
Sections 302 and 305 of ERISA with respect to each Pension Plan, if any,
maintained by Borrower and otherwise in regard thereto to (i) furnish Lender
with any annual report required to be filed pursuant to Section 103 of ERISA in
connection with each Pension Plan and any other employee benefit plan of
Borrower or its Affiliates subject to said Section; (ii) notify Lender as soon
as practicable of any "Reportable Event" (as defined under ERISA) and of any
additional act or condition arising in connection with any Pension Plan which
might constitute grounds for the termination thereof by the Pension Benefit
Guaranty Corporation or for the appointment by the appropriate United States
District
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<PAGE> 27
Court of a trustee to administer the Pension Plan; and (iii) furnish to Lender,
promptly upon Lender's request therefor, such additional information concerning
any such Pension Plan or any other such employee benefit plan as may be
reasonably requested.
(G) Promptly upon, but in no event later than three (3)
business days after, learning thereof, (i) inform Lender, in writing, of the
assertion of any claims, offsets or counterclaims by any Account Debtor and of
any allowances, credits and/or other monies granted by it to any Account Debtor
not otherwise disclosed to Lender; and (ii) furnish to and inform Lender of all
material adverse information relating to the financial condition of any Account
Debtor.
(H) Keep adequate records and books of account with respect to
its business activities in which proper entries are made in accordance with GAAP
reflecting all its financial transactions and permit the Lender, in its
discretion, to conduct bimonthly field examinations and quarterly audits as set
forth in the Commitment, at Borrower's expense.
(I) Cause to be prepared and furnished to Lender the following
(which in the case of any financial statements shall consist of a balance sheet,
income statement and statement of cash flow kept and prepared in accordance with
GAAP, unless Borrower's certified public accountants concur in any changes
therein and such changes are disclosed to Lender and are consistent with then
generally accepted accounting principles):
(i) As soon as possible, but not later than ninety (90) days
after the close of each fiscal year of Borrower, NBC, Transport, and
the Affiliates audited annual financial statements of Borrower, NBC,
Transport, and the Affiliates as of the end of each such fiscal year,
prepared by a firm of independent certified public accountants of
recognized standing, selected by Borrower and acceptable to Lender;
(ii) As soon as possible, but not later than thirty (30) days
after the end of each month hereafter, unaudited interim financial
statements of Borrower, NBC, Transport, and the Affiliate as of the end
of such month and of the portion of Borrower's, NBC'S, Transport's, and
the Affiliate's fiscal year then elapsed certified by the president and
chief financial officer of Borrower as prepared in accordance with GAAP
(without footnotes) and fairly presenting the financial position and
results of operations of Borrower, NBC, Transport, and the Affiliate
for such month and period;
(iii) Concurrently with the delivery of the financial
statements described in Subsections (i) and (ii) above, certificates
from the chief financial officer and president of Borrower certifying
to Lender that to the best of their knowledge, Borrower, NBC,
Transport, and the Affiliates have kept, observed, performed and
fulfilled each and every covenant obligation and agreement binding upon
Borrower, NBC, Transport, and the Affiliates contained in this
Agreement or the Credit Documents, and that no Event of Default, or any
event which with the giving of notice or lapse of time or both, would
constitute an Event of Default has occurred or specifying any such
Event of Default, together with a financial covenant compliance
worksheet, in form satisfactory to Lender,
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<PAGE> 28
reflecting the computation of the financial covenants set forth in
Sections 8.1 and 8.2 hereof as of the end of the period covered by such
financial statements;
(iv) Concurrently with the sending or filing thereof, as the
case may be, copies of any definitive proxy statements, financial
statements or reports which Borrower has made available to its
shareholders and copies of any regular periodic or special reports,
schedules, registration statements or other documents (including,
without limitation, all forms 8-K, 10-Q or 10-K) which Borrower files
with the Securities and Exchange Commission or any governmental
authority which may be substituted therefor, or any national securities
exchange or self-regulatory securities organization, including the
National Association of Securities Dealers, Inc.;
(v) Concurrently with each request for an advance under the
Revolving Loan, and monthly on the last day of each month, a
certificate prepared by the chief financial officer or president of
Borrower in the form attached hereto as EXHIBIT A, which certificate
may be delivered to Lender by telecopy and on the first business day of
each week Borrower shall submit to Lender a certificate (certified by
the President or Chief Financial Office of Borrower as of the last day
of the preceding week) that all payroll taxes for which Borrower is
obligated through and as of the date of the certificate have been paid
in full or remitted when due. The Borrower shall also provide to Lender
on or before the 10th day of each month, a monthly reconciliation of
unbilled Accounts Receivable for the preceding month and, on or before
the 30th day of each month, a monthly reconciliation between Accounts
Receivable as shown on its General Ledger and Borrowing Certificates
for the preceding month, each in form acceptable to Lender and
including such detail as the Lender shall require.
(vi) Such other data and information (financial and otherwise)
as Lender, from time to time, may request bearing upon or related to
the Collateral or the financial condition and/or results of operations
of Borrower, NBC, Transport, or the AFFILIATE.
(J) Notify Lender in writing:
(i) Quarterly, on a calendar quarter basis on the I st day of
March, June, September and December of each year, or more frequently at
Lender's discretion, of the institution of any suit, action or
administrative proceeding against Borrower, NBC, Transport, or the
Affiliates or relating to any of their Property, whether or not the
claim is considered by Borrower to be covered by insurance;
(ii) At least sixty (60) days prior thereto, of the opening of
any new office or place of business or the closing of any existing
office or place of business of Borrower, NBC, Transport, or the
Affiliates;
(iii) Promptly upon Borrower's learning thereof, of any labor
dispute to which Borrower, NBC, Transport, or the Affiliates may become
a party, any strikes or walkouts relating to any of its plants or other
facilities, and the expiration of any labor
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<PAGE> 29
contract to which Borrower, NBC, Transport, or the Affiliates is a
party or by which Borrower, NBC, Transport, or the Affiliates is
bound;
(iv) Within three (3) business days after the occurrence
thereof, of Borrower's, NBC'S, Transport's, or the Affiliate's default
under any Material Agreement; and
(v) Promptly upon the occurrence thereof, of any default by
any obligor under any note or other evidence of debt payable to
Borrower, NBC, Transport, or the Affiliates.
(K) Provide Lender with all warehouse receipts respecting any
Inventory and copies of all agreements between Borrower, NBC, Transport, or the
Affiliates and any bailee, warehousemen or similar party with whom Inventory may
from time to time be stored.
(L) If any of the Accounts arise out of a contract with the
United States of America, or any department, agency, subdivision or
instrumentality thereof, promptly notify Lender thereof in writing and execute
any instruments and take any other action required or requested by Lender to
perfect Lender's security interest in such Accounts under the provisions of the
Assignment of Claims Act of 1940.
(M) Deliver to Lender, upon demand, any and all evidence of
ownership of Fixed Collateral, inclusive of any certificates of title or
applications therefor, -and maintain accurate, itemized records describing the
kind, type, quantity and value of all Fixed Collateral, a summary of which shall
be provided to Lender on at least an annual basis and more frequently if
requested by Lender.
(N) In the event any Account is or becomes evidenced by any
note, trade acceptance or other instrument, promptly notify Lender of such fact
and, upon Lender's request deliver the same to Lender, appropriately endorsed to
Lender's order and, regardless of the form of such endorsement Borrower hereby
waives presentment demand, notice of dishonor, protest and notice of protest and
all other notices with respect thereto.
(O) Maintain a Tangible Net Worth equal to or greater than One
Million Two Hundred Seventy Thousand Dollars ($1,270,000) at March 31, 1998 and
thereafter, such covenant to be calculated annually in accordance with GAAP
based on Borrower's fiscal year-end financial statements. Borrower's existing
Tangible Net Worth at the date hereof shall increase by at least $800,000 at
September 30, 1997 and by an additional $800,000 at December 31, 1997.
(P) Maintain Debt Coverage (as defined herein) not less than
2.0 to 1.0 at March 3 1, 1997 and thereafter. "Debt Coverage" as used in this
Section 8.1(P) means the ratio of Borrower's net income, plus depreciation and
amortization and net interest paid to Lender, to the amount of all principal and
interest payable to Lender calculated quarterly in accordance with GAAP based
upon Borrower's quarterly and fiscal year-end financial statements.
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<PAGE> 30
(Q) Maintain a ratio of total unsubordinated liabilities
(including deferred liabilities and/or deferred income), computed in accordance
with GAAP, to Tangible Net Worth equal to or less than 9.5 to 1.0 at March 3,
1998 and thereafter, and a ratio of employable assets (current assets plus gross
fixed assets) in relation to current liabilities plus senior funded bank debt of
1.1 to 1.0 through March 30, 1998 and 1.2 to 1.0 thereafter to be tested
quarterly beginning June 30, 1997, such covenant to be calculated in accordance
with GAAP based on Borrower's quarterly and fiscal year-end financial
statements.
8.2 NEGATIVE COVENANTS. So long as Borrower shall have any Obligations
to Lender under this Agreement, Borrower covenants that, unless Lender has first
consented thereto in writing, it will not:
(A) Merge or consolidate with or acquire all or any
substantial portion of the assets or capital stock of any Person, except that if
no Default or Event of Default then exists or will exist immediately thereafter,
Borrower may acquire another entity by means of merger or consolidation, if
after such acquisition Borrower has a Tangible Net Worth equal to or greater
than its Tangible Net Worth prior to the acquisition.
(B) Make any loans or other advances of money, or grant
extensions of credit (other than normal extensions of trade credit in the
ordinary course of business and reasonable salary, travel or relocation
advances, advances against commissions and other similar advances in the
ordinary course of business) to any Person.
(C) Create, incur, assume, or suffer to exist any
Indebtedness, except the Obligations and the following (herein referred to as
"Permitted Indebtedness"):
(i) Trade payables and other current liabilities incurred in
the ordinary course of business;
(ii) Subordinated Debt;
(iii) Such other Indebtedness as described on EXHIBIT I
hereto or as hereafter approved by Lender in writing.
(D) Enter into, or be a party to, any transaction with any
Affiliate, except in the ordinary course of, and pursuant to the reasonable
requirements of, Borrower's business and upon fair and reasonable terms which
are fully disclosed to Lender and which are no less favorable to Borrower than
Borrower would obtain in a comparable arm's length transaction with a Person not
an Affiliate.
(E) Permit or agree to any material extension or modification
with respect to, or compromise or settle any Account, other than as reflected in
the schedules of accounts submitted to Lender pursuant to Section 5.4 hereof.
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<PAGE> 31
(F) Become or be liable in respect of any Guaranty except by
endorsement of instruments or items of payment in the ordinary course of
business for deposit or collection.
(G) Permit or suffer to exist any Lien in or upon any of the
Collateral, except the following (herein referred to as "Permitted Liens"):
(i) Those security interests granted in favor of Lender
pursuant to this Agreement and the other Credit Documents;
(ii) Purchase money liens relating to Capital Expenditures
which do not violate Section 8.2(K) below; and
(iii) Such other Liens as described on EXHIBIT J hereto or as
hereafter approved by Lender in writing.
(H) Make any Distributions without Lender's prior consent.
(I) Divest itself of any material assets or business
theretofore conducted by transferring the same to any Affiliate or any
partnership, joint venture, or similar arrangement.
(J) Subcontract any operations to any Affiliate, except with
the prior written consent of Lender.
(K) Make Capital Expenditures during any fiscal year of
Borrower which, in the aggregate, exceed Seven Hundred Fifty Thousand Dollars
($750,000).
(L) Transfer its executive offices, or maintain records with
respect to Accounts at any locations other than the Principal Business Location,
except with Lender's prior written consent.
(M) Except with respect to transactions otherwise permitted
hereunder, make deposits to or withdrawals from any of Borrower's deposit
accounts for the benefit of any of its Affiliates.
(N) Sell, lease, transfer or otherwise dispose of any of its
Property having a market value exceeding Ten Thousand Dollars ($10,000), other
than Inventory sold in the ordinary course of business.
(O) Use any corporate name (other than its own) or any
fictitious name, trade name, tradestyle or"d/b/a" except for the names disclosed
on EXHIBIT G attached hereto and made a part hereof.
(P) Make a sale to any customer on approval, consignment,
bill-and-hold, guaranteed sale, sale and return or any other repurchase basis,
unless such sale is specifically
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identified on the written assignments of Accounts delivered to Lender pursuant
to Section 5.4 hereof.
(Q) Own, purchase or acquire (or enter into any contract to
purchase or acquire) any "margin security" as defined by any regulation of the
Federal Reserve Board as now in effect or as the same may hereafter be in effect
unless, prior to any such purchase or acquisition or entering into any such
contract, Lender shall have received an opinion of counsel satisfactory to
Lender to the effect that such purchase or acquisition will not cause this
Agreement or the Notes to violate Regulation G or any other regulation of the
Federal Reserve Board then in effect.
(R) Make or have any Restricted Investment, which for purposes
of this Agreement shall mean any investment in cash or by delivery of Property
to any Person, whether by acquisition of stock, indebtedness or other obligation
or Security, or by loan, advance or capital contribution, or otherwise, in any
Property except the following:
(i) Property to be used in the ordinary course of business;
(ii) Current assets arising from the sale of goods and
services in the ordinary course of business of Borrower;
(iii) Investments in direct obligations of the United States
of America, or any agency thereof or obligations guaranteed by the
United States of America, provided that such obligations mature within
one (1) year from the date of acquisition thereof;
(iv) Investments in certificates of deposit maturing within
one (1) year from the date of acquisition issued by a bank or trust
company organized under the laws of the United States or any state
thereof having capital surplus and undivided profits aggregating at
least One Hundred Million Dollars ($100,000,000.00); and
(v) Investments in commercial paper given the highest rating
by a national credit rating agency and maturing not more than two
hundred seventy (270) days from the date of creation thereof.
(S) Enter into any arrangement with any Person providing for
the leasing by Borrower of Property which has been or is to be sold or
transferred by Borrower to such person if funds have been or are to be advanced
by such Person on the security of such Property or rental obligations of
Borrower.
9. SURVIVAL OF OBLIGATIONS UPON TERMINATION OF AGREEMENT
-----------------------------------------------------
Except as otherwise expressly provided for in this Agreement and in any
of the other Credit Documents, no termination or cancellation (regardless of
cause or procedure) of this Agreement or any of the other Credit Documents shall
in any way affect or impair the powers, obligations, duties, rights, and
liabilities of Borrower or Lender in any way or respect relating
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<PAGE> 33
to (i) any transaction or event occurring prior to such termination or
cancellation or (ii) any of the undertakings, agreements, covenants, warranties
and representations of Borrower or Lender contained in this Agreement or the
other Credit Documents. All such undertakings, agreements, covenants, warranties
and representations shall survive such termination or cancellation and Lender
shall retain its Lien on the Collateral and all of its rights and remedies under
this Agreement, notwithstanding such termination or cancellation, until all
Obligations of Borrower to Lender have been fully paid and satisfied and this
Agreement is terminated.
10. CONDITIONS PRECEDENT
--------------------
Notwithstanding any other provision of this Agreement or any of the
other Credit Documents, and without affecting in any manner the rights of Lender
under the other Sections of this Agreement, it is understood and agreed that
Lender shall have no obligation at any time under Section 2 of this Agreement
unless and until the following conditions have been and continue to be
satisfied, all in form and substance satisfactory to Lender and its counsel:
10.1 CONDITIONS. The following conditions shall have been and shall
continue to be satisfied, in the sole discretion of Lender:
(A) No legal action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain, or prohibit, or to
obtain damages in respect of, or which is related to or arises out of this
Agreement or any of the other Credit Documents or the consummation of the
transactions contemplated hereby or thereby, or which, in Lender's opinion would
make it inadvisable to consummate the transactions contemplated by this
Agreement.
(B) The representations and warranties of the Borrower herein
are true and correct in all respects and no Event of Default or condition which,
with notice, lapse of time or both would constitute an Event of Default then
exists.
(C) No event, occurrence or condition shall then exist which
might have a Material Adverse Effect.
10.2 DOCUMENTATION. Lender shall have received the following documents,
each to be in form and substance satisfactory to Lender and its counsel:
(A) Certified copies of Borrower's casualty insurance policies
evidencing the existence of the insurance coverage required pursuant to this
Agreement, together with loss payable endorsements thereto naming Lender as a
loss payee or additional insured in form and substance satisfactory to Lender.
(B) Copies of all filing receipts or acknowledgments issued by
any governmental authority to evidence any filing or recordation necessary to
perfect the Liens of Lender in the Collateral and evidence, in a form acceptable
to Lender, that such Liens constitute valid and first priority perfected Liens,
subject only to any Permitted Liens.
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(C) A Certificate of the secretary or an assistant secretary
of Borrower, dated as of the date Lender makes its initial advance of loan
proceeds pursuant hereto, certifying (i) that attached thereto is a true and
complete copy of the Code of Regulations of Borrower, as in effect on the date
of such certification, (ii) that attached thereto is a true and complete copy of
resolutions, in form satisfactory to Lender, adopted by the Board of Directors
of Borrower, authorizing the execution, delivery and performance of this
Agreement, the Notes, and each of the other Credit Documents to which it is a
party and the consummation of the transactions contemplated hereby and thereby,
and (iii) as to the incumbency and genuineness of the signature of each officer
of Borrower executing this Agreement, the Notes, or any of the other Credit
Documents to which Borrower is a party.
(D) A copy of the Articles of Incorporation of Borrower, and
all amendments thereto, certified by the Secretary of State of the Borrower's
state of incorporation.
(E) A good standing certificate for Borrower issued by the
Secretary of State of Borrower's state of incorporation and the Secretary of
State of each other jurisdiction in which Borrower's qualification is required
hereunder.
(F) A certificate signed by the president and chief financial
officer of Borrower and dated as of the date Lender makes its initial advance of
loan proceeds pursuant hereto, stating that (i) the representations and
warranties set forth in Section 7 hereof are true and correct on and as of such
date, (ii) Borrower is on such date in compliance with all the terms and
provisions set forth in this Agreement, and (iii) on such date no event or
condition has occurred or is continuing which, with the giving of notice, the
lapse of time, or both, would constitute an Event of Default.
(G) Duly executed written lien waivers in favor of Lender from
each lessor, bailee, warehouseman, mortgagee or similarly situated Person who
may, with respect to any location at which any of the Collateral is to be
located or stored, by operation of law or otherwise, have any Lien in or upon
such Collateral.
(H) Duly executed subordination agreements in respect of all
Subordinated Debt, specifically including, but not limited to an Acknowledgment,
Consent and Agreement or Amended and Restated Subordination Agreement from
Seidler, evidencing the agreement of the holder of such Subordinated Debt to
subordinate the same in right of payment (and waive the priority of any
Permitted Liens on Collateral) to the Obligations to the extent and in such
manner acceptable to Lender.
(I) If required by Lender, a duly executed Depository
Agreement with the Depository Bank at which any Depository Account is to be
established and, such other agreements, in form and substance acceptable to
Lender as to the collection and/or servicing of Accounts and the operation of
any lockbox required by Lender, all in form satisfactory to the Lender.
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<PAGE> 35
(J) Written instructions from Borrower directing the
disbursement of the loan proceeds pursuant to this Agreement.
(K) The written opinion of legal counsel to Borrower as to the
enforceability of this Agreement, the Notes, and each of the other Credit
Documents, and covering such other issues thereunder and in connection with the
transactions contemplated by this Agreement requested by Lender and its counsel,
in form and substance satisfactory to Lender.
(L) The Revolving Note, Domestic Term Loan Promissory Note and
Term Note, duly executed by Borrower, and such other agreements, instruments and
documents, including, without limitation, assignments, security agreements,
mortgages, deeds of trust, pledges, guaranties and consents, which Lender may
require to be executed in connection herewith, including, but not limited to the
following:
(i) Duly executed UCC-1 Financing Statements from Borrower, in
recordable form, in form and substance satisfactory to Lender and its
counsel.
(ii) Duly executed Acknowledgments, Consents and Agreements
from NBC, Transport and the Affiliates, in form and substance
satisfactory to Lender and its counsel.
(iii) A duly executed Limited Contract of Guaranty from
Robert A. Weitzel, in form and substance satisfactory to Lender and
its counsel.
10.3 WAIVER OF CONDITIONS PRECEDENT. If Lender makes an initial advance
of loan proceeds hereunder prior to the fulfillment of any of the conditions
precedent set forth in Sections 10.1 and 10.2 hereof, the making of such initial
advance of loan proceeds shall constitute only an extension of time for the
fulfillment of such condition and not a waiver thereof, and Borrower shall
thereafter use its best efforts to fulfill each such condition promptly.
11. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
-------------------------------------------------
11.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an "Event of Default":
(A) Failure by Borrower to make payment of principal, interest
or any other sum on any Note, any other Debt Instrument, or any Material
Agreement on the due date thereof, or failure to pay any other Obligation on the
due date thereof, or failure by Borrower to remit or deposit funds as required
by the terms of this Agreement or any other Credit Document to which Borrower is
a party.
(B) Any warranty, representation, or other statement made or
furnished to Lender by or on behalf of Borrower or any guarantor of the
Obligations in this Agreement or in any of the other Credit Documents or in any
instrument furnished in compliance with or in reference to this Agreement or any
of the other Credit Documents proves to have been false or inaccurate in any
respect when made or furnished.
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<PAGE> 36
(C) Borrower or any guarantor of the Obligations fails or
neglects to perform, keep or observe any other term, provision, condition,
covenant, warranty or representation contained in this Agreement or in any of
the other Credit Documents, which is required to be performed, kept or observed
by Borrower or any such guarantor.
(D) The occurrence of any default or event of default on the
part of Borrower (other than due to nonpayment) under any Debt Instrument or
Material Agreement.
(E) Any statement, report, financial statement, or certificate
made or delivered by Borrower, or any of its officers, employees or agents, or
any guarantor of the Obligations to Lender is not true and correct in any
respect.
(F) The loss, theft, substantial damage or destruction of any
portion of the Collateral to the extent not fully covered by insurance (as
required by this Agreement and subject to such deductibles as Lender shall have
agreed to in writing), or the sale, lease, encumbrance or other disposition of
any of the Collateral, except in all cases as may be specifically permitted by
other provisions of this Agreement.
(G) Any material adverse change in the value of the Collateral
or the financial condition or operating results of Borrower or any guarantor of
the Obligations, or otherwise in the event the Lender deems itself insecure.
(H) The dissolution, termination of existence, insolvency
(failure to pay its debts as they mature or where the fair saleable value of its
assets is not in excess of its liabilities) or business failure of the Borrower
or any guarantor of the Obligations, or the appointment of a receiver, trustee,
custodian or similar fiduciary for the Borrower or any guarantor of the
Obligations or any of their respective assets, or the assignment for the benefit
of the creditors of Borrower or any such guarantor or the making by Borrower or
any such guarantor of any offer of settlement, extension or composition to its
unsecured creditors generally.
(I) The commencement of any proceedings under any Bankruptcy
Laws by Borrower or any guarantor of the Obligations.
(J) The commencement of any proceedings under any Bankruptcy
Laws against Borrower or any guarantor of the Obligations to the extent such
proceedings are not dismissed within sixty (60) days after the filing thereof.
(K) Borrower ceases to conduct all or any part of its business
or is enjoined, restrained or in any way prevented by court, governmental or
administrative order from conducting all or any part of its business affairs.
(L) The entry by a court of any judgment in excess of
$150,000.00 requiring the payment of money against the Borrower, which judgment
is not paid, discharged, stayed, vacated or set aside within thirty (30) days of
its entry unless the same is being contested or
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<PAGE> 37
appealed in good faith by Borrower and a bond is posted by the shareholders of
Borrower in at least the amount of the judgment and interest and the cost of the
bond is paid out of capital contributions of the shareholders of Borrower made
specifically for such purpose, and further provided that the obligation to
reimburse the bonding company shall not be an obligation of the Borrower.
(M) A notice of any Lien, levy, attachment or assessment is
filed of record with respect to all or any of the Collateral by any Person,
including, without limitation, the United States, any department, agency or
instrumentality thereof, or by any state, county, municipal or other
governmental agency, or if any tax or assessment owing at any time or times
hereafter becomes a Lien upon the Collateral or any other of Borrower's assets
and, except as otherwise permitted by Lender, the same is not effectively
stayed, bonded or released within thirty (30) days after the same becomes a
Lien, or in the case of ad valorem taxes, prior to the last date when payment
may be made without penalty.
(N) The revocation of any Guaranty of the Obligations.
11.2 ACCELERATION OF THE OBLIGATIONS. In addition to any of the
remedies otherwise available to Lender (a) upon and after an Event of Default
specified in Sections I 1. I (1) and (J) hereof, and without notice by Lender to
Borrower, and (b) upon and after an Event of Default (other than an Event of
Default specified in Sections 11.1(I) and (J) hereof, upon notice by Lender to
Borrower in the manner set forth in Section 13.10 hereof, the Revolving Loan
shall be terminated and all of the Obligations due or to become due from
Borrower to Lender, whether under this Agreement, any Note or otherwise, shall,
at the option of Lender become at once due and payable, anything in the Notes or
other evidence of the Obligations or in any of the other Credit Documents to the
contrary notwithstanding.
11.3 REMEDIES. Upon and after the occurrence of an Event of Default,
Lender shall have, to the extent permitted by applicable law, and in addition to
any other right or remedy provided for in this Agreement or the other Credit
Documents, the following rights and remedies:
(A) All of the rights and remedies of a secured party under
the Code or under other applicable law, and all other legal and equitable rights
to which Lender may be entitled, all of which rights and remedies shall be
cumulative, and none of which shall be exclusive, to the extent permitted by
law, in addition to any other rights or remedies contained in this Agreement or
in any of the other Credit Documents.
(B) The right to take immediate possession of the Collateral,
and (i) require Borrower to assemble the Collateral, at Borrower's expense, and
make it available to Lender at a place to be designated by Lender which is
reasonably convenient to both parties, and (ii) enter any of the premises of
Borrower or wherever any Collateral shall be located and to keep and store the
same on said premises until sold (and if said premises be the property of
Borrower, Borrower agrees not to charge Lender for storage thereof for a period
of at least ninety (90) days after sale or disposition of the Collateral).
Lender is hereby granted a non-exclusive license or
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<PAGE> 38
other right to use, without charge, Borrower's labels, patents, copyrights,
rights of use of any name, trade secrets, trade names, trademarks and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in advertising for sale and selling any Collateral and Borrowers's
rights under all licenses and all franchise agreements shall inure to Lender's
benefit.
(C) The right to foreclose the Liens created under this
Agreement and each of the other Credit Documents or under any other agreement
relating to the Collateral.
(D) The right to sell or to otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, wholesale dispositions,
or sales pursuant to one or more contracts, with such notice as may be required
by law, in lots or in bulk, for cash or on credit, all as Lender, in its sole
discretion, may deem advisable. Borrower agrees that ten (10) days prior written
notice to Borrower of the date any public sale will take place or the date after
which any private sale or other disposition of Collateral will take place shall
be reasonable notice thereof, and such sale may be at such locations as Lender
shall designate in said notice. Lender shall have the fight to conduct such
sales on Borrower's premises, without charge therefor, and such sales may be
adjourned from time to time in accordance with applicable law without further
requirement of notice to Borrower. Lender shall have the right to bid or credit
bid at any such sale on its own behalf.
(E) The right to sell, lease or otherwise dispose of the
Collateral, or any part thereof, for cash, credit or any combination thereof,
and Lender may purchase all or any part of the Collateral at public or private
sale and, in lieu of actual payment of such purchase price, may set off the
amount of such price against the Obligations. Subject to the rights of the
holders of any Permitted Lien having priority over the Liens of Lender, if any,
the proceeds realized from the sale of any Collateral shall be applied first to
the reasonable costs, expenses and attorneys' fees and expenses incurred by
Lender for collection and for acquisition, completion, protection, removal,
storage, sale and delivery of the Collateral; second, to interest due upon any
of the Obligations; and third, to the principal of the Obligations. If any
deficiency shall arise, Borrower shall remain liable to Lender therefor.
11.4 APPLICATION OF COLLATERAL; TERMINATION OF FINANCING. Upon the
occurrence of any Event of Default, Lender may also, with or without proceeding
with sale or foreclosure or demanding payment of the Obligations, without notice
except as required by law, terminate Lender's further performance under this
Agreement, the other Credit Documents, or any other agreement or agreements
between Lender and Borrower, without further liability or obligation by Lender,
and may also, at any time, appropriate and apply on any Obligations any and all
Collateral in the possession of Lender. No such termination shall absolve,
release or otherwise affect the liability of Borrower in respect of transactions
had prior to such termination, nor affect any of the Liens, rights, powers, and
remedies of Lender, but they shall, in all events, continue until all
Obligations of Borrower to Lender are satisfied.
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<PAGE> 39
11.5 REMEDIES CUMULATIVE. All covenants, conditions, provisions,
warranties, guaranties, indemnities, and other undertakings of Borrower
contained in this Agreement, each of the other Credit Documents or in any
document referred to herein or therein or contained in any agreement
supplementary hereto or thereto or in any schedule or report given to Lender, or
contained in any other agreement between Lender and Borrower, heretofore,
concurrently, or hereafter entered into or delivered, shall be deemed cumulative
and not in derogation or substitution of any of the terms, covenants,
conditions, or agreements of Borrower herein contained.
12. APPOINTMENT OF LENDER AS BORROWER'S LAWFUL ATTORNEY
---------------------------------------------------
Borrower hereby irrevocably designates, makes, constitutes and appoints
Lender (and all persons designated by Lender) as Borrower's true and lawful
attorney (and agent-in-fact) and Lender, or Lender's agent, may, at such time or
times as Lender or said agent, in its sole discretion, may determine, upon the
occurrence of an Event of Default hereunder, in Borrower's or Lender's name: (i)
demand payment of the Accounts; (ii) enforce payment of the Accounts, by legal
proceedings or otherwise; (iii) exercise all of Borrower's rights and remedies
with respect to the collection of the Accounts and any other Collateral; (iv)
settle, adjust, compromise, extend or renew the Accounts; (v) settle, adjust or
compromise any legal proceedings brought to collect the Accounts; (vi) if
permitted by applicable law, sell or assign the Accounts and other Collateral
upon such terms, for such amounts and at such time or times as Lender deems
advisable; (vii) discharge and release the Accounts and any other Collateral;
(viii) take control, in any manner, of any item of payment or proceeds relating
to any Collateral; (ix) prepare, file and sign Borrower's name on a proof of
claim in bankruptcy or similar document against any Account Debtor; (x) prepare,
file and sign Borrower's name on any notice of Lien, assignment or satisfaction
of Lien or similar document in connection with the Accounts; (xi) do all acts
and things necessary, in Lender's sole discretion, to fulfill Borrower's
obligations under this Agreement; (xii) endorse the name of Borrower upon any of
the items of payment or proceeds relating to any Collateral and deposit the same
to the account of Lender on account of the Obligations; (xiii) endorse the name
of Borrower upon any chattel paper, document, instrument, invoice, freight bill,
bill of lading or similar document or agreement relating to the Accounts,
Inventory and any other Collateral; (xiv) use Borrower's stationery and sign the
name of Borrower to verifications of the Accounts and notices thereof to Account
Debtors; (xv) use the information recorded on or contained in any data
processing equipment and computer hardware and software relating to the
Accounts, Inventory and any other Collateral to which Borrower has access; and
(xvi) notify post office authorities to change the address for delivery of
Borrower's mail to an address designated by Lender and receive and open all mail
addressed to Borrower, and after removing all remittances and other proceeds of
Collateral, forwarding the mail to Borrower.
13. MISCELLANEOUS
-------------
13.1 MODIFICATION OF AGREEMENTS SALE OF INTEREST. This Agreement,
the Notes and each of the other Credit Documents to which Borrower is a party
may not be modified, altered or amended, except by an agreement in writing
signed by Borrower and Lender. Borrower may
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<PAGE> 40
not sell, assign or transfer this Agreement, or any of the other Credit
Documents or any portion thereof, including, without limitation, Borrower's
rights, title, interests, remedies, powers, and/or duties hereunder or
thereunder. Borrower hereby consents to Lender's participation, sale,
assignment, transfer or other disposition, at any time or times hereafter, of
this Agreement, the Notes, or any of the other Credit Documents, or of any
portion hereof or thereof, including, without limitation, Lender's rights,
title, interests, remedies, powers, and/or duties hereunder or thereunder.
13.2 ATTORNEYS' FEES AND EXPENSES. If, at any time or times, whether
prior or subsequent to the date hereof, regardless of the existence of an Event
of Default, Lender employs counsel for advice or other representation or incurs
legal and/or other costs and expenses in connection with:
(A) The preparation of this Agreement, the Notes, and the
other Credit Documents, or the preparation of any other documentation requested
by Lender in connection with the transactions contemplated thereby or any
amendment of or modification of this Agreement, the Notes, any of the other
Credit Documents or any other such documentation.
(B) The administration of this Agreement, the Notes and each
of the other Credit Documents or any other documentation requested by Lender and
the transactions contemplated hereby and thereby.
(C) Any litigation, contest, dispute, suit, proceeding or
action (whether instituted by Lender, Borrower or any other Person) in any way
relating to the Collateral, this Agreement, the Notes, any of the other Credit
Documents or Borrower's affairs.
(D) Any attempt to enforce any rights of Lender against any
Person, other than the Borrower, which may be obligated to Lender by virtue of
this Agreement, the Notes or any of the other Credit Documents, including,
without limitation, any guarantor of the Obligations and any Account Debtors.
(E) Any attempt to inspect, verify, protect, collect, sell,
liquidate or otherwise dispose of the Collateral.
(F) The filing and recording of all documents required by
Lender to perfect Lender's Liens in the Collateral, including without
limitation, any documentary stamp tax or any other taxes incurred because of
such filing or recording;
Then, in any such event, the attorneys' fees reasonably
incurred and necessary expenses arising from such services and all expenses,
costs, charges and other fees of such counsel or of Lender or relating to any of
the events or actions described in this Section 13.2 shall be payable, on
demand, by Borrower to Lender and shall be additional Obligations hereunder
secured by the Collateral. Without limiting the generality of the foregoing,
such expenses, costs, charges and fees may include accountants' fees, costs and
expenses; court costs and expenses; photocopying and duplicating expenses; court
reporter fees, costs and expenses;
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<PAGE> 41
long distance telephone charges; air express charges; telegraph charges;
secretarial overtime charges; and expenses for travel, lodging and food paid or
incurred in connection with the performance of such legal services.
Additionally, if any taxes shall be payable on account of the execution or
delivery of this Agreement, the Notes or the execution, delivery, issuance or
recording of any of the other Credit Documents, or the creation of any of the
Obligations hereunder, by reason of any existing or hereafter enacted federal or
state statute, Borrower will pay all such taxes, including, but not limited to,
any interest and/or penalty thereon, and will indemnify and hold Lender harmless
from and against liability in connection therewith.
13.3 WAIVER BY LENDER. Lender's failure, at any time or times
hereafter, to require strict performance by Borrower of any provision of this
Agreement, the Notes or any of the other Credit Documents shall not waive,
affect or diminish any right of Lender thereafter to demand strict compliance
and performance therewith. Any suspension or waiver by Lender of an Event of
Default by Borrower under this Agreement, the Notes or any of the other Credit
Documents shall not suspend, waive or affect any other Event of Default by
Borrower under this Agreement, the Notes or any of the other Credit Documents,
whether the same is prior or subsequent thereto and whether of the same or of a
different type. None of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in this Agreement, the Notes or any of the
other Credit Documents and no Event of Default by Borrower under this Agreement,
the Notes or any of the other Credit Documents shall be deemed to have been
suspended or waived by Lender, unless such suspension or waiver is by an
instrument in writing specifying such suspension or waiver and is signed by a
duly authorized representative of Lender and directed to Borrower.
13.4 SEVERABILITY. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
13.5 PARTIES. This Agreement, the Notes and the other Credit Documents
shall be binding upon and inure to the benefit of the successors and assigns of
Borrower and Lender. This provision, however, shall not be deemed to modify
Section 13.1 hereof.
13.6 CONFLICT OF TERMS. The provisions of the Commitment, the Notes and
each of the other Credit Documents and any exhibit or schedule hereto or thereto
are incorporated in this Agreement by this reference thereto. Except as
otherwise provided in this Agreement, and except as otherwise provided in the
Commitment, the Notes and any of the other Credit Documents by specific
reference to the applicable provision of this Agreement, if any provision
contained in this Agreement is in conflict with, or inconsistent with, any
provision in the Commitment the Notes and any of the other Credit Documents, the
provision contained in this Agreement shall govern and control.
13.7 WAIVERS BY BORROWER INCLUDING RIGHT TO JURY TRIAL). EXCEPT AS
OTHERWISE PROVIDED FOR IN THIS AGREEMENT OR AS REQUIRED
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<PAGE> 42
BY APPLICABLE LAW, BORROWER WAIVES (1) PRESENTMENT, DEMAND AND PROTEST AND
NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NONPAYMENT, MATURITY, RELEASE,
COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER,
ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES
AT ANY TIME HELD BY LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE, (11)
NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL WHICH MIGHT BE
REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S
REMEDIES AND (111) ITS RIGHT TO A JURY TRIAL IN THE EVENT OF ANY LITIGATION
INSTITUTED IN RESPECT OF THIS AGREEMENT, THE NOTES OR ANY OF THE OTHER CREDIT
DOCUMENTS. BORROWER ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL OF ITS
CHOICE WITH RESPECT TO THIS AGREEMENT AND THE TRANSACTIONS EVIDENCED BY THIS
AGREEMENT.
13.8 AUTHORIZATION. Lender is authorized to make loans in the name of
Borrower under the terms of this Agreement upon the request, either written or
oral, of the president or chief financial officer of the Borrower, or such other
persons, from time to time, holding the offices or positions with Borrower as
designated in any separate borrowing or banking resolutions delivered by
Borrower to Lender and all loans made by Lender to Borrower or for its account
under this Agreement shall be conclusively deemed to have been authorized by
Borrower and to have been made pursuant to duly authorized requests therefor.
13.9 GOVERNING LAW. This Agreement has been accepted by Lender at and
shall be deemed to have been made at Cleveland, Ohio. The loans provided for
herein are to be funded and repaid at Cleveland, Ohio and this Agreement shall
be interpreted, and the rights and liabilities of the parties hereto determined,
in accordance with the laws of the State of Ohio. As part of the consideration
for new value received, Borrower hereby consents to the jurisdiction of any
state or federal court located within the State of Ohio and consents that all
such service of process be made by registered or certified mail directed to
Borrower at the address stated in Section 13.10(B) below and service so made
shall be deemed to be completed upon actual receipt thereof. Borrower waives any
objection to jurisdiction and venue of any action instituted hereunder and
agrees not to assert any defense based on lack of jurisdiction or venue. Nothing
contained herein shall affect the right of Lender to serve legal process in any
other manner permitted by law or affect the right of Lender to bring any action
or proceeding against Borrower or its property in the courts of any other
jurisdiction.
13.10 NOTICES. Except as otherwise provided herein, any notice required
hereunder shall be in writing, and shall be deemed to have been validly served,
given or delivered upon deposit
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<PAGE> 43
in the United States mails, with proper postage prepaid, and addressed to the
party to be notified as follows:
(A) If to Lender, at:
Bank One, Cleveland, NA
600 Superior Avenue
Cleveland, Ohio 44114
Attn: Louis G. Johnston,
Vice President and Manager,
Asset-Based Lending
Telephone: 216/781-2225
Telecopy: 216/781-4485
With a copy to:
Porter, Wright, Morris & Arthur
1700 Huntington Building
Cleveland, Ohio 44115-1483
Attn: Donald J. Fisher, Esq.
Telephone: 216/443-2500
Telecopy: 216/443-9011
(B) If to Borrower, at:
International Total Services, Inc.
5005 Rockside Road, Suite 1200
Cleveland, Ohio 44131
Attn: Robert A. Weitzel
President
Telephone: 216/642-4522
Telecopy: 216/642-4539
or to such other address as each party may designate for itself by like notice
given in accordance with this Section 13.10.
Whenever any party to this Agreement shall be required to provide
notice hereunder or to deliver certificates and/or documentation pursuant to the
terms of this Agreement or as otherwise requested by a party to this Agreement,
such notices, certificates and/or documentation may be transmitted by telecopy
or other facsimile transmission; provided, however, that the originals or
counterparts of all such notices, certificates and/or documentation shall be
furnished as promptly as practicable thereafter, including all original
signatures thereto as applicable.
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<PAGE> 44
13.11 SECTION TITLES. The section titles contained in this Agreement
are and shall be without substantive meaning and content of any kind whatsoever
and are not a part of the agreement between the parties hereto.
13.12 EFFECTIVENESS OF AGREEMENT. This Agreement shall be effective
only upon Lender's acceptance hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year specified at the beginning hereof.
INTERNATIONAL TOTAL SERVICES, INC.
("Borrower")
By________________________________________
Name: __________________________________
Its: ___________________________________
Accepted at Cleveland, Ohio as of
the date first above written.
BANK ONE, CLEVELAND, NA ("LENDER")
By________________________________________
Name: __________________________________
Its: ___________________________________
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<PAGE> 1
EXHIBIT 10.3
REPLACEMENT PROMISSORY NOTE
---------------------------
(Revolving Loan)
$10,500,000 Cleveland, Ohio
March 31, 1997
FOR VALUE RECEIVED, INTERNATIONAL TOTAL SERVICES, INC., a corporation
organized under the laws of the State of Ohio (hereinafter referred to as the
"Company"), promises to pay to the order of BANK ONE, CLEVELAND, NA (hereinafter
referred to as the "Bank"), the principal amount of Ten Million Five Hundred
Thousand Dollars ($10,500,000), or such lesser amount as shall have from time to
time been borrowed by the Company, on April 1, 1999, or sooner as hereinafter
provided, with interest on the unpaid balance of said principal amount from the
date hereof at the Contract Rate, as defined in the Agreement hereinafter
referred to, which definition is hereby accepted by the Company, as the same may
from time to time be established. If any installment of principal, interest or
other amounts due and payable hereunder are not paid when due, or within any
applicable grace periods, the Company shall pay interest thereon at the rate per
annum of six percent (6.0%) in excess of the Contract Rate, as the same may from
time to time be established.
The Company agrees to pay interest on the unpaid principal amount
outstanding of this Note in monthly installments, commencing on the 1st day of
May, 1997 and continuing on the 1st day of each month thereafter. The unpaid
balance of the principal amount outstanding and all accrued interest thereon
shall be due and payable on April 1, 1999.
Payments of both principal of and interest on this Note shall be made
in lawful money of the United States of America, at 600 Superior Avenue,
Cleveland, Ohio 44114, or at such other place as the Bank or any subsequent
holder hereof shall have designated to the Company in writing. Interest payable
on this Note shall be computed on a three hundred sixty (360) day per year basis
counting the actual number of days elapsed.
This Note, in part, evidences, but does not extinguish or satisfy, a
pre-existing indebtedness of the Company to the Bank and NBD Bank heretofore
evidenced by a $2,600,000 Third Amended and Restated Replacement Revolving
Demand Promissory Note dated November 5, 1996 to NED Bank and a $3,900,000 Third
Amended and Restated Replacement Domestic Revolving Demand Promissory Note dated
November 5,1996 to the Bank and is issued pursuant to and is entitled to the
benefits of a Third Amended and Restated Consolidated Replacement Credit
Facility and Security Agreement dated as of March 31, 1997, by and between the
Company and the Bank (the "Agreement"), to which Agreement reference is hereby
made for a statement of the rights and obligations of the Bank and the duties
and obligations of the Company in relation thereto; but neither this reference
to said Agreement nor any provisions thereof shall affect or impair the absolute
and
<PAGE> 2
unconditional obligation of the Company to pay the principal of or interest on
this Note when due.
The Company may prepay all or any portion of this Note at any time or
times and in any amount only as provided in the Agreement.
In case an Event of Default, as defined in said Agreement, shall occur
and be continuing beyond any applicable grace period, the principal of this Note
may be declared immediately due and payable at the option of the Bank.
The Company hereby authorizes any attorney-at-law to appear in any
court of record in the State of Ohio, or in any other state or territory of the
United States, at any time or times after the above sum becomes due, and waive
the issuance and service of process and confess judgment against it, in favor of
any holder of this Note, for the amount then appearing due, together with the
costs of suit, and thereupon to release all errors and waive all rights of
appeal and stay of execution. The foregoing warrant of attorney shall survive
any judgment, it being understood that should any judgment be vacated for any
reason, the foregoing warrant of attorney nevertheless may thereafter be used
for obtaining an additional judgment or judgments.
No delay on the part of any holder hereof in exercising any power or
rights hereunder shall operate as a waiver of any power or rights. Any demand or
notice hereunder to the Company may be made by delivering the same to the
address last known to the Bank, or by mailing the same to such address, with the
same effect as if delivered to the Company in person. This Note is executed at
Cleveland, Cuyahoga County, Ohio.
"WARNING, BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND
COURT TRIAL. IF YOU DO NOT PAY ON TIME. A COURT JUDGMENT MAY BE TAKEN AGAINST
YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO
COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR
WHETHER FOR RETURNED GOODS. FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT OR ANY OTHER CAUSE."
INTERNATIONAL TOTAL SERVICES, INC.
By ____________________________________
Name: _________________________________
Its: __________________________________
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<PAGE> 1
EXHIBIT 10.4
PROMISSORY NOTE
---------------
(Term Loan)
$2,000,000 Cleveland, Ohio
March 31, 1997
FOR VALUE RECEIVED, INTERNATIONAL TOTAL SERVICES, INC., a corporation
organized under the laws of the State of Ohio (hereinafter referred to as the
"Company"), promises to pay to the order of BANK ONE, CLEVELAND, NA (hereinafter
referred to as the "Bank"), the principal amount of Two Million Dollars
($2,000,000), on November 1, 1997, or sooner as hereinafter provided, with
interest on the unpaid balance of said principal amount from the date hereof at
the Treasury Rate, as defined in the Agreement hereinafter referred to, which
definition is hereby accepted by the Company, as the same may from time to time
be established. If any installment of principal, interest or other amounts due
and payable hereunder are not paid when due, or within any applicable grace
periods, the Company shall pay interest thereon at the rate per annum of six
percent (6.0%) per annum in excess of the Treasury Rate, as the same may from
time to time be established. The Company agrees to pay the principal amount of
this Note in six (6) consecutive equal monthly installments of Forty-One
Thousand Six Hundred Sixty-Seven Dollars ($4 1,667.00) each, together with all
accrued interest due at the time of payment of each such installment of
principal, commencing on the I st day of May, 1997, and continuing on the 1st
day of each month thereafter. The unpaid balance of the principal amount
outstanding and all accrued interest thereon shall be due and payable on
November 1, 1997. Monthly payments hereunder shall be applied first to interest
due and the balance to reduction of the principal amount outstanding.
Payments of both principal of and interest on this Note shall be made
in lawful money of the United States of America, at 600 Superior Avenue,
Cleveland, Ohio 44 114, or at such other place as the Bank or any subsequent
holder hereof shall have designated to the Company in writing. Interest payable
on this Note shall be computed on a three hundred sixty (360) day per year basis
counting the actual number of days elapsed.
This Note is issued pursuant to and is entitled to the benefits of a
Third Amended and Restated Consolidated Replacement Credit Facility and Security
Agreement dated as of March 31, 1997, by and between the Company and the Bank
(the "Agreements) to which Agreement reference is hereby made for a statement of
the rights and obligations of the Bank and the duties and obligations of the
Company in relation thereto; but neither this reference to said Agreement nor
any provisions thereof shall affect or impair the absolute and unconditional
obligation of the Company to pay the principal of or interest on this Note when
due.
<PAGE> 2
The Company may prepay all or any portion of this Note at any time or
times and in any amount only as provided in the Agreement.
In case an Event of Default, as defined in said Agreement, occur and be
continuing beyond any applicable grace period, the principal of this Note may be
declared immediately due and payable at the option of the Bank.
The Company hereby authorizes any attorney-at-law to appear in any
court of record in the State of Ohio, or in any other state or territory of the
United States, at any time or times after the above sum becomes due, and waive
the issuance and service of process and confess judgment against it, in favor of
any holder of this Note, for the amount then appearing due, together with the
costs of suit, and thereupon to release all errors and waive all rights of
appeal and stay of execution. The foregoing warrant of attorney shall survive
any judgment, it being understood that should any judgment be vacated for any
reason, the foregoing warrant of attorney nevertheless may thereafter be used
for obtaining an additional judgment or judgments.
No delay on the part of any holder hereof in exercising any power or
rights hereunder shall operate as a waiver of any power or rights. Any demand or
notice hereunder to the Company may be made by delivering the same to the
address last known to the Bank, or by mailing the same to such address, with the
same effect as if delivered to the Company in person. This Note is executed at
Cleveland, Cuyahoga County, Ohio.
"WARNING, BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND
COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST
YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO
COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR
WHETHER FOIL RETURNED GOODS, FAULTY GOOD, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT OR ANY OTHER CAUSE."
INTERNATIONAL TOTAL SERVICES, INC.
By ___________________________________
Name: ___________________________
Its: ____________________________
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<PAGE> 1
Exhibit 10.5
NOTE PURCHASE AGREEMENT
-----------------------
This Note Purchase Agreement (this "AGREEMENT"), dated as of November
25, 1996, is by and between INTERNATIONAL TOTAL SERVICES, INC., a corporation
organized and existing under the laws of the State of Ohio (THE "COMPANY") with
its principal place of business and chief executive office located at 5005
Rockside Road, Cleveland, Ohio 44113, and SEIDLER CAPITAL PARTNERS L.P., a
Delaware limited partnership ("LENDER"). Capitalized terms used in this
Agreement are defined in SECTION 1.1 hereof.
To induce Lender to purchase the Note from the Company, and for $10.00
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows, intending to be legally
bound.
I. INTERPRETATION OF AGREEMENT
1.1 CERTAIN TERMS DEFINED. When used in this Agreement, the following
capitalized terms set forth below are defined as follows:
"ACQUISITION" means the transactions pursuant to which the
Company (i) agreed to purchase all of the outstanding shares
of capital stock of the Company owned by Richard P. Starke and
(ii) purchased all or substantially all of the assets of JJ
Protective Services, Inc., a Wisconsin corporation pursuant to
the transactions evidenced by the Acquisition Documents.
"ACQUISITION AGREEMENT" means that certain Asset Purchase
Agreement dated as of November ___, 1996 between JJ Protective
Services, Inc., Norman M. Watermolen and the Company.
"ACQUISITION DOCUMENTS" means the Acquisition Agreement and
the agreements, documents and instruments executed in
connection therewith or contemplated thereby, and all
amendments thereto.
"AFFILIATE" means (a) any Person which directly or indirectly
through one or more intermediaries, controls, is controlled
by, or is under common control with, the Person in question,
or (b) 5% or more of the equity interest of which is held
beneficially or of record by the Person or its subsidiary. A
Person shall be deemed to control a corporation if such Person
possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of such
corporation, whether through the ownership of voting
securities, by contract or otherwise.
"AGREEMENT" means this Note Purchase Agreement, including
all annexes, schedules and exhibits hereto, as the same
<PAGE> 2
may be modified, supplemented, extended and/or amended
from time to time.
"ANNULMENT NOTICE" is defined in SECTION 9.3.
"BUSINESS DAY" means each day of the week except Saturdays,
Sundays, and days on which banking institutions are authorized
by law to close in the State of Minnesota.
"CAPITAL EXPENDITURE" means amounts expended or which the
Company or any Guarantor becomes obligated to expend, without
regard to the manner in which such amounts or the instrument
pursuant to which they are made are characterized by any
Person, (i) for the acquisition, construction or installation
of properties that are to be included as fixed assets on the
Company's books, (ii) for the lease of any property that would
be capitalized under GAAP, (iii) for the incurrence of any
other capitalized cost, or (iv) for any additions to or
replacements of any of the foregoing.
"CLOSING DATE" means the date on which the purchase price for
the Note shall have been paid by Lender.
"CODE" means the Internal Revenue Code of 1986, as amended and
in effect from time to time, and the regulations promulgated
thereunder.
"COLLATERAL" shall have the meaning specified in SECTION
2 of the Security Agreements.
"COMPANY" means International Total Services, Inc. and,
unless the context requires otherwise, shall include its
Subsidiaries, if any.
"COMPLIANCE CERTIFICATE" shall mean the Compliance
Certificate, the form of which is attached hereto as Exhibit
B. whereby the appropriate officer of the Company certifies as
to the matters required by SECTION 7.2 hereof.
"CONTROLLED GROUP" means any group of organizations within the
meaning of SECTION 414(b), (c), (m) or (o) of the Code of
which the Company is a member.
"DEBT INSTRUMENT" means any contract, agreement, instrument,
or other document or arrangement under which the Company or
any Guarantor has any contract, agreement, instrument or other
document or arrangement under which the Company or such
Guarantor has (i) any indebtedness, obligation or liability
for borrowed money or for the deferred portion of the purchase
price of any capital asset or for other capital financing or
(H) the right or
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obligation to incur any such indebtedness, obligation or
liability.
"DEFAULT" means the occurrence of any condition or event
which, with the passage of time or giving of notice or both,
would constitute an Event of Default.
"DEFERRED INTEREST" is defined in SECTION 3.1(b).
"EBITDA" means, for a period of determination, (a) net income,
plus (b) in each case, to the extent deducted in determining
net income for such period, (i) taxes, (ii) interest expenses
and (iii) amortization and depreciation and similar non-cash
charges, minus (c) to the extent included in determining net
income for such period, extraordinary gains, all calculated in
accordance with GAAP.
"EMPLOYMENT AND CONSULTING AGREEMENTS" shall mean all
contracts and agreements between the Company and the third
party individuals or entities set forth on Schedule 1.
"EMPLOYEE BENEFIT PLAN" means any employee benefit plan, as
defined in Section 3(3) of ERISA, which is, previously has
been or will be established or maintained by any member of a
Controlled Group.
"ENVIRONMENTAL LAWS" means all federal, state, or local laws,
ordinances, rules, regulations, interpretations and orders of
courts or administrative agencies or authorities relating to
pollution or protection of the environment (including, without
limitation, ambient air, surface water, ground water, land
surface, and subsurface strata), and other laws relating to
(i) Polluting Substances or (H) the manufacture, processing,
distribution, use, treatment, handling, storage, disposal, or
transportation of Polluting Substances.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended and in effect from time to time, and the
regulations promulgated thereunder.
"EVENT OF BANKRUPTCY" means any of (a) the filing by a Person
of a voluntary petition in bankruptcy under any provision of
any bankruptcy law or a petition to take advantage of any
insolvency act, (b) the admission in writing by the Company or
any Guarantor of its inability to pay its debts generally as
they become due, (c) the appointment of a receiver or
receivers for all or a material part of a Person's assets with
the consent of such Person, (d) the filing of any bankruptcy,
arrangement or reorganization petition by or, with the
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<PAGE> 4
consent of a Person, against such Person under any provision
of any bankruptcy law, (e) a receiver, liquidator or trustee
of a Person or a substantial part of its assets shall be
appointed pursuant to the Federal Bankruptcy Code by the order
of a court of competent jurisdiction which shall not be
dismissed or stayed within 30 days, or (o an involuntary
petition to reorganize or liquidate a Person pursuant to the
Federal Bankruptcy Code shall be filed against such Person and
shall not be dismissed or stayed within 30 days.
"EVENT OF DEFAULT" is defined in SECTION 9.1.
"EXCESS CASH FLOW" means an amount equal to the sum of EBITDA,
less interest expense, less all principal payments on
Company's long term indebtedness (including the Note, the
Senior Loans, and all indebtedness under any leases which, in
conformity with GAAP, are required to be capitalized), less
taxes paid and taxes to be paid within one hundred twenty days
of the date of measurement, less Capital Expenditures, less
changes in working capital (as adjusted for increases and
decreases in the revolving credit availability under the
Senior Loan Documents).
"EXCESS INTEREST" is defined in SECTION 3.8.
"FINANCIAL STATEMENTS" means the balance sheets of the Company
for the fiscal years ending March 31 of 1994, 1995 and 1996
and for the seven-month interim period ending October 31,
1996, as of and the related statements of income and cash
flows for the fiscal period then ended, copies of which have
been provided to Lender on or prior to the Closing Date.
"GAAP" means generally accepted accounting principles, applied
on a consistent basis, as set forth in Opinions of the
Accounting Principles Board of the American Institute of
Certified Public Accountants and/or in statements of the
Financial Accounting Standards Board and/or their respective
successors and which are applicable in the circumstances as of
the date in question, provided that the Company may not change
the use or application of any accounting method, practice or
principle without the written consent of Lender, which consent
may require that an adjustment be made to any and all the
financial covenants set forth and capital expenditures
limitation covenant set forth herein. Accounting principles
are applied on a "consistent basis" when the accounting
principles observed in a current period are comparable in all
material respects to those accounting principles applied in a
preceding period.
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<PAGE> 5
"GUARANTOR" means, individually and collectively, NBC
Leasing, Inc., ITS Sales Corp., Crown-Technical Systems,
Inc., T.I.S., Incorporated, Certified Investigative
Services, Inc., I.T.S. of New York, Inc., Selective
Detective Services, Inc., International Total Services
(Holdings) Limited, International Total Services,
Limited, NBC Holdings, B.V., International Transport
Security, LTD. and International Transport Services, Ltd.
"GUARANTY AGREEMENTS" means, collectively, those certain
guaranty agreements executed by each Guarantor in favor of
Lender.
"HOLDER" when used in reference to the Note and/or the
Obligations, means the Person or Persons who, at the time of
determination, is the lawful owner of all or a portion of the
Note or an obligee of all or a portion of the Obligations.
"IMPOSITIONS" is defined in Section 7.9.
"INDEBTEDNESS" means for any Person: (a) all indebtedness,
whether or not represented by bonds, debentures, notes,
securities, or other evidences of indebtedness, for the
repayment of money borrowed, (b) all indebtedness representing
deferred payment of the purchase price of property or assets,
(c) all indebtedness under any lease (including those leases
which, in conformity with GAAP, are required to be capitalized
for balance sheet purposes and leases of property or assets
made as a part of any sale and lease-back transaction), (d)
all indebtedness under guaranties, endorsements, assumptions,
or other contractual obligations, including any letters of
credit, or the obligations in respect of or to purchase or
otherwise acquire, indebtedness of others, (e) all
indebtedness secured by a Lien existing on property owned,
subject to such Lien, whether or not the indebtedness secured
thereby shall have been assumed by the owner thereof, (f)
trade accounts payable more than ninety (90) days past due or
one hundred twenty (120) days past the invoice date, (g) all
amendments, renewals, extensions, modifications and refunds of
any indebtedness or obligations referred to above in (a), (b),
(c), (d) or (e), excluding trade accounts payable in the
ordinary course of business, (h) all unfunded pension fund
obligations and liabilities and (i) deferred taxes of any
nature.
"INTELLECTUAL PROPERTY" means all patents, patent rights,
patent applications, licenses, inventions, trade secrets,
know-how, proprietary techniques (including processes and
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<PAGE> 6
substances), trademarks, service marks, trade names and
copyrights.
"LENDER" means Seidler Capital Partners L.P., together with
all of its respective transferees, successors and assigns of
all or any portion of the Note or the Obligations and any
nominees on whose behalf any of the foregoing purchase or
otherwise acquire any of such Indebtedness of the Company, and
shall include, but not be limited to, each and every "Holder"
as defined herein.
"LIEN" means any lien, mortgage, security interest, tax hen,
pledge, encumbrance, financing statement, or conditional sale
or title retention agreement, or any other interest in
property designed to secure the repayment of Indebtedness or
any other obligation, whether arising by agreement, operation
of law, or otherwise.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse effect
upon the business, operations, properties, assets or condition
(financial or otherwise) of the Company or any Guarantor or
(b) the impairment of the ability of any party to perform its
obligations under the Agreement or any of the Other Agreements
to which it is a party or of Lender to enforce or collect any
of the Obligations. In determining whether any individual
event would result in a Material Adverse Effect,
notwithstanding that such event does not of itself have such
effect, a Material Adverse Effect shall be deemed to have
occurred if the cumulative effect of such event and all other
then existing events would result in a Material Adverse
Effect.
"MAXIMUM RATE" is defined in Section 3.8.
"NOTE" means the term note in the form of EXHIBIT A, executed
and delivered by the Company pursuant to this Agreement, or
any note or notes delivered in substitution or exchange
therefor at Lender's request, as the same may be, extended,
modified or amended.
"OBLIGATIONS" means and includes any and all Indebtedness
and/or liabilities of the Company or any Guarantor to Lender
of every kind, nature and description, direct or indirect,
secured or unsecured, joint, several, joint and several,
absolute or contingent, due or to become due, now existing or
hereafter arising, under this Agreement or any Other Agreement
(regardless of how such Indebtedness or liabilities arise or
by what agreement or instrument they may be evidenced or
whether evidenced by any agreement or instrument) and all
obligations of the Company or any Guarantor to Lender to
perform acts or
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<PAGE> 7
refrain from taking any action under any of the aforementioned
documents, together with all renewals, modifications,
extensions, increases, substitutions or replacements of any of
such Indebtedness.
"OTHER AGREEMENTS" means the Note, the Security Documents, and
all other agreements, instruments and documents (including,
without limitation, notes, guaranties, powers of attorney,
consents, assignments, contracts, notices, subordination
agreements and all other written matter), and all renewals,
modifications and extensions thereof, whether heretofore, now
or hereafter executed by or on behalf of the Company or any
Guarantor and delivered to and for the benefit of Lender or
any Person participating with Lender in the Note with respect
to this Agreement or any of the transactions contemplated by
this Agreement.
"PENSION PLAN" means any employee pension benefit plan, as
defined in Section 3(2) of ERISA, which is, was or will be
established or maintained by any member of the Controlled
Group.
"PERMITTED INDEBTEDNESS" means (a) any Indebtedness in favor
of the Senior Creditor with respect to the Senior Debt under
the Senior Loan Agreement and created pursuant thereto, (b)
any Indebtedness in favor of Lender under this Agreement
and/or the Other Agreements and created pursuant thereto, (c)
trade payables and other current liabilities incurred in the
ordinary course of business, (d) such other Indebtedness
described on Exhibit C and (e) Indebtedness for the Permitted
Liens.
"PERMITTED INVESTMENTS" means the following:
(a) securities issued or directly and fully
guaranteed or insured by the United States Government or any
agency or instrumentality thereof (provided that the full
faith and credit of the United States Government is pledged in
support thereto, having maturities of not more than twelve
months from the date of acquisition;
(b) time deposits and certificates of deposit (i) of
any commercial bank incorporated in the United States of
recognized standing having capital and surplus in excess of
$100,000,000 with maturities of not more than twelve months
from the date of acquisition or (ii) which are fully insured
by the Bank Insurance Fund with maturities of not more than
twelve months from the date of acquisition;
(c) commercial paper issued by any Person
incorporated in the United States rated at least A-1 or
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<PAGE> 8
the equivalent thereof by Standard & Poors Corporation or at
least P-1 or the equivalent thereof by Moody's Investors
Service, Inc. and in each case maturing not more than twelve
months after the date of acquisition; or
(d) investments in money market funds substantially
all of whose assets are comprised of securities of the types
described in clauses (a) through (c) above.
"PERMITTED LIENS" means (a) Liens in favor of the Senior
Creditor under the Senior Loan Agreement or created pursuant
thereto, (b) Liens securing purchase money Indebtedness
incurred to finance the acquisition of capital assets by the
Company or any Guarantor, subject to the limitations placed on
Capital Expenditures in Section 8.9 hereof, but not
encumbering any assets other than those acquired with the
proceeds of such purchase money Indebtedness, (c) Liens for
property taxes not yet due, (d) materialmen's, mechanics',
worker's, repairmen's, employees' or other like Liens arising
against the Company or any Guarantor in the ordinary course of
business, in each case which are either not delinquent or are
being contested in good faith and by appropriate proceedings
conducted with due diligence and for the payment of which
adequate cash reserves have been established by the Company or
such Guarantor, (e) deposits to secure payment of worker's
compensation, unemployment insurance or other social security
benefits and (f) Liens disclosed on Exhibit D or hereafter
specifically approved by Lender in writing.
"PERSON" means any individual, sole proprietorship,
corporation, business trust, unincorporated organization,
association, company, partnership, joint venture, governmental
authority (whether a national, federal, state,
county.municipality or otherwise, and shall include without
limitation any instrumentality, division, agency, body or
department thereof), or other entity.
"POLLUTING SUBSTANCES" means all pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or
wastes and shall include, without limitation, any flammable
explosives, radioactive materials, oil, hazardous materials,
hazardous or solid wastes, hazardous or toxic substances or
related materials defined in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act of 1986, the
Resource Conservation and Recovery Act of 1976, the Hazardous
and Solid Waste Amendments of 1984, and the Hazardous
Materials Transportation Act, as any of the same are hereafter
amended, and in the regulations adopted and publications
promulgated thereto; in the
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<PAGE> 9
event any of the foregoing Environmental Laws is amended so as
to broaden the meaning of any term defined thereby, such
broader meaning shall apply subsequent to the effective date
of such amendment and, further, to the extent that the
applicable laws of any state establish a meaning for
"hazardous substances," "hazardous waste,' "hazardous
material," "solid waste," or "toxic substance" which is
broader then that specified in any of the foregoing
Environmental Laws, such broader meaning shall apply.
"PREPAYMENT PREMIUM" is defined in Section 3.2.
"PROPERTY" means all property owned, leased or operated
by the Company and each Guarantor.
"PROJECTIONS" is defined in Section 5.2.
"REPORTABLE EVENT" means (i) any of the events set forth in
Sections 4043(b) (other than a merger, consolidation or
transfer of assets in which no Pension Plan involved has any
unfunded benefit liabilities), 4068(f) or 4063(a) of ERISA,
(ii) any event requiring any member of the Controlled Group to
provide security under Section 401(a)(29) of the Code, or
(iii) any failure to make payments required by Section 412(m)
of the Code.
"SECURITY" shall have the meaning set forth in Section 2(l) of
the Securities Act of 1933, as amended.
"SECURITY AGREEMENTS" shall mean (i) the Security Agreement
between the Company and Lender whereby the Company grants to
Lender a security interest in the Collateral and (ii) the
Security Agreements between the Lender and each Guarantor
whereby each Guarantor grants to Lender a security interest in
the Collateral.
"SECURITY DOCUMENTS" means all security agreements, pledge
agreements, guaranty agreements, collateral assignments,
mortgages, deeds of trust and other documents executed in
connection with this Agreement and granting to Lender liens
and security interests in the Collateral, including, without
limitation, the Security Agreements and the Guaranty
Agreements, second in priority only to the liens and security
interests of the Senior Creditor under the Senior Loan
Agreement, all renewals, modifications or extensions of such
documents, and any such documents hereafter executed in favor
of Lender to secure payment of all or any part of the
Obligations, together with all financing statements and other
documents necessary to record or perfect the Liens granted by
any of the foregoing.
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<PAGE> 10
"SENIOR CREDITOR" means, individually and collectively,
Bank One, Cleveland, NA, a national banking association
organized and existing under the laws of the United States of
America, and NBD Bank, a Michigan banking company, or any of
their respective assignees to which Lender shall have
consented in writing which consent shall not be unreasonably
withheld.
"SENIOR DEBT" means, at any given time, the Indebtedness
(whether now outstanding or hereafter incurred) of the Company
in respect of the Senior Loan Agreement, in a principal amount
not to exceed $8,000,000.00 in revolving loans, $400,000.00 in
term loans (less the aggregate amount of principal payments
made by the Company to the Senior Creditor under such term
loans), plus interest, fees, expenses and indemnities payable
under the Senior Loan Agreement and any notes, security
documents, guaranties or other loan documents referred to
therein or pursuant thereto, secured by all assets of the
Company and each Guarantor.
"SENIOR LOAN AGREEMENT" means the Second Amended and Restated
Replacement Credit Agreement, as amended by that certain First
Amendment to Second Amended and Restated Replacement Credit
Agreement dated as of February 1, 1996, as amended by that
certain Second Amendment to Second Amended and Restated
Replacement Credit Agreement dated as of June 30, 1996, as
amended by that certain Third Amendment to Second Amended and
Restated Replacement Credit Agreement dated as of August 23,
1996, as amended by that certain Fourth Amendment to Second
Amended and Restated Replacement Credit Agreement dated as of
November, 1996, all between the Company and the Senior
Creditor, dated as of the date hereof, and all documents and
instruments delivered pursuant thereto in connection with the
loans and advances made thereunder.
"SENIOR LOAN DOCUMENTS" means the Senior Loan Agreement and
the agreements, documents and instruments executed in
connection therewith or contemplated thereby, and all
amendments thereto.
"SENIOR LOANS" means revolving loans in the maximum principal
amount of $8,000,000.00 and a term loan in the maximum
aggregate principal amount of $400,000.00 (less the aggregate
amount of principal payments made by the Company to the Senior
Creditor under such term loans) made to the Company by the
Senior Creditor under the Senior Loan Agreement and any
permitted replacements and refinancings thereof.
"SUBORDINATION AGREEMENT" means that certain Subordination
Agreement of even date herewith by and
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<PAGE> 11
between the Senior Creditor and Lender, and consented to and
acknowledged by the Company pursuant to which the relative
priorities of the Senior Creditor and Lender with respect to
the repayment of Senior Debt and the Obligations under the
Note are established.
"SUBSIDIARY" means any Person of which or in which the Company
and its other Subsidiaries own directly or indirectly 50% or
more of (a) the combined voting power of all clauses having
general voting power under ordinary circumstances to elect a
majority of the board of directors or equivalent body of such
Persons, if it is a corporation, (b) the capital interest or
profits interest of such Person, if it is a partnership, joint
venture or similar entity, or (c) the beneficial interest of
such Person if it is a trust, association or other
unincorporated organization.
"TANGIBLE NET WORTH" shall mean at any time, the aggregate of
subordinated debt of the Company and the Other Entities' (as
defined in the Senior Loan Agreement) (indebtedness which is
subordinated and junior in right of payment to the Obligations
(as defined in the Senior Loan Agreement) to the extent, in
such manner, and pursuant to an instrument evidencing such
subordination, acceptable to Lender) plus the sum of the
following amounts set forth in a consolidated balance sheet of
the Company and the Other Entities, prepared in accordance
with GAAP: (a) the par or stated value of all outstanding
capital stock; (b) capital surplus; (c) retained earnings,
less the sum of: (i) any surplus resulting from any write-up
of assets of the Company and the Other Entities subsequent to
June 30, 1995; (ii) including any amounts, however designated
on a consolidated balance sheet of the Company and the Other
Entities, representing the excess of the purchase price paid
for assets or stock acquired over the value assigned thereto
on the books of the Company and the Other Entities; (iii)
proprietary rights of the Company and the Other Entities,
including all patents, trademarks, trade names and copyrights;
and (iv) loans and advances to stockholders, directors,
officers or employees of the Company and the Other Entities;
"TERMINATION DATE" means the earliest to occur of (a) the
fifth (5th) anniversary of the date hereof, (b) the date on
which the Note is accelerated pursuant to Article 11 or (c)
the date on which the Obligations are paid in full.
"TERMINATION EVENT" means (a) a Reportable Event, (b) the
termination of, a Pension Plan which has unfunded benefit
liabilities (including an involuntary termination under
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<PAGE> 12
Section 4042 of ERISA), (c) the filing of a Notice of Intent
to Terminate a Pension Plan, (d) the initiation of
proceedings to terminate a Pension Plan under Section 4042 of
ERISA or (e) the appointment of a trustee to administer a
Pension Plan under Section 4042 of ERISA- "Transferee" means
any Person to whom a transfer of any of the Obligations is
made.
Terms which are defined in other Sections of this Agreement shall have the
meanings specified therein. All other terms contained in this Agreement shall
have, when the context so indicates, the meanings provided for by the Uniform
Commercial Code as adopted and in force in the State of Minnesota, as from time
to time in effect. All definitions shall be equally applicable to both the
singular and plural forms of the defined terms.
1.2 ACCOUNTING PRINCIPLES. Where the character or amount of any asset
or liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, the same shall be done, unless specified otherwise,
in accordance GAAP, except where such principles are inconsistent with the
requirements of this Agreement. Each accounting term not herein defined shall
have the meaning given to it under GAAP.
1.3 DIRECTLY OR INDIRECTLY. Where any provision in this Agreement
refers to action to be taken by any Person, or which such Person is prohibited
from taking, such provision shall be applicable whether the action in question
is taken directly or indirectly by such Person.
II. DESCRIPTION OF NOTE AND COMMITMENT
2.1 DESCRIPTION OF NOTE. The Company will authorize the issue and sale
of its Note which shall be dated the Closing Date, shall be in the aggregate
original principal amount of Three Million and No/Dollars ($3,000,000), and
shall bear interest at the fixed rate of 20.0% per annum; provided however, that
upon the occurrence of a Default under Section 9.1(a) hereof or any Event of
Default, and during the continuation thereof, the unpaid 'principal amount of
the Note shall bear interest at the rate of 22.0% per annum. The Note shall be
substantially in the form attached hereto as Exhibit A. Interest on the Note
shall be computed on the basis of a 360 day year for the actual number of days
elapsed.
2.2 COMMITMENT: FUNDING. Subject to the terms and conditions,hereof and
on the basis of the representations and warranties hereinafter set forth, the
Company agrees to issue and sell to Lender and Lender agrees to purchase from
the Company, the Note in the principal amount of $3,000,000 at a price of 100%
of such principal amount. Delivery of the Note shall be made on the Closing Date
in the office of International Total Services, Inc.,
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Crown Centre, 5005 Rockside Road, Cleveland, Ohio 44131 or such other place as
is mutually agreeable against payment of the purchase price thereof, in
immediately available funds, disbursed on the Closing Date to such Person as the
Company shall designate in writing. The Note will be delivered to Lender in
fully registered form and shall be issued in its name or the name of its
nominee.
2.3 INVESTMENT POINTS. The Company shall pay to Lender an amount equal
to $30,000.00 (less $7,500.00 paid to Lender by the Company prior to the Closing
Date in consideration of the issuance of the proposal letter by Lender which
amount is fully earned and non-refundable), which amount represents prepaid
yield and shall be deemed fully earned and nonrefundable on the Closing Date.
Lender may, at its option, deduct the amount of its attorney's fees and all of
its other closing expenses, from the purchase price of the Note.
2.4 USE OF PROCEEDS. The proceeds from the sale of the Note shall be
used for legal and proper corporate uses duly authorized by the Board of
Directors of the Company, consistent with applicable laws and statutes.
2.5 SECURITY FOR THE NOTE AND ALL OBLIGATIONS. Payment of all
Obligations, including indebtedness evidenced by the Note, shall be secured by
(i) a security interest in all of the Collateral, now or hereafter owned by the
Company and each Guarantor, pursuant to the Security Agreements.
III. PAYMENT AND PREPAYMENT OF TERMS
3.1 PRINCIPAL AND INTEREST PAYMENTS. Principal and interest
on the Note shall be due and payable as follows:
(a) Principal shall be due and payable (i) on the last
Business day of February, May, August and November of any year, in
twelve (12) consecutive quarterly installments each in the amount of
$250,000, commencing November 30, 1999, and (ii) together with all
unpaid Obligations, on the Termination Date.
(b) Interest shall accrue on the Note at the rate of 20.0% per
annum, consisting of 16.0% per annum interest payable monthly on the
last Business Day of each calendar month commencing December 31, 1996,
and 4.0% per annum deferred interest, payment of which may be deferred
at the option of the Company until the Termination Date, such deferred
amount, if any, defined as "DEFERRED INTEREST" Deferred Interest shall
be accrued and compounded annually and shall be added to the principal
balance of the Note at the end of each calendar month until the
Termination Date, at which time all Deferred Interest shall be paid in
full.
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3.2 OPTIONAL PAYMENTS. At the Company' option, upon notice
given as provided below, the Company may at any time and from time
to time prepay all or any part of the principal of the Note, by payment to
Lender of the principal amount to be prepaid, plus (a) accrued unpaid interest
on the principal amount so prepaid, (b) any expenses and/or damages for which
Lender may be entitled to receive payment or reimbursement hereunder or, if the
Note is being prepaid in full, the aggregate amount of all other Obligations,
and (c) a premium equal to the percentage of the principal amount so prepaid
which is applicable in accordance with the following table based on the date on
which such prepayment is made (a "PREPAYMENT PREMIUM"):
PREPAYMENT DATE PREMIUM
--------------- -------
Closing Date through November 30, 1997 5%
December 1, 1997 through November 30,1998 4%
December 1, 1998 through November 30, 1999 3%
December 1, 1999 through November 30, 2000 2%
December 1, 2000 through November 30, 2001 1%
No Prepayment Premium will be due if the Company prepays the Obligations in
accordance with the terms of this Section, with funds (a) which are internally
generated in the ordinary course of the Company's business; (b) which consist of
direct proceeds from a public offering of the Company's Securities for a minimum
of $15 million; (c) from the proceeds of a sale of all or substantially all of
the stock or assets of the Corn any or (d) pursuant to Section 3.3 hereof Each
partial prepayment under this SECTION 3.2 shall be in a principal amount of not
less than $ 1 00,000. Each prepayment under this SECTION 3.2 shall be applied
first to any applicable Prepayment Premium then to expenses, then to accrued
interest and then to installments of principal in the inverse order of their
maturities. The amount of any such prepayment may not be reborrowed by the
Company. The Company shall give notice of any prepayment to Lender not less than
thirty (30) days nor more than sixty (60) days before the date for prepayment,
specifying in each such notice the date upon which prepayment is to be made and
the principal amount (together with accrued interest and any applicable
Prepayment Premium) to be prepaid on such date. Notice of prepayment having been
so given, the applicable prepayment amount shall become due and payable on the
specified prepayment date. The Company shall have no right to prepay the Note
except as provided in this SECTION 3.2. Failure to comply with all of the
provisions of this SECTION 3.2 shall not relieve the Company from its obligation
to pay to Lender the Prepayment Premium.
3.3 EXCESS CASH RECAPTURE. The Company may, at its option, prepay the
Note from operating cash flows with no prepayment penalty.
3.4 ADDITIONAL PAYMENTS. Unless otherwise provided herein or in the
Other Agreements, all other Obligations shall be payable by
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the Company to the Holder thereof, on demand, and shall bear interest from the
date of demand until paid at the rate of interest then applicable under SECTION
2.1.
3.5 LIQUIDATED DAMAGES. Any Prepayment Premium payable pursuant to
SECTION 3.2 shall be payable as liquidated damages for loss of the opportunity
to recover loan origination expenses, yield on the loan and other lost
opportunities over the balance of the term of this Agreement and not as a
penalty.
3.6 DIRECT PAYMENT. The Company will pay all sums becoming due
hereunder and in the Note to Lender on the date such payment is due at the
address specified for Lender on Annex I hereto, by wire transfer in U.S. Dollars
of Federal Reserve Funds or other immediately available funds, to the account
specified for Lender on Annex 1, or at such other address or in such other form
as Lender shall have designated by notice to the Company at least five (5)
Business Days prior to the date of any payment, in each case without presentment
and without notations being made thereon. All payments by the Company shall be
made without set-off or counterclaim. Any wire transfer shall identify such
payment as "International Total Services, Inc. 20.0% Note" and shall identify
the payment as principal, premium, interest and/or reimbursement of costs and
expenses, together with the applicable date or period to which it relates. To
the extent that any payment to Lender is avoided by any Bankruptcy Court or any
other proceeding, the Obligations shall be deemed increased by the amount of
such avoided payment.
3.7 PAYMENTS PAYABLE ON BUSINESS DAYS. Payments of all amounts due
hereunder or under the Note shall be made on a Business Day. Any payment due on
a day that is not a Business Day shall be made on the next Business Day,
together with all interest (if any) accrued in the interim.
3.8 INTEREST LAWS. Notwithstanding any provision to the contrary
contained in this Agreement or any Other Agreement, the Company shall not be
required to pay, and Lender shall not be permitted to contract for, take,
reserve, charge or receive, any compensation watch constitutes interest under
applicable law in excess of the maximum amount of interest permitted by law
("Excess Interest"). If any Excess Interest is provided for or determined by a
court of competent jurisdiction to have been provided for in this Agreement or
in any other Agreement or otherwise contracted for, taken, reserved, charged or
received, then in such event: (a) the provisions of this SECTION 3.8 shall
govern and control, (b) the Company shall not be obligated to pay any Excess
Interest; (c) any Excess Interest that Lender may have contracted for, taken,
reserved, charged or received hereunder shall be, at Lender's option; (i)
applied as a credit against the outstanding principal balance of the Obligations
or accrued and unpaid interest (not to exceed the maximum amount permitted by
law), (ii) refunded to the payor thereof, or (iii) any combination of the
foregoing; (d) the
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interest provided for shall be automatically reduced to the maximum lawful rate
allowed from time to time under applicable law (the "MAXIMUM RATE"), and this
Agreement and the Other Agreements shall be deemed to have been, and shall be
reformed and modified to reflect such reduction; and (e) the Company shall have
no action against Lender for any damages arising due to any Excess Interest.
Notwithstanding the foregoing, if for any period of time interest on any
Obligations is calculated at the Maximum Rate rather than the applicable rate
under this Agreement, and thereafter such applicable rate becomes less than the
Maximum Rate, the rate of interest payable on such Obligations shall remain at
the Maximum Rate until Lender shall have received the amount of interest which
Lender would have received during such period on such Obligations had the rate
of interest not been limited to the Maximum Rate during such period. All sums
paid or agreed to be paid hereunder or under the Other Agreements for the use
forbearance or detention of sums due shall, to the extent permitted by
applicable law, be amortized, pro-rated, allocated and spread throughout the
fill term of the Obligations with payment in full so that the rate or amounts of
interest on account of the Obligations does not exceed the Maximum Rate. The
terms of this SECTION 3.8 shall be deemed incorporated into each Other Agreement
and any other document or instrument between the Company and Lender or directed
to the Company by Lender, whether or not specific reference to this SECTION 3.8
is made.
IV. REPRESENTATION AND WARRANTY OF LENDER
Lender represents and warrants to the Company that, except as otherwise
contemplated by this Agreement, it is acquiring the Note for investment for its
own account and with no present intention of distributing or selling the Note in
violation of applicable securities laws, but subject nevertheless to the
condition that the disposition of its property, she at all times be and remain
within its control.
V. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
To induce Lender to enter into this Agreement, the Company represents
and warrants to Lender that the following statements are, and after giving
effect to the transaction contemplated in the Acquisition Documents, will be
true, correct and complete:
5.1 CORPORATE EXISTENCE AND AUTHORITY. The Company and each Guarantor
(a) is duly organized, validly existing, and in good standing under the laws of
its respective state of organization; (b) has afl requisite corporate power and
authority to own its assets and carry on its business as now conducted; and (c)
is qualified to do business in all jurisdictions in which the nature of its
business makes such qualification necessary and where failure to so qualify
would have a Material Adverse Effect. The
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<PAGE> 17
Company and each Guarantor has the corporate power and authority to execute,
deliver, and perform its obligations under this Agreement, the Acquisition
Documents, the Senior Loan Documents, and all Other Agreements to which it is or
in connection with the transactions contemplated hereby, may become, a party.
5.2 FINANCIAL STATEMENTS. The Financial Statements have been prepared
in accordance with GAAP and present fairly and accurately the financial position
of the Company for the periods stated and the results of the Company's
operations for the respective periods indicated therein. The Company has
provided to Lender income and cash flow projections and analyses of the Company,
substantially in accordance with GAAP for the five-year period following the
Closing Date together with a written statement of the assumptions underlying
them (the "Projections"). The Projections fairly present the Company's best
estimate of the future cash flow position of the Company, based on the Company's
historical performance and the Company's knowledge of its business plans and
assumptions underlying them, and are not misleading in any material respect. It
is the Company's good faith belief that such Projections are reasonably
achievable by the Company. At October 31, 1996, the Company has no liabilities
or obligations (absolute, accrued, contingent or otherwise) of a nature required
by GAAP to be reflected in audited financial statements which are, individually
or in the aggregate, material to the condition, financial or otherwise, or
operations of the Company as of that date which are not reflected on the
Financial Statements. There has been no material adverse change in the
condition, financial or otherwise, or operations of the Company or any Guarantor
as of the Closing Date since October 31, 1996 nor has there otherwise occurred a
Material Adverse Effect since October 31, 1996.
5.3 DEFAULT. Neither the Company nor any Guarantor is in default under
any material loan agreement, indenture, mortgage, security agreement, lease,
franchise, permit, license or other agreement or obligation to which it is a
party or by which any of its properties may be bound. The Company and each
Guarantor is paying its debts as they become due.
5.4 AUTHORIZATION AND COMPLIANCE WITH LAWS AND MATERIAL AGREEMENTS. The
execution, delivery and performance by the Company and each Guarantor, as
applicable, of this Agreement, the Acquisition Documents, the Senior Loan
Documents, and the Other Agreements to which it is or may in connection with the
transactions contemplated hereby become a party, have been or prior to the
consummation of such transactions contemplated hereby will be duly authorized by
0 requisite action on the part of the Company and each Guarantor, as applicable,
and do not and 'will not violate its Articles of Incorporation or Bylaws or
other organizational documents, as applicable, or any law or any order of any
court, governmental authority or arbitrator, and do not and will not upon the
consummation of the transactions contemplated hereby conflict with, result in a
breach of, or constitute a default under, or
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<PAGE> 18
result in the imposition of any Lien (except Permitted Liens) upon any assets of
the Company or any Guarantor pursuant to the provisions of any loan agreement,
indenture, mortgage, security agreement, franchise, permit, license or other
instrument or agreement by which the Company, any Guarantor or any of their
properties is bound. Except as set forth on Schedule 5.4, no authorization,
approval or consent of, and no filing or registration with, any court,
governmental authority or third Person is or will be necessary for the
execution, delivery or performance by the Company or any Guarantor, as
applicable, of this Agreement, the Acquisition Documents, the Senior Loan
Documents, and the Other Agreements to which it is a party or the validity or
enforceability thereof All such authorizations, approvals, consents, filings and
registrations described in Schedule 5.4 have been obtained. Neither the Company
nor any Guarantor is in violation of any term of its Articles of Incorporation
or Bylaws or other organizational document, any contract, agreement, judgment or
decree and is in full compliance with afl applicable laws, regulations and
rules.
5.5 ENVIRONMENTAL CONDITION OF THE PROPERTY. Except as specifically
described in SCHEDULE 5.5 attached hereto.
(a) The location, construction, occupancy, operation and use
of the Property do not violate any material and applicable law,
statute, ordinance, rule, regulation, order or determination of any
governmental authority or other body exercising similar functions, or
any restrictive covenant or deed restriction (recorded or otherwise)
affecting the Property, including, without limitation, an applicable
zoning ordinances and building codes, flood disaster, occupational
health and safety laws and Environmental Laws and regulations
(hereinafter sometimes collectively called "APPLICABLE LAWS").
(b) without limitation of (a) above, neither the Company nor
the Property is subject to any existing, pending or threatened
investigation or inquiry by any governmental authority or subject to
any remedial obligations due to violations of applicable laws.
(c) The Company is not subject to any liability or obligation
relating to (i) the environmental conditions or under or about the
Property, including, without limitation, the soil and ground water
conditions at the Property, or (ii) the use, management, handling,
transport, treatment, generation, storage, disposal, release or
discharge of any Polluting Substance.
(d) There is no Polluting Substance or other substance that
may pose any risk to safety, health or the environment on, under or
about any Property.
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(e) The Company has taken reasonable steps to determine and
hereby represents and warrants that no Polluting Substances have been
disposed of or otherwise released on, onto, into, or from the Property.
The use which the Company makes and intends to make of the Property
does not and will not result in the disposal or other release of any
Polluting Substances on, onto, into or from the Property.
(f) The Company has been issued all material required federal,
state and local licenses, certificates or permits relating to, and the
Property, the Company and the Company's facilities, business, assets,
leaseholds and equipment are all in compliance in all respects with all
applicable federal, state and local laws, rules and regulations
relating to, air emissions, water discharge, noise emissions, solid or
liquid waste disposal, Polluting Substances, or other environmental,
health or safety matters.
5.6 SOLVENCY. The Company is not entering into the arrangements
Contemplated by this Agreement and the Other Agreements with the actual intent
to hinder, delay or defraud either present or future creditors. After giving
effect to the transactions contemplated by the Senior Loan Agreement, this
Agreement and the Other Agreements, the Company will be solvent, able to pay its
debts as they mature, have capital sufficient to carry on its business and all
businesses in which it is about to engage, and
(a) the assets of the Company, at a fair valuation, exceed the
total liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities) of the Company;
(b) current projections which are based on underlying
assumptions which provide a reasonable basis for the projections and which
reflect the Company's judgment based on present circumstances, the most likely
set of conditions and the Company's most likely course of action for the period
projected, demonstrate that the Company will have sufficient cash flow to enable
it to pay its debts as they mature; and
(c) the Company does not have an unreasonably small capital
base with which to engage in its anticipated business.
For purposes of PARAGRAPH (a) of this SECTION 5.6, the "FAIR VALUATION" of the
assets of the Company shall be determined on the basis of the amount which may
be realized within a reasonable time, either through collection or sale of such
assets at market value, deeming the latter as the amount which could be obtained
for the property in question within such period by a capable and diligent
businessman from an interested buyer who is willing to purchase under ordinary
selling conditions.
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<PAGE> 20
5.7 LITIGATION AND JUDGMENTS. Except as disclosed on SCHEDULE 5.7,
there is no suit, proceeding or investigation before any court, governments
authority or arbitrator pending, or to the knowledge of the Company threatened,
against or affecting the Company, any Guarantor, this Agreement, the Acquisition
Documents, the Senior Loan Documents and/or the Other Agreements. There are no
outstanding judgments against the Company or any Guarantor. None of the matters
listed on SCHEDULE 5.7 could reasonably be expected to have, either individually
or in the aggregate, a Material Adverse Effect.
5.8 RIGHTS IN PROPERTIES: LIENS. The Company has good and indefeasible
title to all properties and assets reflected on its balance sheets, and none of
such properties or assets is subject to any Liens, except Permitted Liens. The
Company enjoys peaceful and undisturbed possession under all leases necessary
for the operation of its other properties, assets, and businesses and all such
leases are valid and subsisting and are in full force and effect. There exists
no default under any provision of any lease which would permit the lessor
thereunder to terminate any such lease or to exercise any rights under such
lease which, individual or together with all other such defaults, could have a
Material Adverse Effect. The Company has the exclusive right to use all of the
Intellectual Property necessary or desirable to its business as presently
conducted, and the Company's use of the Intellectual Property does not infringe
on the rights of any other Person. To the best of the Company's knowledge, no
other Person is infringing the rights of the Company in any of the Intellectual
Property. The Company and its Subsidiaries own or possess all licenses, permits,
franchises, authorizations, patents, patent applications, copyrights, service
marks, trademarks and trade names, or rights thereto, that individually or in
the aggregate are material, without known conflict with the rights of others; to
the best of the Company's knowledge, no such license or trademark has been
declared invalid, been limited by order of any governmental authority or by
agreement, or is the subject of any infringement, interference or similar
proceeding or challenge; to the best knowledge of the Company, no product of the
Company infringes in any material respect any license, permit, franchise,
authorization, patent, copyright, service mark, trademark, trade name or other
right owned by any other Person; and to the best knowledge of the Company, there
is no material violation by any Person of any right of the Company or any of its
Subsidiaries with respect to any patent, patent applications, copyright, service
mark, trademark, trade name or other right owned or used by the Company or any
of its Subsidiaries. The Company owes no royalties, honoraria or fees to any
Person by reason of its use of the Intellectual Property.
5.9 ENFORCEABILITY. This Agreement, the Acquisition Documents, the
Senior Loan Documents and the Other Agreements, when delivered, shall constitute
the legal, valid and binding obligations of the Company and/or each Guarantor,
enforceable
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against the Company and/or each Guarantor in accordance with their
respective terms.
5.10 INDEBTEDNESS. Neither the Company nor any Guarantor has any
Indebtedness, except Permitted Indebtedness. All Indebtedness owed by the
Company or any Guarantor to any Affiliate is set forth on SCHEDULE 5.10.
5.11 TAXES. The Company has timely filed all tax returns (federal,
state, and local) required to be filed, including without limitation,
information returns) reports and forms, and has timely paid all Of its tax
liabilities, other than immaterial amounts and taxes that are being contested by
the Company in good faith by appropriate actions or proceedings diligently
pursued, and for which adequate reserves in conformity with GAAP 'With respect
thereto have been established to the reasonable satisfaction of Lender. The
Company knows of no pending investigation of the Company by any taxing authority
or pending but unassessed tax liability of the Company. The Company has made no
presently effective waiver of any applicable statute of limitations or request
for an extension of time to Me a tax return, and the Company is not a party to
any tax-sharing agreement.
5.12 USE OF PROCEEDS; MARGIN SECURITIES. The Company is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T, U or X of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any extension of credit under
this Agreement will be used to purchase or carry any such margin stock or to
extend credit to others for the purpose of purchasing or carrying margin stock.
Neither the Company nor any Person acting on its or their behalf has taken any
action that might cause the transactions contemplated by this Agreement, the
Acquisition Documents, the Senior Loan Documents or any Other Agreements to
violate Regulations G, T, U or X or to violate the Securities Exchange Act of
1934, as amended.
5.13 ERISA. All members of any Controlled Group have complied with all
applicable minimum funding requirements and all other applicable and material
requirements of ERISA and the Code applicable to the Employee Benefit Plans it
or they sponsor or maintain and there are no existing conditions that would give
rise to material liability thereunder. With respect to any Employee Benefit Plan
all members of any Controlled Group have made all contributions or payments to
or under each Employee Benefit Plan required by law, by the terms of such
Employee Benefit Plan or the terms Of any contract or agreement. No Termination
Event has occurred in connection with any Pension Plan, and there are no
unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA, with
respect to any Pension Plan which poses a risk of causing a Lien to be created
on the assets of the Company or which will result in the occurrence of a
Reportable Event. No member of
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<PAGE> 22
any Controlled Group has been required to contribute to a multi employer plan,
as defined in Section 4001(a)(3) of ERISA, since September 2, 1974. No. material
liability to the Pension Benefit Guaranty Corporation has been, or in expected
to be, incurred by any member of a Controlled Group. The term "liability" as
referred to in this Section 4 includes any joint and several liability. No
prohibited transaction under ERISA or the Code has occurred with respect to any
Employee Benefit Plan which could have a Material Adverse Effect or a material
adverse effect on the condition, financial or otherwise, of an Employee Benefit
Plan.
5.14 DELIVERY OF ACQUISITION DOCUMENTS. Lender has received complete
copies of the Acquisition Documents and an Documents (including all exhibits,
schedules and disclosure letters referred to therein or delivered pursuant
thereto, if any) and all amendments thereto, waivers relating thereto and other
side letters or agreements affecting the terms thereof. None of such documents
and agreements has been amended or supplemented, nor have any of the provisions
thereof been waived, except pursuant to a written agreement or instrument which
has heretofore been delivered to Lender. The transaction contemplated by the
Acquisition Documents has been closed or will close simultaneously herewith.
5.15 DISCLOSURE. No representation or warranty made by the Company in
this Agreement, the Senior Loan Documents, the Acquisition Documents or any
Other Agreement to which the Company is a party contains any untrue fact or
omits to state any material fact necessary to make the statements herein or
therein not Misleading. There is no fact known to the Company which the Company
has determined has a Material Adverse Effect, or which the Company has
determined could have a Material Adverse Effect, that has not been disclosed in
writing to Lender.
5.16 SUBSIDIARIES AND CAPITALIZATION. The company has no Subsidiaries
except as otherwise set forth on SCHEDULE 5.16. All the issued and outstanding
shares of capital stock of the Company are duly authorized, validly issued,
fully paid and nonassessable. The capitalization of the Company on the Closing
Date is set forth on SCHEDULE 5.16. No violation of any preemptive rights of
shareholders of the company has occurred by virtue of the transactions
contemplated under this Agreement, the Acquisition Documents, the Senior Loan
Documents or any Other Agreement. There are no outstanding contracts, options,
warrants, instruments, documents or agreements binding upon the Company granting
to any Person or group of Persons any right to purchase or acquire shares of the
company's capital stock, except as set forth on SCHEDULE 5.16.
5.17 CURRENT LOCATIONS. SCHEDULE 5.17 identifies (a) the Company's and
each Guarantor's principal place of business and chief executive office, (b) all
the locations where the company and each
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Guarantor maintains any books or records relating to any of its assets, (c) all
other locations where the company and each Guarantor has a place of business,
and (d) each address where any of the Company's assets and each Guarantor's
assets are located. SCHEDULE 5.17 accurately indicates whether each such
location is owned or leased, and, if leased, identifies the owner of such
location. No Person other than the company has possession of any material amount
of the assets of the Company except as disclosed on SCHEDULE 5.17.
5.18 INVESTMENT COMPANY ACT. The Company is not an "investment company"
or a company controlled by an "investment company" within the meaning of the
Investment the Company Act of 1940, as amended.
5.19 PUBLIC UTILITY HOLDING COMPANY ACT. The Company is not a "holding
company" or a "subsidiary company" of a "holding company"or an "affiliate" of a
"holding company" or a "public utility" within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
5.20 NO BURDENSOME RESTRICTIONS. Neither the company nor any Guarantor
is a party to, or bound by any agreement condition, contract or arrangement
which has or is reasonably likely to have a Material Adverse Effect.
5.21 SECURITIES LAWS. The Company has complied with or is exempt from
the registration and/or qualification requirements of all federal and state
securities or blue sky laws applicable to the issuance or sale of the Note.
5.22 NO LABOR DISPUTES. Neither the Company nor any Guarantor is
involved in any labor dispute. There are no strikes or walkouts or union
organization of any of the Company's employees threatened or in existence and no
labor contract is scheduled to expire during the term of this Agreement. The
Company and each Guarantor is in compliance with all laws, rules, regulations,
orders and decrees applicable to the Company, any Guarantor or its respective
properties, except for instances of noncompliance which, individually or in the
aggregate, will not have a Material Adverse Effect.
5.23 BROKERS. Neither the Company, nor any of its shareholders has
dealt with any broker, finder, commission, agent or other Person in connection
with the Acquisition Documents or any transactions referenced in or contemplated
by this Agreement, nor is the Company or any of its shareholders under any
obligation to pay any broker's fee or commission in connection with such
transactions.
5.24 INSURANCE. The amount and types of insurance carried by the
Company, and the terms and conditions thereof, are set forth on Schedule 5.24
attached hereto.
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<PAGE> 24
5.25 CONDUCT OF BUSINESS. On the Closing Date and so long as any
Obligations are outstanding, the Company is and will be engaged only in
businesses of the type described in the Acquisition Documents.
5.26 LICENSES AND PERMITS. The Company and each of its Subsidiaries
have all federal, state and local licenses and permits required to be maintained
in connection with and material to the operation of their businesses, and all
such licenses and permits are valid and fully effective.
5.27 MATERIAL AGREEMENTS. Except as disclosed on Schedule 5.27 attached
hereto, neither the Company nor any Guarantor is a party to nor is the Company
or any of its property bound by (i) any order, writ, injunction, judgment or
decree of any court or government agency or entity, (ii) any Debt Instrument
other than the Senior Loan Documents, (iii) any security agreement, mortgage,
deed of trust, pledge, assignment or other document or arrangement whereby any
Lien upon any of the Company's or any Guarantor's property exists in favor of
any Person other than Lender and the Senior Creditor, (iv) any material lease
(capital, operating or otherwise), whether as lessee or lessor thereunder, (v)
any contract, commitment, agreement or other arrangement involving the purchase
or sale of any inventory by the Company or any Guarantor, or the license of any
right to or by the Company or any Guarantor, (vi) any contract, commitment,
agreement or other arrangement with any Affiliate, (vii) any written management
or employment contract or contract for personal services with any Person, not
otherwise an Affiliate, which is not otherwise terminable at will or on less
than ninety (90) days notice without liability, (viii) any collective bargaining
agreement, (ix) any Pension Plan or (x) any other contract, agreement,
understanding or arrangement which, if violated, could have a Material Adverse
Effect.
5.28 GENERAL MATTERS. Except as disclosed on Schedule 5 28 attached
hereto, the Company (i) has not, during the preceding five (5) years, been known
as or operated under or otherwise used any other corporate or fictitious name,
trade name or tradestyle, (ii) has not, during the preceding five (5) years,
been the surviving corporation of any merger or consolidation and has no
Affiliates, except for its officers and directors, (iii) has no lawsuits,
actions, investigations or other proceedings pending or currently threatened
against it of any nature whatsoever in any court or before any governmental
authority, arbitration board or other tribunal, (iv) holds all permits,
certificates, licenses, orders, registrations, franchises, authorizations and
other approvals from all federal, state, local and foreign governmental and
regulatory bodies necessary for the conduct of its business operations in
compliance with applicable law, (v) has complied in all material respects with
all applicable statutes, rules, regulations and orders, federal, state, local or
foreign, including, without limitation, those relating to environmental
protection, occupational safety and health and equal employment practices, (vi)
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is not in violation of or in default under any material agreement, (vii) has not
received any notice to the effect that it is not in full compliance with any of
the requirements of ERISA or (viii) has no grievances, disputes or controversies
outstanding with any union or other organization of its employees or threats of
work stoppage, strike or pending demands for collective bargaining.
5.29 TRADE RELATIONS. There exists no actual or, to the Company's
knowledge, threatened termination, cancellation or limitation of, or any
modification or change in, the business relationship of the Company and any
customer or any group of customers whose purchases individually or in the
aggregate are material to the business of the Company, or with any material
supplier, and there exists no present condition or state of facts or
circumstances which would have a Material Adverse Effect on the Company in any
respect or prevent the Company from conducting such business after the
consummation of the transactions contemplated by this Agreement in substantially
the same manner which it has heretofore been conducted.
5.30 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company covenants,
warrants and represents to Lender that all representations and warranties of the
Company contained in this Agreement and each of the Other Agreements shall be
true at the time of the Company's execution of this Agreement and such Other
Agreements, and shall survive the execution, delivery and acceptance thereof by
Lender and the parties thereto and the closing of the transactions described
therein or related thereto, unless they specifically state that they only apply
to an earlier specified date.
VI. CONDITIONS PRECEDENT TO OBLIGATIONS OF LENDER
Lender's obligations hereunder shall be subject to (a) the performance
by the Company of its obligations hereunder which by the terms hereof are to be
performed at or prior to delivery of the Note, and (b) the satisfaction or
waiver, in Lender's sole judgment, of the following conditions on or before the
Closing Date:
6.1 EFFECTIVENESS OF SENIOR LOAN DOCUMENTS. The Senior Loan Documents
shall have been duly executed and delivered by the parties thereto and shall be
on terms and conditions satisfactory to Lender. All conditions precedent to the
making of the Senior Loans shall have been satisfied or waived.
6.2 EFFECTIVENESS OF SUBORDINATION AGREEMENT. The Subordination
Agreement shall have been duly executed and delivered by Lender and the Senior
Creditor, and shall be on terms and conditions which are satisfactory to Lender.
The Senior Creditor shall have fully funded the term portion of the Senior Loans
and made available the revolving credit facility portion of the Senior Debt.
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6.3 MINIMUM AVAILABILITY. Prior to receipt of the proceeds of the Note,
the Company shall have available cash and immediately accessible availability
under the Senior Loans in an amount of at least Five Hundred Thousand and
No/Dollars ($500,000.00) on the Closing Date after giving affect to the payment
of (i) the total purchase price under the Acquisition Documents, (ii) prior
indebtedness, (iii) all fees and expenses payable to Lender under the terms of
this Agreement, and (iv) all costs and expenses arising as a result of the
transactions contemplated by this Agreement, the Acquisition Documents, the
Senior Loan Agreement and any Other Agreement to which the Company is a party,
and Lender shall have received satisfactory evidence thereof.
6.4 ACQUISITION. Prior to or contemporaneously with the consummation
hereof, the Acquisition Documents shall have been duly executed and delivered by
the parties thereto, all conditions to the consummation of the Acquisition shall
have been satisfied or waived with Lender's consent, and the terms and
provisions of the Acquisition Documents and the structure of the Acquisition
shall be satisfactory to Lender.
6.5 DUE DILIGENCE. The results of Lender's due diligence regarding the
Company, each Guarantor and the Acquisition shall be satisfactory to Lender, and
Lender shall be satisfied with the assets and books and records and the business
and financial condition of the Company, after giving effect to the Acquisition.
6.6 NO LITIGATION: CONSUMMATION OF TRANSACTIONS. No injunction,
preliminary injunction, or temporary restraining order shall be threatened or
shall exist which prohibits or may prohibit the transactions contemplated herein
or any other related transaction, and no litigation or similar proceeding
(including, without limitation, any litigation or other proceeding seeking
injunctive or similar relief) shall be threatened or shall exist with respect to
the transactions contemplated herein, which, if adversely determined, would in
the judgment of Lender have a Material Adverse Effect.
6.7 DOCUMENTS. Lender shall have received the following, each duly
executed or certified and delivered, and in form and substance satisfactory to
Lender:
(a) AGREEMENT. This Agreement duly executed by the Company.
(b) NOTE. The Note issued in the name of Lender duly executed
by the Company.
(c) OTHER AGREEMENTS. All Other Agreements, duly executed by
the parties thereto, including, without limitation, the Security
Agreements and UCC financing statements
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(d) LIEN SEARCHES. Lien searches in all states where the
Company's or any Guarantor's assets are or were located within the last
five years, showing Lender's priority lien thereon,
second only to the Senior Creditor's lien and the Permitted
Liens.
(e) INSURANCE. Certified copies of all insurance policies and
endorsements thereto required by Section 7 13, together with a written
report from an insurance broker acceptable to Lender, confirming that
the amount of such insurance coverage and the terms and conditions
thereof are substantially similar to policies maintained by companies
similarly situated to the Company and engaged in the same or a similar
business.
(f) APPROVALS AND CONSENTS. Copies of all consents,
authorizations, filings, licenses and approvals, if any, required in
connection with the consummation of the repurchase, the execution,
delivery and performance by the Company and/or any Guarantor, or the
validity and enforceability of, this Agreement, the Senior Loan
Documents, the Acquisition Documents or the Other Agreements to which
the Company and/or any Guarantor is a party.
(g) OPINION OF COUNSEL TO THE COMPANY AND EACH GUARANTOR. The
written legal opinion of legal counsel to the Company and each
Guarantor.
(h) GENERAL CERTIFICATE OF THE COMPANY'S SECRETARY. A
certificate of the Secretary of the Company together with true and
correct copies of the following:
(i) ARTICLES OF INCORPORATION. The Articles of
Incorporation of the Company, including all amendments
thereto, certified by the Secretary of State of the state of
its incorporation and dated within thirty (30) days prior to
the Closing Date;
(ii) BY-LAWS. The By-Laws of the Company, including
all amendments thereto;
(iii) RESOLUTIONS. The resolutions of the Board of
Directors of the Company authorizing the execution, delivery
and performance of this Agreement, the Acquisition Documents,
the Senior Loan Documents, and the Other Agreements, as
applicable to which the Company is a party;
(iv) EXISTENCE AND GOOD STANDING CERTIFICATES.
Certificates of the appropriate government officials of the
state of incorporation of the Company as to the existence and
good standing, and certificates of the appropriate government
officials in each state where the
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Company does business and where failure to qualify as a
foreign corporation would have a Material Adverse Effect, as
to its good standing and due qualification to do
business in such state, each dated within thirty (30)
days following the Closing Date; and
(v) INCUMBENCY. The names of the officers of the
Company authorized to sign this Agreement, the Acquisition
Documents, and the Other Agreements to be executed by the
Company, together with a sample of the true signature of each
such officer.
(h) GENERAL CERTIFICATE OF EACH GUARANTOR'S SECRETARY. A
certificate of the Secretary of each Guarantor together with true and
correct copies of the following:
(i) ARTICLES OF INCORPORATION/OTHER CHARTER
DOCUMENTS. The Articles of Incorporation or other charter
documents of each Guarantor, including all amendments thereto,
certified by the Secretary of State of the state of its
incorporation and dated within thirty (30) days prior to the
Closing Date;
(ii) BY-LAWS. The By-Laws of each Guarantor, as
applicable, including all amendments thereto;
(iii) RESOLUTIONS. The resolutions and evidence of
other corporate action taken by each Guarantor to authorize
the execution, delivery and performance by each Guarantor of
the Other Agreements to which each Guarantor is a party;
(iv) EXISTENCE AND GOOD STANDING CERTIFICATES.
Certificates of the appropriate government officials of the
state of incorporation of each Guarantor as to the existence
and good standing, and certificates of the appropriate
government officials in each state or jurisdiction where each
Guarantor does business and where failure to qualify as a
foreign corporation would have a Material Adverse Effect, as
to its good standing and due qualification to do business in
such state, each dated within thirty (30) days following the
Closing Date; and
(v) INCUMBENCY. The names of the officers of the
Company authorized to sign the Other Agreements to be executed
by each Guarantor, together with a sample of the true
signature of each such officer
(j) SENIOR LOAN DOCUMENTS. Copies of the Senior Loan Documents
and each document relating thereto, and a certificate of the Chief
Executive Officer and Chief Financial Officer of the Company certifying
that the attached documents are a true, correct and complete set of the
Senior Loan
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Documents, that all conditions precedent to funding of the Senior Loans
have been met or waived, and that those transactions are being
consummated simultaneously with the sale of the Note.
(k) SOLVENCY CERTIFICATE. A certificate regarding the solvency
of the Company, which includes a pro forma balance sheet and cash flow
projections and analyses for the Company, executed by the Chief
Executive Officer and the Chief Financial Officer of the Company.
(l) SOURCES AND USES CERTIFICATE. A certificate executed by
the Chief Executive Officer and Chief Financial Officer of the Company,
setting forth in reasonable detail the sources and uses of funds in the
transactions contemplated herein, in the Senior Loan Documents, the
Acquisition Documents and in the Other Agreements including an
itemization of fees to be paid.
(m) COMMUNICATION WITH ACCOUNTANT. Lender shall have received
a copy of a letter from the Company addressed to its accountants
authorizing such accountants to disclose to Lender any and all
financial information concerning the Company requested by Lender in
determining compliance with any of the financial covenants contained
herein.
(n) TRANSACTION CERTIFICATE. A certificate of the Chief
Executive Officer and the Chief Financial Officer of the Company
certifying that all conditions precedent to the effectiveness of this
Agreement have been satisfied or waived and all representation and
warranties are true and correct.
(o) ACQUISITION DOCUMENTS. A certificate of the Chief
Executive Officer and Chief Financial Officer of the Company certifying
that the transaction contemplated by the Acquisition Documents has been
consummated prior to the purchase of the Note, together with true and
correct copies of all Acquisition Documents.
(p) ADDITIONAL INFORMATION. Other Documents and Agreements.
Such other information, documents, agreements, subordinations,
commitments and undertakings as Lender shall reasonably request.
6.8 ADVERSE CHANGE. For the period from October 31, 1996 to the Closing
Date, and except for the transactions contemplated by this Agreement and the
Senior Loan Agreement, there shall have been (a) no occurrence or event which,
in the Company's or Lenders opinion, has or is reasonably likely to have a
Material Adverse Effect, and (b) no occurrence or event which would lead the
Company or Lender to believe that the Company would fail to meet the Projections
delivered to Lender pursuant to SECTION 5.2.
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6.9 REIMBURSEMENT OF EXPENSES. All other amounts then payable pursuant
to this Agreement (including the fees, expenses and disbursements of Lender's
counsel) shall have been paid to Lender (or such counsel, as applicable).
6.10 NO EVENT OF DEFAULT. No Event of Default or Default shall have
occurred and be continuing.
6.11 REPRESENTATIONS AND WARRANTIES. All representations and warranties
contained in this Agreement and the Other Agreements shall be true and correct
on the Closing Date.
VII. AFFIRMATIVE COVENANTS
The Company each covenants and agrees that, from the date hereof and
until the Obligations have been finally and irrevocably paid in full in
accordance with the terms hereof and thereof:
7.1 FINANCIAL STATEMENTS. The Company will furnish to Lender:
(a) As soon as available, and in any event within ninety (90)
days after the end of each fiscal year of the Company, beginning with
the fiscal year ending March 31, 1997, (i) a copy of the annual audit
report of the Company for such fiscal year containing a balance sheet,
statement of income, statement of stockholders' equity, and statement
of cash flow as at the end of such fiscal year and for the fiscal year
then ended, on a consolidating and consolidated basis, in each case
setting forth in comparative form the figures for the preceding fiscal
year, along with management's discussion and analysis of variances, all
in reasonable detail and audited and certified by independent certified
public accountants of recognized national standing selected by the
Company and consented to by Lender (provided Lender's consent shall not
unreasonably be withheld) to the effect that such report has been
prepared in accordance with GAAP; (ii) a certificate delivered to
Lender by such independent certified public accountants confirming the
calculations set forth in the officers' certificate delivered to Lender
simultaneously therewith in accordance with Section 7.2(a); and (iii) a
comparison of the actual results during such fiscal year to those
originally budgeted by the Company prior to the beginning of such
fiscal year, along with management's discussion and analysis of
variances. The annual audit report required hereby shall not be
qualified on the basis that the Company is not a going concern or
otherwise qualified or limited because of restricted or limited
examination by the accountant of any material portion of any of the
records of the Company.
(b) As soon as available, and in any event within thirty (30)
days after the end of each calendar month, a copy of an unaudited
financial report of the Company as of the end of
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such calendar month and for the portion of the fiscal year then ended,
containing balance sheets, statements of income, and statements of cash
flow, on a consolidated and consolidating basis, in each case setting
forth in comparative form the figures for the corresponding period of
the preceding fiscal year, along with management's discussion and
analysis of variances, all in reasonable detail, including, without
limitation, a comparison of the actual results during such period to
those originally budgeted by the Company prior to the beginning of such
fiscal period, certified as true and correct by the Chief Financial
Officer and the Chief Executive Officer of the Company, as well as a
Compliance Certificate duly completed and executed by the Company's
Chief Financial Officer.
(c) As soon as available, and in any event contemporaneously
with the audited financial statements required by SECTION 7.1(a)
hereof, a balance sheet of the Company prepared by an independent
nationally recognized accounting firm, dated as of the Closing Date,
which has been restated using purchase according in accordance with APB
16 and which gives effect to the issuance of the Note, and the
financing transactions contemplated by the Senior Loan Agreement as if
all commitments therein available to the Company, as of the Closing
Date were fully utilized, certified by the chief Executive Officer and
the Chief Financial Officer of the Company as fairly presenting the
Company's financial position.
(d) On or before thirty (30) days prior to the beginning of
each fiscal year of the Company, an annual budget or business plan for
such fiscal year, including a projected consolidated and consolidating
balance sheet, income statement, and cash flow statement for such year
promptly during each fiscal year, on a month by month basis, with an
explanation of all material assumptions.
7.2 CERTIFICATES: OTHER INFORMATION. The Company will furnish to Lender
all of the following:
(a) Concurrently with the delivery of each of the financial
statements referred to in SECTION 7.1(a) and SECTION 7.1(b), a
certificate of an authorized officer acceptable to Lender of the
Company in the form of the Compliance Certificate attached hereto as
EXHIBIT B, (i) stating that no Default or Event of Default has occurred
and is continuing or, if such officer has knowledge of a Default or
Event of Default,the nature thereof and specifying the steps taken or
proposed to remedy such matter, (ii) showing in reasonable detail the
calculations showing compliance with SECTIONS 8.9 AND 8.10, (iii)
stating that the financial statements attached have been prepared in
accordance with GAAP and fairly and accurately present (subject to
year-end audit adjustments, for
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the annual certificates) the financial condition and results of
operations of the Company and any of its Subsidiaries, at the date and
for the period indicated therein, (iv) containing a schedule of the
outstanding Indebtedness for borrowed money of the Company and any of
its Subsidiaries, describing in reasonable detail each such debt issue
or loan outstanding and the principal amount and amount of accrued and
unpaid interest with respect to each such debt issue or loan, (v)
containing a narrative report of the business and affairs of the
Company which includes, but is not limited to, a discussion of the
results of operations compared to those originally budgeted for such
period, (vi) a report detailing (A) all matters materially affecting
the value, enforceability or collectibility of any material portion of
its assets including, without limitation, the Company's reclamation or
repossession of, or the return to the Company of, a material amount of
goods and material claims or disputes asserted by any customer or other
obligor, and (B) any material adverse change in the relationship
between the Company and any of its material suppliers or customers, and
(vii) specifying whether there are any changes in the insurance
coverage for the company since the last report, and if so, the nature
of such changes.
(b) As soon as available, and in any event within thirty (30)
days after the end of each calendar month, summaries of accounts
payable agings, accounts receivable agings, and inventory of the
Company.
(c) As soon as available, (i) a copy of each financial
statement, report, notice or proxy statement sent by the Company to its
stockholders in their capacity as stockholders, (ii) a copy of each
regular, periodic or special report, registration statement, or
prospectus filed by the Company with any securities exchange or the
Securities and Exchange Commission or any successor agency, and any
material order issued by any court, governmental authority, or
arbitrator in any material proceeding to which the Company is a party,
(iii) copies of all press releases and other statements made available
generally by the Company to the public generally concerning material
developments in the Company's business, and (iv) a copy of all material
correspondence and reports sent by the Company to the Senior Creditor,
to the extent not otherwise duplicated herein.
(d) Promptly, such additional information concerning the
Company or any Guarantor as Lender may reasonably request.
7.3 BOOKS AND RECORDS. The Company and each Guarantor shall keep (a)
proper books of record and account in which hill, true and correct entries will
be made of all dealings or transactions of or in relation to its business and
affairs; (b) set up on its books accruals with respect to all taxes,
assessments, charges, levies
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and claims; and (c) on a reasonably current basis set up on its books from its
earnings allowances against doubtful receivables, advances and investments and
all other proper accruals (including, without limitation, by reason of
enumeration, accruals for premiums, if any, due on required payments and
accruals for depreciation, obsolescence, or amortization of properties), which
should be set aside from such earnings in connection with its business. All
determinations pursuant to this subsection shall be made in accordance with, or
as required by, GAAP consistently applied.
7.4 FINANCIAL DISCLOSURE. The Company hereby irrevocably authorizes and
directs all accountants and auditors employed by it at any time during the term
of this Agreement to exhibit and deliver to Lender copies of any of the
Company's financial statements, trial balances or other accounting records of
any sort in the accountant's or auditor's possession, and to disclose to Lender
any information they may have concerning the Company's financial status and
business operations. The Company hereby irrevocably authorizes all federal,
state and municipal authorities to furnish to Lender copies of reports or
examinations relating to the Company, whether made by the Company or otherwise.
7.5 DISCLOSURE OF MATERIAL MATTERS. The Company will, and mill cause
each Guarantor to, immediately upon learning thereof, report to Lender (a) all
matters materially affecting the value, enforceability or collectibility of any
material portion of the Collateral or its other assets including, without
limitation, changes to significant contracts, schedules of equipment, changes of
significant equipment or real property, the reclamation or repossession of, or
the return to the Company or any Guarantor of, a material amount of goods and
material claims or disputes asserted by any customer or other obliger, and (b)
any material adverse change in the relationship between the Company and any of
its suppliers or customers or any Guarantor and any of their respective
suppliers or customers.
7.6 PERFORMANCE OF OBLIGATION. The Company will, and will cause each
Guarantor to, duly and punctually pay and perform its obligations under this
Agreement, the Senior Loan Documents and the Other Agreements to which it is a
party.
7.7 PRESERVATION OF EXISTENCE AND CONDUCT OF BUSINESS. The Company
will, and will cause each Guarantor to, preserve and maintain its corporate
existence and all of its leases, privileges, franchises, qualifications and
rights that are necessary or useful in the ordinary conduct grits business, and
conduct its business as presently conducted in an orderly and efficient manner
in accordance with good business practices.
7.8 MAINTENANCE OF PROPERTIES. The Company will, and will cause each
Guarantor to, operate and maintain in good condition and repair (ordinary wear
and tear excepted) and replace as necessary,
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all of its assets and properties which are necessary or useful in accordance
with sound business practices in the proper conduct of its business so that the
value and operating efficiency of its assets and properties are maintained and
preserved. The Company will at all times maintain the Intellectual Property in
full force and effect, and will defend and protect the Intellectual Property
against all adverse claims.
7.9 PAYMENT OF TAXES AND CLAIMS. The Company will, and will cause each
Guarantor to, pay or discharge, at or before maturity or before becoming
delinquent (a) all taxes, levies, assessments, vault, water and sewer rents,
rates, charges, levies, permits, inspection and license fees and other
governmental and quasi-governmental charges and any penalties or interest for
nonpayment thereof, heretofore or hereafter imposed or which may become a Lien
upon any property owned by the Company or any Guarantor, as applicable, or
arising with respect to the occupancy, use, possession or leasing thereof
(collectively the "Impositions") and (b) all lawful claims for labor, material,
and supplies, which, if unpaid, might become a Lien upon any of its property;
provided, however, neither the Company nor any Guarantor will be required to pay
or discharge any claim for labor, material, or supplies or any Imposition which
is being contested in good faith by appropriate actions or proceedings
diligently pursued, and for which adequate reserves in conformity with GAAP with
respect thereto have been established to the reasonable satisfaction of Lender.
7.10 COMPLIANCE WITH LAWS. The Company and each Guarantor shall comply
with all acts, rules, regulations and orders of any legislative, administrative
or judicial body or official applicable to the operation of the Company's or
such Guarantor's business if noncompliance with such acts, rules, regulations or
orders could have a Material Adverse Effect; provided, however. the Company and
each Guarantor may contest or dispute any acts, rules, regulations, orders and
directions of those bodies or officials by appropriate actions or proceedings
diligently pursued, if adequate reserves in conformity with GAAP with respect
thereto are established to the reasonable satisfaction of Lender.
7.11 PAYMENT OF EXPENSES. All costs and expenses, including, without
limitation, attorneys fees incurred by Lender in efforts made to enforce payment
of any Obligations, as well as all out-of-pocket and direct costs and expenses,
including reasonable attorneys, fees and legal expenses, incurred in connection
with entering into, reviewing, modifying, administering and/or enforcing or any
other activity in connection this Agreement, the transaction(s) contemplated
hereby or related hereto and any or all related agreements, documents and
instruments and/or in defending or prosecuting any actions or proceedings
arising out of or relating to Lenders transactions with the Company, or any
advice given to Lender with respect to its rights, obligations or otherwise
under this Agreement, the Subordination Agreement or any
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Other Agreements shall be payable by the Company to Lender, on demand, and
shall become part of the Obligations.
7.12 PAYMENT OF LEASEHOLD OBLIGATIONS. The Company and each Guarantor
shall at all times pay, when and as due, its rental obligations under all leases
under which it is a tenant or lessee, and shall otherwise comply, in all
material respects, with all other terms of such leases and keep them in full
force and effect and, at the request of Lender, will provide evidence of its
having done so. The Company and each Guarantor may, however, contest or dispute
its obligations under such material leases, provided that adequate reserves in
conformity with GAAP with respect thereto are established to the reasonable
satisfaction of Lender. The Company and each Guarantor shall also comply in all
material respects with all material provisions of all material agreements,
indentures, mortgages, deeds of trust or other agreements binding on it or
affecting its properties or business (after giving effect to applicable grace
periods contained therein, if any) where the failure to so comply would have a
Material Adverse Effect.
7.13 INSURANCE. The Company and each Guarantor will cause to be kept
adequately insured, either (a) by financially secure and reputable insurers or
(ii) through self insurance, all of its properties (both real and personal (with
coverage similar to that which is usually maintained by persons and/or
businesses engaged in the same or similar business as the Company or such
Guarantor, as the case may be (but in no event less than the full insurable
value thereof), against loss or damage resulting from fire and other risks, and
maintain in full force and effect public liability insurance against claims for
personal injury, death or property damage occurring upon, in or about any
property occupied or controlled by the Company or such Guarantor in such amounts
as the Company shall reasonably determine, naming Lender as a co-insured or loss
payee, and the Company shall provide Lender with a certificate thereof All
general liability policies shall be endorsed in favor of the Holders as an
additional insured and loss payee. The Company shall (i) deliver copies of all
such policies to Lender within 30 days after the Closing Date, and from time to
time thereafter upon request by Lender, (ii) pay, or cause to be paid, all
premiums for such insurance before such premiums become due, (iii) furnish to
Lender satisfactory proof of the timely making of such payments, (iv) deliver
all renewal policies to Lender at least five (5) days before the expiration of
the expiring policy, and (v) cause such policies to require the insurer to give
notice to Lender of termination of any such policy at least 30 days before such
termination is to be effective. If the Company fails to provide and pay for any
such insurance, Lender may, at its option, but shall not be required to, pay the
same and charge the Company therefor.
7.14 INSPECTION RIGHTS. At any time and from time to time, the Company
and each Guarantor will permit representatives of Lender to examine and make
copies of the books and records of, and visit and inspect the properties of, the
Company and such Guarantor, and to
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discuss the business, operations, and financial condition of the Company or such
Guarantor with its respective officers and employees and with its independent
certified public accountants. Such examinations and inspections may include, but
are not limited to, audits of the application of proceeds from the Note. In
accordance with the terms of Section 12.1 hereof, the Company will promptly
reimburse the Holders for all expenses incurred by representatives of the
Holders in connection with such inspections.
7.15 NEGATIVE PLEDGE. Until payment and performance in full of all of
the Obligations and termination of this Agreement, neither the Company nor any
Guarantor shall, without Lender's prior written consent, pledge, sell, assign,
transfer, create or suffer to exist any Lien (except for Permitted Liens) upon
any part of its assets, or change or move any assets or its principal place of
business or chief executive office.
7.16 MAINTENANCE OF EQUIPMENT. The Company and each Guarantor's
equipment shall be maintained in as good and substantial repair and condition as
the same is now (reasonable wear and tear excepted) and all necessary
replacements of and repairs thereto shall be made so that the value and
operating efficiency of the equipment shall be maintained and preserved.
7.17 NOTICES. The Company will promptly, but in any event within two
(2) Business Days after first becoming aware thereof, notify Lender of:
(a) the commencement of any action, suit, or proceeding
against the Company that might have a Material Adverse Effect, which
notice shall specify the nature of such event and what action the
Company has taken or is taking or proposes to take with respect
thereto;
(b) the occurrence of a default, or an event which with the
passage of time or giving of notice or both constitutes a default or
Event of default under the Senior Loan Documents, this Agreement or
under any instrument or agreement evidencing any other Indebtedness of
the Company, which notice shall specify the nature of such event and
what action the Company has taken or is taking or proposes to take with
respect thereto;
(c) any other matter that might have a Material Adverse
Effect; and
(d) the occurrence of a Default or an Event of Default, which
notice shall specify the nature of such event and what action the
Company has taken or is taking or proposes to take with respect
thereto.
Any notification required by this SECTION 7.17 shall be accompanied by a
certificate of the Chief Executive Officer or Chief Financial
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Officer setting forth the details of the specified events and the action which
the Company proposes to take with respect thereto.
7.18 ADDITIONAL NOTICES. Immediately upon receipt by the Company, the
Company shall provide Lender with copies of all notices (including notices of
default), statements and financial information, including notices of default,
received from the Senior Creditor under the Senior Loan Agreement and any other
creditor or lessor with respect to the acceleration of the maturity of any item
of Indebtedness for borrowed money which, if not paid, could give rise to a
Default or Event of Default or the repossession of material property from the
Company or any Guarantor.
7.19 SENIOR LOAN DOCUMENT AMENDMENTS. The Company shall promptly
provide Lender with copies of all proposed amendments to the Senior Loan
Documents and of all other loan agreements to which the Company is a party.
7.20 FURTHER ASSURANCES. The Company and each Guarantor, at its sole
expense, shall execute and deliver to Lender from time to time, upon demand,
such supplemental agreements, statements, assignments and transfers, or
instructions or documents as Lender may reasonably request, in order that the
full intent of this Agreement and the Other Agreements may reasonably be carried
into effect.
7.21 COMPLIANCE WITH ERISA AND THE CODE. The Company will comply, and
will cause each other member of any Controlled Group to comply, with all minimum
funding requirements, and all other material requirements, of ERISA and the
Code, if applicable, to any Employee Benefit Plan it or they sponsor or
maintain, so as not to give rise to any liability thereunder. The Company will
pay and will cause each other member of any Controlled Group to pay when due any
amount payable by it to the Pension Benefit Guaranty Corporation. Promptly after
the filing thereof, the Company shall furnish to Lender with regard to each
Employee Benefit Plan, copies of each annual report required to be filed
pursuant to Section 104 of ERISA in connection with each such plan for each plan
year.
7.22 COMPLIANCE WITH REGULATIONS G, T, U AND X. Neither the Company nor
any Person acting on its or their behalf will take any action which relight
cause this Agreement, the Note, the Senior Loan Agreement or the Other Documents
to violate, and the Company will take all actions necessary to cause compliance
with, Regulations G. T. U and X of the Board of Governors of the Federal Reserve
System and the Securities Exchange Act of 1934, in each case as now in effect or
as the same may hereafter be in effect.
7.23 FISCAL YEAR. The Company will cause its fiscal year to be the
twelve month period ending on the last day of March of each year.
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7.24 BOARD OBSERVATION AND MEMBERSHIP. The Company will deliver to
Lender a copy of the minutes of and all materials distributed at or prior to all
meetings of the board of directors (including the executive committee thereof)
or shareholders of the Company, certified as true and accurate by the Secretary
of the Company, promptly following each such meeting. The Company will (a)
permit each Holder to designate one (1) person to attend all meetings of the
Company's board of directors (including executive committee meetings), (b)
provide such designees not less than twenty-one (21) calendar days' actual
notice of all regular meetings and seven (7) calendar days' actual notice of all
special meetings of the Company's board of directors (including the executive
committee thereof) or shareholders, (c) permit such designees to attend such
meetings as an observer, (d) permit Lender, upon the occurrence and during the
continuance of an Event of Default under ARTICLE VIII, ARTICLE IX or Sections
7.1, 7.2, 7.5, 7.6, 7.14, 7.17 and 7.24 of this Agreement, to designate one (1)
Person to serve as a member of the Company's board of directors, and (e) provide
to such designees a copy of all materials distributed at such meetings or
otherwise to the board of directors of the Company. Such meetings shall be held
in person at least quarterly, and the Company will cause its board of directors
to call a meeting at any time upon the request of any such designated observer
or director on not more than two (2) occasions per calendar year upon seven (7)
calendar days' actual notice to the Company. The Company agrees to compensate
designees of Lender referred to in Subsection (d) above in the same manner as
each of the other members of the Company's board of directors and agrees to
reimburse each individual referred to in SUBSECTIONS (a) and (d) above for all
reasonable expenses incurred in traveling to and from such meetings and
attending such meetings.
7.25 ENVIRONMENTAL COSTS.
(a) The Company hereby indemnifies and holds each Holder
harmless from and against any liability, loss, damage, suit, action or
proceeding pertaining to solid or hazardous waste materials or other
waste-like or toxic substances, including, but not limited to, claims
of any federal, state or municipal government or quasi-governmental
agency or any third person, whether arising under any federal, state or
municipal law or regulation, or tort, contract or common law that
relates to the Company.
(b) To the extent the laws of the United States or any state
in which the Company leases or owns property provide that a Lien upon
the property of the Company may be obtained for the removal of
Polluting Substances which have been released, no later than sixty (60)
days after notice is given by Lender to the Company, the Company shall
deliver to Lender a report issued by a qualified, third party
environmental consultant selected by the Company and approved by Lender
certifying as to the existence of any Polluting Substances
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located upon or beneath the specified property, leased or owned. To the
extent any such Polluting Substance is located therein or thereunder
that either (i) subjects the property to Lien or (ii) requires removal
to safeguard the health of any Person, the Company shall remove, or
cause to be removed, such Lien and such Polluting Substance at the
Company's expense.
7.26 RIGHT OF FIRST REFUSAL. To the extent that the Company, or any of
its Affiliates, elects to acquire another business or company (a "SUBSEQUENT
ACQUISITION"), the Company (the "BUYER"), agrees that Lender shall have the
right of first refusal with respect to the mezzanine financing of the Subsequent
Acquisition ("MEZZANINE FINANCING"), as described herein. Prior to discussing,
offering or obtaining Mezzanine Financing for the Subsequent Acquisition from
any other Person, the Buyer shall promptly provide Lender with all information
relevant to the Acquisition and the financing thereof and all information that
Lender may reasonably request in order to decide whether it can commit to the
Mezzanine Financing. The Buyer agrees that it will not seek or obtain Mezzanine
Financing from any other Person, until the earlier of (i) fifteen (15) Business
Days after Lender shall have received the actual proposal for the Acquisition or
(ii) Lender's written election not to commit to the Mezzanine Financing, after
which time the Buyer may solicit offers for the Mezzanine Financing from
unaffiliated third Persons subject to the terms hereof. If Lender elects in
writing not to provide a commitment for such Mezzanine Financing within such
fifteen (15) Business Days, or if Lender issues a commitment for the Mezzanine
Financing that is not accepted by the Buyer, the Buyer may then offer the
Mezzanine Financing to unaffiliated third Persons. Notwithstanding anything
contained herein to the contrary, upon receipt by the Buyer of a bona fide offer
or commitment for the Mezzanine Financing from an unaffiliated third Person, and
prior to accepting the same, the Buyer shall provide Lender with a copy of such
offer or commitment and all information relating to such offer, subject to any
confidentiality agreement requiring the Company to block out names, and any
additional information relevant to the Subsequent Acquisition, and Lender shall
have five (5) Business Days thereafter to match the material terms and
conditions of the offer. If Lender provides the Buyer, either verbally or in
writing, a matching offer at that time, the Buyer shall enter into an exclusive
commitment with Lender for the Mezzanine Financing and shall not seek or accept
any other offers for Mezzanine Financing.
VIII. NEGATIVE COVENANTS
The Company covenants and agrees that from the date hereof until the
Obligations have been finally and irrevocably paid in fill in accordance with
the terms hereof and thereof:
8.1 INDEBTEDNESS. Neither the Company nor any Guarantor will create,
incur, issue, assume, guarantee or otherwise become liable for any Indebtedness,
either directly or indirectly, other than
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Permitted Indebtedness. Any Permitted Indebtedness which is subordinated to the
Obligations shall continue to be subordinated to the Obligations on terms and
conditions satisfactory to Lender.
8.2 LIMITATION ON LIENS. Neither the Company nor any Guarantor will
incur, create, assume, or permit to exist any Lien upon any of its property,
assets, or revenues, including, but not limited to, its shares of capital stock
of each of its Subsidiaries, whether now owned or hereafter acquired, except
Permitted Liens.
8.3 MERGER, ACQUISITION, DISSOLUTION AND SALE OF ASSETS. Neither the
Company nor any Guarantor mill (a) become a party to a merger or consolidation,
(b) purchase or otherwise acquire all or a substantial part of the assets of any
Person or any shares or other evidence of beneficial ownership of any Person or
(c) dissolve or liquidate. The Company will not, and u ill not permit any
Guarantor to, form, acquire or permit the existence of any Subsidiary or
Subsidiaries of the Company other than as described in Section 5. 16. The
Company will not, and will not permit any Guarantor to, without the prior
written consent of the Holders, sell assign or transfer any of its assets or
properties (except inventory in the ordinary course of business and other assets
reasonably and in good faith determined by the Company or such Guarantor to be
obsolete or no longer necessary to the Company's business).
8.4 RESTRICTED PAYMENTS. The Company will not, and will not permit any
Guarantor to, at any time make or become obligated to make, directly or
indirectly, any (a) declaration of any dividend (other than in-kind common stock
dividends and stock splits) on, or any other payment or distribution in respect
of, any shares of capital stock of the Company or such Guarantor, (b) except as
otherwise provided for herein, any professional consulting or management fees or
any other payments to any shareholders of the Company or such Guarantor, (c)
payment or distribution on account of the purchase, repurchase, redemption, put,
call or other retirement of any shares of capital stock of the Company or such
Guarantor or of any warrant, option or other right to acquire such shares,
except as set forth on Schedule 8.4 attached hereto, or (d) payment or
distribution on account of any Indebtedness of the Company which is subordinate
to the Note.
8.5 LOANS AND INVESTMENTS. Except for Permitted Investments, neither
the Company nor any Guarantor will make any advance, loan, extension of credit,
or capital contribution to or investment in, or purchase any stock, bonds,
notes, debentures, or other securities of any Person.
8.6 TRANSACTIONS WITH AFFILIATES. Except as contemplated by this
Agreement and the Other Agreements, neither the Company nor any Guarantor will
enter into any transaction with any director, officer, employee, shareholder, or
Affiliate of the Company or such
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Guarantor, or any Affiliate or relative of the foregoing, except transactions
(including those permitted by Section 8.5. if any) upon terms which are fair and
reasonable and which shall be at least as favorable as would result in a
comparable arm's-length transaction with a Person not a director, officer,
employee, shareholder or Affiliate of the Company or such Guarantor. Upon the
occurrence and during the continuation of a Default or Event of Default, neither
the Company nor any Guarantor shall be permitted to make any payments with
respect to any transactions with Affiliates or any transactions otherwise
permitted under this Section 8.6.
8.7 NATURE OF BUSINESS. Neither the Company nor any Guarantor Will
engage in any business other than the businesses in which it is engaged as of
the date hereof, or any business reasonably related thereto.
8.8 MODIFICATION OF SENIOR LOAN AGREEMENT. The Company will not agree
or consent to any modification, amendment or waiver of any of the terms or
provisions of the Senior Loan Documents in effect on the date hereof without
Lender's prior written consent except as set forth in the Subordination
Agreement.
8.9 CAPITAL EXPENDITURES. The Company will not incur or make Capital
Expenditures, including, without limitation, leases by Guarantors, of any kind
in an aggregate amount of more than the Company's depreciation and amortization
expense for the preceding fiscal quarter, calculated quarterly based upon the
Company's fiscal year to date results.
8.10 FINANCIAL COVENANTS.
(a) RATIO OF LIABILITIES TO TANGIBLE NET WORTH. The Company
will, at all times during the term of this Agreement, maintain a ratio
of total unsubordinated liabilities (including deferred liabilities
and/or deferred income), computed in accordance with GAAP to Tangible
Net Worth of not more than 8.0 to 1.0.
(b) TANGIBLE NET WORTH. The Company will, at all times
during the periods listed below, maintain a Tangible Net Worth
in excess of the amounts listed below:
Period Amount
------ ------
Closing Date through March 30, 1997 $1,750,000
March 31, 1997 and thereafter $2,000,000
(c) DEBT SERVICE COVERAGE RATIO. The Company will, at all
times, maintain Debt Coverage (as defined herein) of not less than 2.0
to 1.0 during the term of this Agreement. "Debt COVERAGE" as used in
this SECTION 8.10(c) means the ratio of the Company's net income, plus
depreciation and amortization
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and net interest paid to the Lender, less any dividends paid or accrued
and less any purchases of treasury or capital stock (excluding the
purchase of capital stock of the Company owned by Richard P. Starke),
to the sum of all principal and interest paid or payable to the Lender,
calculated quarterly in accordance with GAAP based upon the Company's
fiscal year to date results.
8.11 EMPLOYMENT AND CONSULTING AGREEMENTS; NAMES. The Company will not
modify, amend or terminate any terms or provisions, or waive or fail to
diligently enforce its rights under the Employment and Consulting Agreements,
without Lender's prior written consent, or use any corporate name (other than
its own) or any fictitious name, trade name, trade style or "d/b/a".
8.12 REMUNERATION. The Company will not and will not permit any of its
Subsidiaries to (a) pay any management, consulting, or similar fees to any
shareholder or Affiliate of the Company or to any director, officer, employee or
immediate family member of any such Affiliate or shareholder, except as set
forth in SCHEDULE 8.12, or (b) pay any compensation to the Persons identified on
SCHEDULE 8.12 in excess of the amounts set forth SCHEDULE 8.12, whether such
compensation consists of salary, bonus, management, consulting or other fees,
capital distributions, or other benefits or otherwise, and regardless of whether
such compensation is paid by the Company and/or any Subsidiary or Affiliate of
the Company.
IX. EVENTS OF DEFAULT AND REMEDIES THEREFOR
9.1 EVENTS OF DEFAULT. The occurrence of any one or more of
the following events shall constitute an "Event of Defaults:
(a) The Company shall fail to pay when due (whether upon
acceleration or otherwise), any principal, interest, Prepayment Premium
or other sums payable under the Note, this Agreement or any of the
Other Agreements or shall fail to pay when due (whether upon
acceleration or otherwise) any other Obligations;
(b) The Company or any Guarantor shall fail to pay when due
and after passage of any applicable notice and cure periods, whether
upon acceleration or otherwise, any Indebtedness, unless payment
thereof has been duly waived;
(c) The Company or any Guarantor shall fail to perform or
observe any agreement, covenant, term or condition contained in this
Agreement, in the Note, or in any of the Other Agreements;
(d) The Company or any Guarantor shall fail to comply with any
material agreement, indenture, mortgage, deed of trust, or other
agreement binding on it or affecting its properties or business,
including, without limitation, the
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Senior Loan Documents and the other agreements to which the Company or
any such Guarantor is a party;
(e) Any representation, warranty or other material information
whatsoever made or provided by the Company or any Guarantor in
connection with this Agreement or any Other Agreement or otherwise was
incorrect or misleading in any material respect;
(f) The Company or any Guarantor shall become subject to an
Event of Bankruptcy;
(g) Any judgment(s) or order(s) for payment of money shall be
rendered against the Company or any Guarantor which exceeds $100,000.00
in the aggregate and either (i) enforcement proceedings shall have been
commenced by any creditor upon such judgment or order, or (ii) there
shall be a period, of thirty (30) consecutive days during which a stay
of enforcement of such judgment or order, by reason of a pending appeal
or otherwise, shall not be in effect;
(h) The occurrence or of any event of default under the Senior
Loan Documents, except for such defaults as have been waived by the
Senior Creditor;
(i) The occurrence of a material change in ownership or
management control, directly or indirectly of the Company; or
(j) Any Guarantor shall revoke or attempt to revoke its
Guaranty Agreement executed in favor of Lender, or shall repudiate its
liability thereunder or shall fail to comply with the terms thereof.
9.2 REMEDIES OF HOLDERS UPON OCCURRENCE OF EVENT OF DEFAULT. When any
Event of Default described in Section 9.1 above, other than any Event of Default
described in subparagraph (I) thereof, has occurred and is continuing, Lender
may (in addition to any other right, power or remedy permitted to Lender by law)
declare the entire amount of the Obligations, including, without limitation, the
entire principal, premium (if any) and all interest accrued then outstanding
under the Note, to be, and the same shall thereupon become, forthwith due and
payable, together with the applicable Prepayment Premium multiplied by the
entire principal amount then outstanding under the Note, without any
presentment, demand, protest, notice of default, notice of intention to
accelerate, notice of acceleration or other notice of any kind, all of which are
hereby expressly waived, and in such event the Company shall forthwith pay to
Lender an amount equal to 100% of the amount thereof. When any Event of Default
described in Subparagraph (f) of Section 9.1 above shall occur, all of the
Obligations, including, without limitation, the entire principal, premium (if
any), and all accrued interest then outstanding under the Note, shall thereupon
be forthwith due and payable, together with a premium equal to the
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product of the applicable Prepayment Premium multiplied by the entire principal
amount then outstanding under the Note, without any presentment, demand,
protest, notice of default, notice of intention to accelerate, notice of
acceleration or other notice of any kind (including any notice by the Holders of
the Note), all of which are hereby expressly waived by the Company, and the
Company will forthwith pay to Lender an amount equal to 100% of the amount
thereof.
9.3 ANNULMENT OF ACCELERATION. The provisions of the foregoing Section
9.2 are subject to the condition that, if all or any part of the Obligations
have been declared or have otherwise become immediately due and payable by
reason of the occurrence of any Event of Default, Lender may, by written
instrument delivered to the Company (an "Annulment Notice"), rescind and annul
such declaration and the consequences thereof as to the Note, provided that (a)
at the time such Annulment Notice is delivered no judgment or decree has been
entered for the payment of any monies due pursuant to such Obligations in
connection therewith, and (b) all arrears of interest and all other sums payable
on such Obligations in connection therewith (except any principal, interest or
premium which has become due and payable solely by reason of such declaration
under Section 9.2 hereof) shall have been duly paid or deferred by the Holder of
the Obligations agreeing to such rescission and annulment; and provided further,
that no such rescission and annulment shall extend to or affect any subsequent
default or Event of Default or impair any right consequent thereto, and shall
not be deemed a waiver of the Event of Default giving rise to the acceleration
unless specifically waived in writing by Lender.
9.4 PAYMENT OF OBLIGATIONS. Subject to the terms of the Subordination
Agreement, Lender shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest on such Note and payment of all
other Obligations on the date when due and, upon the occurrence and continuance
of an Event of Default, to institute suit against the Company for the
enforcement of any such payment. Such rights shall not be impaired without
Lender's prior written consent.
9.5 REMEDIES. Subject to the terms of the Subordination Agreement, if
any Event of Default shall occur and be continuing, each and every Holder may
exercise any right or remedy it has at law, in equity or under this Agreement or
any Other Agreement. No right or remedy conferred upon or reserved to Lender
under this Agreement or any Other Agreement is intended to be exclusive of any
other right or remedy, and every right and remedy shall be cumulative and in
addition to every other right or remedy given hereunder or now or hereafter
existing under any applicable law. Every right and remedy given by this
Agreement or by applicable law to Lender may be exercised from time to time and
as often as may be deemed expedient by Lender.
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<PAGE> 45
9.6 CONDUCT NO WAIVER. No course of dealing on the part of Lender, nor
any delay or failure on the part of Lender to exercise any of its rights, shall
operate as a waiver of such right or otherwise prejudice Lender's rights, powers
and remedies. If the Company fails to pay, when due, the principal of, the
premium (if any) or the interest on, the Note, or fails to comply with any other
provision of this Agreement, the Company shall pay to the Holder, to the extent
permitted by law, on demand, such further amounts as shall be sufficient to
cover the cost and expenses, including, but not limited to, attorney's fees,
incurred by Lender in collecting any sums due on the Note or in otherwise
enforcing any of Lender's rights.
9.7 NOTICE OF DEFAULT. With respect to Events of Default or claimed
defaults, or any condition or event which with notice or lapse of time, or both,
may become an Event of Default, the Company will give the following notices:
(a) The Company will immediately furnish to Lender notice in
writing of the occurrence of an Event of Default, or any condition or
event which, after notice or lapse of time, or both, would constitute
such an Event of Default. Such notice shall specify the nature of such
event, condition or default and what action the Company has taken or is
taking or proposes to take with respect thereto.
(b) If any holder of Senior Debt or of any other Indebtedness
of the Company gives any notice or takes any other action with respect
to a claimed default, the Company will immediately give written notice
thereof to Lender, describing the notice or action and the nature of
the claimed event, condition or default.
X. NO IMPAIRMENT
Nothing contained in this ARTICLE X or elsewhere in this Agreement, in
the Note or the Subordination Agreement is intended to or shall impair, as
between the Company and Lender, the obligations of the Company, which are
absolute and unconditional, to pay to Lender the principal of, premium (if any)
and interest on the Note and all other Obligations as and when the some shall
become due and payable in accordance with their terns, or is intended to or
shall affect the relative rights of Lender and creditors of the Company other
than the holders of the Senior Debt, nor shall anything herein or therein
prevent Lender from exercising all remedies otherwise permitted by applicable
law upon an Event of Default under this Agreement.
XI. FORM OF NOTE, REGISTRATION, TRANSFER AND REPLACEMENT
11.1 FORM OF NOTE. The Note initially delivered under this Agreement
will be a fully registered note in the form attached hereto as Exhibit A.
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11.2 NOTE RESISTER. The Company shall cause to be kept at the principal
office a register for the registration and transfer of the Note. The names and
addresses of the Holder of the Note, the transfer thereof and the name and
recorded in such register.
11.3 ISSUANCE OR NEW NOTE UPON EXCHANGE OR TRANSFER. Upon surrender for
exchange or registration of transfer of the Note at the office of the Company
designated for notices in accordance with Section 12.3 hereof, the Company shall
execute and deliver, at its expense, one or more new Notes of any authorized
denomination requested by the Holder of the surrendered Note, each dated the
date to which interest has been paid on the Note so surrendered (or, if no
interest has been paid, the date of the surrendered Note), but in the same
aggregate unpaid principal amount as the surrendered Note, and registered in the
name of such Person or Persons as shall be designated in writing by such Holder.
Every Note surrendered for registration of transfer shall be duly endorsed, or
be accompanied by a written instrument of transfer duly executed, by the Holder
of such Note or by his attorney duly authorized in writing.
11.4 REPLACEMENT OF NOTE. Upon receipt of evidence satisfactory to the
Company of the loss, theft, mutilation or destruction of the Note and, in the
case of any such loss, theft or destruction, upon delivery of a bond of
indemnity in such form and amount as shall be reasonably satisfactory to the
Company or, in the event of such mutilation upon surrender and cancellation of
the Note, the Company, without charge to the Holder thereof, will make and
deliver a new Note of like tenor and the same series in lieu of such lost,
stolen, destroyed or mutilated Note. If any such lost, stolen or destroyed Note
is owned by Lender or any other Holder whose credit is satisfactory to the
Company, then the affidavit of an authorized officer of such owner setting forth
the, fact of loss, theft or destruction and of its ownership of the Note at the
time of such loss, theft or destruction shall be accepted as satisfactory
evidence thereof, and no further indemnity shall be required as a condition to
the execution and delivery of a new Note, other than a written agreement of such
owner (in form reasonably satisfactory to the Company) to indemnify the Company.
XII. MISCELLANEOUS
12.1 EXPENSES. The Company agrees to pay (a) all out-of-pocket expenses
of Lender (including the fees, expenses and disbursements of Lender's counsel
and the allocated costs of staff counsel) in connection with the preparation,
negotiation, enforcement, operation and administration of this Agreement, the
Note, the Other Agreements, or any documents delivered or executed in connection
therewith, or any waiver, modification or amendment of any provision hereof or
thereof, and (b) if a Default occurs, all court costs and costs of collection,
including, without limitation, reasonable fees, expenses and disbursements of
counsel employed in connection with any and all collection efforts. The
attorneys fees
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arising from such services, including those of any appellate proceedings, and
all expenses, costs, charges and other fees incurred by such counsel in any way
or respect arising in connection with or relating to any of the events or
actions described in this Article XII shall be payable by the Company to Lender,
on demand, and shall be additional Obligations. Without limiting the generality
of the foregoing, such expenses, costs, charges and fees may include: recording
costs, appraisal costs, paralegal fees, costs and expenses; accountants' fees,
costs and expenses; court costs and expenses; photocopying and duplicating
expenses; court reporter fees, costs and expenses; long distance telephone
charges; air express charges, telegram charges; facsimile charges; secretarial
overtime charges; and expenses for travel, lodging and food paid or incurred in
connection with the performance of such legal services. The Company agrees to
indemnify Lender from and hold it harmless against any documentary taxes,
assessments or charges made by any governmental authority by reason of the
execution and delivery by the Company or any other Person of this Agreement, the
Other Agreements, and any documents executed in connection therewith.
12.2 INDEMNIFICATION. IN ADDITION TO AND NOT IN LIMITATION OF THE OTHER
INDEMNITIES PROVIDED FOR HEREIN OR IN ANY OTHER AGREEMENTS, THE COMPANY HEREBY
INDEMNIFIES AND HOLDS HARMLESS LENDER AND ANY OTHER HOLDERS, AND EVERY AFFILIATE
OF ANY OF THE FOREGOING, AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS, FROM ANY CLAIMS, ACTIONS, DAMAGES, COSTS, ATTORNEYS' FEES AND EXPENSES
(INCLUDING ANY OF THE SAME ARISING OUT OF THE SOLE OR CONTRIBUTORY NEGLIGENCE OF
THE PERSON TO BE INDEMNIFIED) TO WHICH ANY OF THEM MAY BECOME SUBJECT, INSOFAR
AS SUCH LOSSES, LIABILITIES, CLAIMS, ACTIONS, DAMAGES, COSTS AND EXPENSES ARISE
FROM OR RELATE TO THIS AGREEMENT OR THE OTHER AGREEMENTS, OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREBY, OR FROM ANY INVESTIGATION, LITIGATION, OR
OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION,
LITIGATION OR OTHER PROCEEDING RELATING TO ANY OF THE FOREGOING, OR FROM ANY
VIOLATION OR CLAIM OF VIOLATION OF ANY APPLICABLE ENVIRONMENTAL LAWS WITH
RESPECT TO ANY REAL OR PERSONAL PROPERTY, OR FROM ANY GOVERNMENTAL OR JUDICIAL
CLAIM, ORDER OR JUDGMENT WITH RESPECT TO ANY REAL OR PERSONAL PROPERTY OF THE
COMPANY, OR FROM ANY BREACH OF THE WARRANTIES, REPRESENTATIONS OR COVENANTS
CONTAINED IN THIS AGREEMENT OR THE OTHER AGREEMENTS. THE FOREGOING
INDEMNIFICATION INCLUDES ANY SUCH CLAIMS, ACTIONS, DAMAGES, COSTS, AND EXPENSES
INCURRED BY REASON OF THE SOLE OR CONTRIBUTORY NEGLIGENCE OF THE PERSON TO BE
INDEMNIFIED, BUT EXCLUDES ANY OF THE SAME INCURRED BY REASON OF SUCH PERSON'S
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
12.3 NOTICES. Except as otherwise expressly provided herein, all
communications provided for hereunder shall be in writing and delivered or
mailed by the United States mails, certified mail, return receipt requested, (a)
if to Lender, addressed to Lender at the addresses) specified on Annex 1 hereto
or to such other address as Lender may in writing designate, (b) if to any other
Holder,
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addressed to such Holder at such address as such Holder may in writing
designate, and (c) if to the Company, addressed to the Company at the address
set forth next to its name on the signature pages hereto or to such other
address as the Company may in writing designate. Notices shall be deemed to have
been validly served, given or delivered (and "the date of such notice" or words
of similar effect shall mean the date) five days after deposit in the United
States mails, certified mail, return receipt requested, with proper postage
prepaid, or upon actual receipt thereof (whether by noncertified mail, telecopy,
telegram, express delivery or otherwise), whichever is earlier.
12.4 REPRODUCTION OF DOCUMENTS. This Agreement and all documents
relating hereto, including, without limitation (a) consents, waivers and
modifications which may hereafter be executed, (b) documents received by Lender
at the closing of the purchase of the Note, and (c) financial statements,
certificates and other information previously or hereafter furnished to Lender,
may be reproduced by Lender by any photographic, photo static, microfilm,
microcard, miniature photographic or other similar process and Lender may
destroy any original document so reproduced. The Company agrees and stipulates
that any such reproduction which is legible shall be admissible in evidence as
the original itself in any judicial or administrative proceeding (whether or not
the original is in existence and whether or not such reproduction was made by
you in the regular course of business) and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence; provided that nothing herein contained shall preclude the Company from
objecting to the admission of any reproduction on the basis that such
reproduction is not accurate, has been altered, is otherwise incomplete or is
otherwise inadmissible.
12.5 ASSIGNMENT, SALE OF INTEREST. The Company may not sell, assign or
transfer this Agreement, or the Other Agreements or any portion thereof,
including, without limitation, the Company's rights, title, interests, remedies,
powers and/or duties hereunder or thereunder. Lender may, with the consent of
the Company, which consent shall not be unreasonably withheld, participate,
sell, assign, transfer or otherwise dispose (collectively "Transfer"), at any
time or times hereafter, of this Agreement, the Note or the Security Documents
to which the Company is a party, or of any portion hereof or thereof, including,
without limitation, Lender's rights, title, interests, remedies, powers and/or
duties hereunder or thereunder; provided, however, that Lender may sell, assign,
transfer or dispose of any or all of the foregoing to any of its Affiliates or
limited partners without the consent of the Company. In connection with any
Transfer, the Company agrees to cooperate fully with Lender and any potential
transferee. Such cooperation shall include, but is not limited to, cooperating
with any audits or other due diligence investigation undertaken by any potential
transferee.
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12.6 SUCCESSORS AND ASSIGNS. This Agreement will inure to the benefit
of and be binding upon the parties hereto and their respective successors and
assigns.
12.7 HEADINGS. The headings of the sections and subsections of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
12.8 COUNTERPARTS. This Agreement may be executed simultaneously 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 to produce or account for
more than one such counterpart or reproduction thereof permitted by Section
12.3.
12.9 RELIANCE ON AND SURVIVAL PROVISIONS. All covenants,
representations and warranties made by the Company herein and in any
certificates delivered pursuant hereto, whether or not in connection with a
closing, (a) shall be deemed to be material and to have been relied upon by
Lender, notwithstanding any investigation heretofore or hereafter made by Lender
or on Lender's behalf, and (b)shall survive the delivery of this Agreement and
the Note until all obligations of the Company under this Agreement shall have
been satisfied.
12.10 INTEGRATION AND SEVERABILITY. This Agreement embodies the entire
agreement and understanding between Lender and the Company, and supersedes all
prior agreements and understandings relating to the subject matter hereof In
case any one or more of the provisions contained in this Agreement or in any
Note, or any application thereof, shall be invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein and therein, and any other application thereof,
shall not in any way be affected or impaired thereby.
12.11 LAW GOVERNING. THIS AGREEMENT HAS BEEN SUBSTANTIALLY NEGOTIATED
AND IS BEING EXECUTED, DELIVERED, AND ACCEPTED, AND IS INTENDED TO BE PERFORMED,
IN PART IN THE STATE OF MINNESOTA. ALL OBLIGATIONS, RIGHTS AND REMEDIES
HEREUNDER, SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF MINNESOTA.
12.12 WAIVED: MODIFICATION. No provision of this Agreement may be
waived, changed or modified, or the discharge thereof acknowledged, orally, but
only by an agreement in writing signed by the party against whom the enforcement
of any waiver, change, modification or discharge is sought.
12.13 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, THE COMPANY AND LENDER HEREBY IRREVOCABLY AND EXPRESSLY WAIVE
ALL RIGHT TO A TRIAL BY JURY (WHETHER IN CONTRACT, TORT, OR OTHERWISE) ARISING
OUT OF OR RELATING TO THIS AGREEMENT, THE NOTE OR ANY DOCUMENTS ENTERED INTO
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IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED, THEREBY OR
THE ACTIONS OF LENDER IN THE NEGOTIATION, ADMINISTRATION, OR
ENFORCEMENT THEREOF.
12.14 NO THIRD PARTY BENEFICIARY. Nothing in this Agreement, the Other
Agreements or the Note is intended to create any third party beneficiary rights
or inure to the benefit of any third party or any Person not a party hereto.
IN WITNESS WHEREOF, the Company and Lender have caused this Agreement
to be executed and delivered by their respective officers "hereunto duly
authorized.
COMPANY:
--------
INTERNATIONAL TOTAL SERVICES,
INC.
By:
-------------------------------
Robert Weitzel
Chief Executive Officer
Company's Address for Notices:
5005 Rockside Road
Cleveland, Ohio 44113
LENDER:
-------
SEIDLER CAPITAL PARTNERS L.P.
By: Seidler Capital, Ltd., its
General Partner
By:
-------------------------------
Scott L. Becker
Member
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Exhibit 10.6
FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT
------------------------------------------
This First Amendment to Note Purchase Agreement (this "AMENDMENT"),
dated as of March 31, 1997, is entered into by and among INTERNATIONAL TOTAL
SERVICES, INC., an Ohio corporation (the "COMPANY"), and SEIDLER CAPITAL
PARTNERS L.P., a Delaware limited partnership ("LENDER").
RECITALS
A. The Company and Lender have entered into that certain Note Purchase
Agreement, dated as of November 25, 1996 (the "NOTE AGREEMENT"), in connection
with the issuance by the Company to Lender of a 20.0% Note in the original
principal amount of $3,000,000.
B. The Company has notified Lender that the Company has entered into an
Asset Purchase Agreement (herein so called and together with all documents
executed in connection therewith, the "ACQUISITION DOCUMENTS") with Intex
Aviation Services, Inc. (the "TARGET"), dated March 7, 1997, pursuant to which
the Company will purchase substantially all of the assets of the Target for a
total purchase price of $5,141,772.00, subject to adjustment pursuant to the
terms of the Asset Purchase Agreement (the "ACQUISITION"). In connection with
the Acquisition, (i) the Company will issue a certain term note to the order of
the Senior Creditor (as defined in the Note Agreement) in the original principal
amount of $2,000,000.00 in substantially the form of ANNEX A attached hereto and
(ii) the Senior Creditor will increase its revolving credit facility as set
forth on ANNEX B attached hereto (collectively, the "SENIOR CREDITOR
TRANSACTIONS").
C. The Company has requested that Lender consent to the Acquisition and
the Senior Creditor Transactions because absent Lender's consent thereto, both
the Acquisition and the Senior Creditor Transactions would violate the terms and
conditions of the Note Agreement and allow an acceleration of the Senior
Subordinated Obligations.
D. The Company has requested that Lender amend the Note Agreement to
(i) allow and provide for the Acquisition and the Senior Creditor Transactions
and (ii) allow and provide for certain other amendments to the Note Agreement,
and Lender is willing to do so subject to the terms and conditions set forth
herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, agree to
follows:
1. DEFINITIONS. All capitalized terms used but not otherwise defined in this
Agreement shall have the meanings ascribed to them in the Note Agreement.
<PAGE> 2
2. AMENDMENTS. The Note Agreement is hereby amended as follows:
2.1 AMENDMENT TO SECTION 1.1; AMENDMENT AND RESTATEMENT OF CERTAIN
DEFINITIONS. Effective as of the date hereof, SECTION 1.1 is hereby amended and
amending and restating the following definitions as follows:
"SENIOR CREDITOR" means Bank One, Cleveland, NA, a national
banking association organized and existing under the laws of
the United States of America, or any of its assignees to which
Lender shall have consented in writing which consent shall not
be unreasonably withheld.
"SENIOR DEBT" means, at any given time, the Indebtedness
(whether now outstanding or hereafter incurred) of the Company
in respect of the Senior Loan Agreement in a principal amount
not to exceed $10,500,000.00 in revolving loans, $2,400,000.00
in term loans (less the aggregate amount of principal payments
made by the Company to the Senior Creditor under such term
loans), plus interest, fees, expenses and indemnities payable
under the Senior Loan Agreement and any notes, security
documents, guaranties or other loan documents referred to
therein or pursuant thereto, secured by all assets of the
Company and each Guarantor.
"SENIOR LOAN AGREEMENT" means the Third Amended and Restated
Consolidated Replacement Credit Facility and Security
Agreement, between the Company and the Senior Creditor, dated
as of March 31, 1997, and all documents and instruments
delivered pursuant thereto in connection with the
loans and advances made thereunder.
"SENIOR LOANS" means revolving loans in the maximum principal
amount of $10,500,000.00 and term loans in the maximum
aggregate principal amount of $2,400,000.00 (less the
aggregate amount of principal payments made by the Company to
the Senior Creditor under such term loans) made to the Company
by the Senior Creditor under the Senior Loan Agreement and any
permitted replacements and refinancings thereof."
"TANGIBLE NET WORTH" shall mean at any time, the aggregate of
subordinated debt of the Company (indebtedness which is
subordinated and junior in right of payment to the Obligations
(as defined in the Senior Loan Agreement as in effect on March
31, 1997) to the extent, in such manner, and pursuant to an
instrument evidencing such subordination, acceptable to
Lender) plus the sum of the following amounts set forth in a
consolidated balance sheet of the Company, prepared in
accordance with GAAP: (a) the par or stated value of all
outstanding capital stock; (b) capital surplus; (c) retaining
earnings, less the sum of: (i) any surplus resulting from any
write-up of assets of the Company subsequent to December 31,
1996; (ii) good will, contracts and non-competition
agreements, including any amounts, however designated on a
consolidated balance sheet of the Company, representing the
excess of the purchase price
-2-
<PAGE> 3
paid for assets or stock acquired over the value assigned
thereto on the books of the Company; (iii) proprietary rights
of the Company, including all patents, trademarks, trade names
and copyrights; (iv) loans, including principal and accrued
but unpaid interest, and advances to stockholders, directors,
officers or employees of the Company; and (v) deferred
expenses.
2.2. AMENDMENT TO SECTION 3.2. Effective as of the date hereof, the
second sentence of SECTION 3.2 is hereby deleted in its entirety and the
following substituted in lieu thereof:
"No Prepayment Premium will be due if the Company, prior to
November 1, 1997, prepays the Obligations in accordance with the terms
of this Section, with funds (a) which are internally generated in the
ordinary course of the Company's business; (b) which consist of direct
proceeds from a public offering of the Company's Securities for a
minimum of $15 million; (c) from the proceeds of a sale of all or
substantially all of the stock or assets of the Company or (d) pursuant
to SECTION 3.3 hereof."
2.3. ADDITION OF SECTION 3.9. Effective as of the date hereof, a new
SECTION 3.9 is hereby added to the Note Agreement as follows:
"3.9 MANDATORY PREPAYMENT. In the event of any Public Offering
by the Company of any of the Company's debt or equity securities, the
Company shall prepay the Obligations in an amount equal to the lesser
of the (i) net proceeds of any such Public Offering or (ii) the
aggregate amount of all Obligations (including any applicable
Prepayment Premium), any such prepayment to be made within five (5)
Business Days of receipt of such net proceeds. Any prepayment under
this SECTION 3.9 shall be applied first to accrued interest, second to
any applicable Prepayment Premium, third to installments of principal
in the inverse order of their maturities and fourth to any expenses
and/or damages for which Lender may be entitled."
2.4. AMENDMENT TO SECTION 8.8. Effective as of the date hereof, SECTION
8.8 is hereby deleted in its entirety and the following substituted in lieu
thereof:
"8.8 MODIFICATION OF SENIOR LOAN AGREEMENT AND REFINANCINGS OF
SENIOR DEBT. The Company will not agree or consent to any modification,
amendment or waiver of any of the terms or provisions of the Senior
Loan Documents in effect on the date hereof without Lender's prior
written consent except as set forth in the Subordination Agreement.
Notwithstanding anything to the contrary contained herein, the Company
will not agree to any refinancing of the Senior Debt without the prior
written consent of Lender."
2.5. AMENDMENT TO SECTION 8.9. Effective as of the date hereof, SECTION
8.9 is hereby deleted in its entirety and the following substituted in lieu
thereof:
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<PAGE> 4
"8.9 CAPITAL EXPENDITURES. The Company will not incur or make
Capital Expenditures during any fiscal year of the Company which, in
the aggregate, exceed Seven Hundred Fifty Thousand Dollars ($750,000)."
2.6. AMENDMENT TO SECTION 8.10. Effective as of the date hereof,
Section 8.10 is hereby deleted in its entirety and the following substituted in
lieu thereof:
"8.10 FINANCIAL COVENANTS.
(a) RATIO OF LIABILITIES TO TANGIBLE NET WORTH. The Company
will, at all times during the term of this Agreement, maintain a ratio
of total unsubordinated liabilities (including deferred liabilities
and/or deferred income), computed in accordance with GAAP to Tangible
Net Worth of not more than 9.5 to 1.0 at March 31, 1998 and thereafter,
and a ratio of employable assets (current assets plus gross fixed
assets) in relation to current liabilities plus senior funded bank debt
of 1.1 to 1.0 through March 30, 1998 and 1.2 to 1.0 thereafter to be
tested quarterly beginning June 30, 1997, such covenant to be
calculated in accordance with GAAP based on Borrower's quarterly and
fiscal year-end financial statements.
(b) TANGIBLE NET WORTH. The Company will, at all times during
the periods listed below, maintain a Tangible Net Worth equal to or
greater than One Million Two Hundred Seventy Thousand Dollars
($1,270,000) at March 31, 1998 and thereafter, such covenant to be
calculated annually in accordance with GAAP based on the Company's
fiscal year-end financial statements. The Company's Tangible Net Worth
as of March 31, 1997 shall increase by at least $800,000 at September
30, 1997 and by an additional $800,000 at December 31, 1997.
(c) DEBT SERVICE COVERAGE RATIO. The Company will, at all
times, maintain Debt Coverage (as defined herein) of not less than 2.0
to 1.0 at March 31, 1997 and thereafter. "Debt COVERAGE" as used in
this SECTION 8.10(c) means the ratio of the Company's net income, plus
depreciation and amortization and net interest paid to the Lender, to
the sum of all principal and interest paid or payable to the Lender,
calculated quarterly in accordance with GAAP based upon the Company's
quarterly and fiscal year end financial statements."
2.7. AMENDMENT TO SCHEDULE 5.17 TO THE AGREEMENT. Effective as of the
date hereof, SCHEDULE 5.17 to the Note Agreement is hereby deleted in its
entirety and replaced with SCHEDULE 5.17 attached hereto as ANNEX C.
2.8. AMENDMENT TO SCHEDULE 5.27 TO THE NOTE AGREEMENT. Effective as of
the date hereof, SCHEDULE 5.27 to the Note Agreement is hereby deleted in its
entirety and replaced with SCHEDULE 5.27 attached hereto as ANNEX D.
3. CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment is subject
to the satisfaction of the following conditions precedent, unless specifically
waived in writing by Lender:
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<PAGE> 5
3.1 Lender shall have received:
(a) this Amendment, duly executed by the Company;
(b) a certificate of the Secretary of the Company (hereinafter
referred to as a "COMPANY GENERAL CERTIFICATE"), certified by the
Secretary of such Company and acknowledging (i) that its Board of
Directors has adopted, approved, consented to and ratified resolutions
which authorize the execution, delivery and performance of this
Amendment and all Other Agreements to which such party is or is to be a
party, and (ii) the names of the officers of such party authorized to
sign this Amendment and each of the Other Agreements to which such
party is or is to be a party hereunder (including the certificates
contemplated herein) together with specimen signatures of such
officers;
(c) copies of the Acquisition Documents and all exhibits
thereto,
(d) certificates of existence and good standing for the
Company, issued within 15 days prior to the date of this Amendment by
the Secretary of State or other appropriate official in the
jurisdiction in which it was incorporated which have not already been
received by Lender;
(e) a Consent Letter duly executed by the Senior Lender
substantially in the form of Annex E attached hereto;
(f) the results of Uniform Commercial Code searches showing
all filings on file against the Target (and its predecessors), each
such search dated a date reasonably close to the date of this
Amendment;
(g) a Collateral Assignment of Asset Purchase Agreement, duly
executed by the Company and acknowledged by the Target; and
(h) such additional documents, instruments and information as
Lender or its legal counsel may request.
3.2. All Uniform Commercial Code financing statements required or, in
Lender's opinion, advisable to be filed in order to create, in favor of the
Lender, a second priority perfected Lien on the Collateral of the Company with
respect to which a Lien can be perfected by means of filing a Uniform Commercial
Code financing statement, shall have been properly executed and delivered to
Lender, and all necessary filing, subscription and inscription fees and all
recording and other similar fees, and all taxes and other expenses related to
such filings and recordings have been paid in full by or on behalf of the
Company.
3.3. The representations and warranties contained herein and in the
Note Agreement and the Other Agreements, as amended hereby, shall be true and
correct on and as of the date hereof after giving effect to the Acquisition and
the Senior Creditor Transactions and the other transactions contemplated by this
Amendment.
-5-
<PAGE> 6
3.4. No Event of Default under the Note Agreement, as amended hereby,
shall have occurred and be continuing, unless such Event of Default has been
specifically waived in writing by Lender.
3.5. The Senior Loan Agreement shall have been duly executed and
delivered by the parties thereto and shall be on terms and conditions
satisfactory to Lender, and all conditions precedent to funding of the Senior
Loans contemplated thereunder shall have been satisfied or waived.
3.6. The Acquisition Documents shall have been duly executed and
delivered by the parties thereto, all conditions to the consummation of the
Acquisition shall have been satisfied or waived with Lender's consent, and the
terms and provisions of the Acquisition Documents and the structure of the
Acquisition shall be satisfactory to Lender.
3.7. The results of Lender's due diligence regarding the Company, the
Senior Creditor Transactions and the Acquisition shall be satisfactory to
Lender, and Lender shall be satisfied with the assets and books and records and
the business and financial condition of the Company, after giving effect to the
Acquisition and the Senior Creditor Transactions.
3.8. Lender shall have received the written legal opinion of the
Company's internal legal counsel.
3.9. All corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all documents, instruments and
other legal matters incident thereto shall be satisfactory to Lender and its
legal counsel.
3.10 Lender shall have received an amendment fee in the amount of
$30,000 in immediately available funds.
4. RATIFICATIONS, REPRESENTATIONS, WARRANTIES AND COVENANTS.
4.1. The terms and provisions set forth in this Amendment shall modify
and supersede all inconsistent terms and provisions set forth in the Note
Agreement and the Other Agreements, and, except as expressly modified and
superseded by this Amendment, the terms and provisions of the Note Agreement and
the Other Agreements are ratified and confirmed and shall continue in full force
and effect. The Company and Lender agree that the Note Agreement, as amended
hereby, shall continue to be legal, valid, binding and enforceable in accordance
with its respective terms.
4.2. The Company hereby represents and warrants to Lender that (a) the
execution, delivery and performance of this Amendment and the Acquisition
Documents and any and all other agreements executed and/or delivered in
connection herewith or therewith have been authorized by all requisite corporate
action on the part of the Company, as applicable, and will not violate its
respective Articles of Incorporation or Bylaws; (b) the representations and
warranties contained in the Note Agreement and the Other Agreements, as amended
hereby,
-6-
<PAGE> 7
are, and after giving effect to the Acquisition and the Senior Creditor
Transactions will be, true and correct on and as of the date hereof as though
made on and as of such date; (c) no Event of Default under the Note Agreement,
as amended hereby, has occurred and is continuing, unless such Event of Default
has been specifically waived in writing by Lender; (d) the Company is, and after
giving effect to the Acquisition and Senior Creditor Transactions will be, in
full compliance with all covenants and agreements contained in the Note
Agreement, as amended hereby, and the Other Agreements; and (e) the Company has
not amended its Articles of Incorporation or its Bylaws since November 25, 1996
other than as previously disclosed to Lender.
5. LIMITED WAIVER.
Subject to the terms and conditions set forth herein and in reliance
upon the representations and warranties of the Company set forth herein, Lender
hereby consents to the Acquisition and the Senior Creditor Transactions. In
addition, Lender hereby waives any Event of Default arising under the Note
Agreement solely by reason of the Company's violation of (i) SECTION 8.1 of the
Note Agreement resulting from the Senior Creditor Transactions, (ii) SECTION
8.3(b) of the Note Agreement resulting from the Acquisition, and (iii) SECTION
8.8 of the Note Agreement resulting from the issuance of the Senior Creditor
Transactions. Other than as set forth in the preceding sentence, nothing
contained in this Amendment shall be construed as a waiver by Lender of any
covenant or provision of the Note Agreement, the Other Agreements, this
Amendment, or of any other contract or instrument between either of the Company
and Lender, and the failure of Lender at any time or times hereafter to require
strict performance by the Company of any provision thereof shall not waive,
affect or diminish any right of Lender to thereafter demand strict compliance
therewith. Lender hereby reserves all rights granted under the Note Agreement,
the Other Agreements, this Amendment and any other contract or instrument
between either of the Company and Lender.
6. MISCELLANEOUS.
6.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made in the Note Agreement or any Other Agreement, including,
without limitation, any document furnished in connection with this Amendment,
shall survive the execution and delivery of this Amendment and the Other
Agreements, and no investigation by Lender or any closing shall affect the
representations and warranties or the right of Lender to rely upon them.
6.2. REFERENCE TO NOTE AGREEMENT. Each of the Note Agreement and the
Other Agreements, and any and all other agreements, documents or instruments now
or hereafter executed and delivered pursuant to the terms hereof or pursuant to
the terms of the Note Agreement, as amended hereby, are hereby amended so that
any reference in the Note Agreement and such Other Agreements to the Note
Agreement shall mean a reference to the Note Agreement as amended hereby.
-7-
<PAGE> 8
6.3. EXPENSES OF LENDER. As provided in the Note Agreement, the Company
agrees to pay on demand all costs and expenses incurred by Lender in connection
with the preparation, negotiation and execution of this Amendment and any other
agreements executed pursuant hereto, including, without limitation, the
reasonable costs and fees of Lender's legal counsel.
6.4. SEVERABILITY. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6.5. SUCCESSORS AND ASSIGNS. This Amendment will inure to the benefit
of and be binding upon the parties hereto and their respective successors and
permitted assigns.
6.6. HEADINGS. The headings of the sections and subsections of this
Amendment are inserted for convenience only and do not constitute a part of this
Amendment.
6.7. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, which shall collectively constitute one agreement.
6.8. LAW GOVERNING. THIS AMENDMENT SHALL BE DEEMED TO HAVE BEEN
SUBSTANTIALLY NEGOTIATED AND MADE IN THE STATE OF MINNESOTA AND SHALL BE
INTERPRETED AND THE RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS
OF THE UNITED STATES APPLICABLE THERETO AND THE INTERNAL LAWS OF THE STATE OF
MINNESOTA APPLICABLE TO AN AGREEMENT EXECUTED, DELIVERED AND PERFORMED THEREIN,
WITHOUT GIVING EFFECT TO THE CHOICE-OF-LAW RULES THEREOF OR ANY OTHER PRINCIPLE
THAT COULD REQUIRE THE APPLICATION OF THE SUBSTANTIVE LAW OF ANY OTHER
JURISDICTION.
6.9. WAIVER; MODIFICATION. NO PROVISION OF THIS AMENDMENT MAY BE
WAIVED, CHANGED OR MODIFIED, OR THE DISCHARGE THEREOF ACKNOWLEDGED, ORALLY, BUT
ONLY BY AN AGREEMENT IN WRITING SIGNED BY THE PARTY AGAINST WHOM THE ENFORCEMENT
OF ANY WAIVER, CHANGE, MODIFICATION OR DISCHARGE IS SOUGHT.
6.10. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY WAIVE ALL
RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER
BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS
AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF LENDER IN
THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT THEREOF.
6.11. FINAL AGREEMENT. THE NOTE AGREEMENT, AS AMENDED HEREBY, AND THE
OTHER AGREEMENTS REPRESENT THE ENTIRE EXPRESSION OF THE
-8-
<PAGE> 9
PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS
EXECUTED. THE NOTE AGREEMENT, AS AMENDED HEREBY, AND THE OTHER AGREEMENTS MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 10
IN WITNESS WHEREOF, THE Company and Lender have caused this Amendment
to be executed and delivered as of the date first written.
Company
-------
INTERNATIONAL TOTAL SERVICES,
INC.
By:
-----------------------------------
Its:
-----------------------------------
Lender:
-------
SEIDLER CAPITAL PARTNERS L.P.
-----------------------------
By: Seidler Capital, Ltd., its General
Partner
By:
-----------------------------------
Scott L. Becker
Managing Director
-10-
<PAGE> 11
CONSENT AND RATIFICATION
The undersigned, NBC Leasing, Inc., ITS Sales Corp, Crown-Technical
Systems, Inc., T.I.S., Incorporated, Certified Investigative Services Inc.
I.T.S. of New York, Inc., Selective Detective Services, Inc., International
Total Services (Holdings) Limited, International Total Services, Limited, NBC
Holdings, B.V., International Transport Security, LTD. and International
Transport Services, Ltd., have each executed a Guaranty Agreement, dated as of
November 25, 1996 (collectively, the "GUARANTIES" and individually a
"GUARANTY"), in favor of Seidler Capital Partners L.P. (the "LENDER"). The
undersigned hereby consent and agree to the terms of the First Amendment to Note
Purchase Agreement dated as of the 31st day of March, 1997 (the "AMENDMENT"),
executed by INTERNATIONAL TOTAL SERVICES, INC., an Ohio corporation (the
"BORROWER"), and Lender, a copy of which is attached hereto, and the undersigned
agree that the Guaranties shall remain in full force and effect and shall
continue to be the legal, valid and binding obligation of each of the
undersigned enforceable against each of the undersigned in accordance with its
terms. Furthermore, the undersigned hereby agrees and acknowledges that (a) its
respective Guaranty is not subject to any claims, defenses or offsets, (b)
nothing contained in the Amendment or any of the Other Agreement; shall
adversely affect any right or remedy of Lender under Amendment shall in no way
reduce, impair or discharge any obligations of the undersigned as guarantors
pursuant to the Guaranty and shall not constitute a waiver by Lender of any of
Lender's rights against the undersigned, and (e) by virtue hereof and by virtue
of the Guaranties, the undersigned hereby guarantees to Lender the prompt and
full payment and full and faithful performance by Borrower of that portion of
the Indebtedness set forth in the Guaranties on the terms and conditions set
forth therein and any time further modified or amended.
NBC LEASING, INC.
By:
-----------------------------------
Its:
-----------------------------------
ITS SALES CORP.
By:
-----------------------------------
Its:
-----------------------------------
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<PAGE> 12
CROWN TECHNICAL SYSTEMS, INC.
By:
-----------------------------------
Its:
-----------------------------------
T.I.S., INCORPORATED
By:
-----------------------------------
Its:
-----------------------------------
CERTIFIED INVESTIGATIVE
SERVICES, INC.
By:
-----------------------------------
Its:
-----------------------------------
I.T.S. OF NEW YORK, INC.
By:
------------------------------------
Its:
------------------------------------
SELECTIVE DETECTIVE SERVICES,
INC.
By:
-----------------------------------
Its:
-----------------------------------
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<PAGE> 13
INTERNATIONAL TOTAL SERVICES
(HOLDINGS) LIMITED
By:
-----------------------------------
Its:
-----------------------------------
INTERNATIONAL TOTAL SERVICES,
LIMITED
By:
-----------------------------------
Its:
-----------------------------------
NBC HOLDINGS, B.V.
By:
-----------------------------------
Its:
-----------------------------------
INTERNATIONAL TRANSPORT
SECURITY, LTD.
By:
-----------------------------------
Its:
-----------------------------------
INTERNATIONAL TRANSPORT
SERVICES, LTD.
By:
-----------------------------------
Its:
-----------------------------------
-13-
<PAGE> 1
Exhibit 10.7
THE INDEBTEDNESS EVIDENCED BY THIS PROMISSORY NOTE AND THE SECURITY THEREFOR ARE
SUBORDINATE TO THE INDEBTEDNESS AND SECURITY THEREFOR OF THE MAKER (OR ANY
SUCCESSOR THERETO) TO BANK ONE, CLEVELAND, NA AND NBD BANK TO THE EXTENT AND
PURSUANT TO THE TERMS OF A SUBORDINATION AGREEMENT DATED NOVEMBER 25, 1996 (OR
ANY SUCCESSOR AGREEMENT WHICH REPLACES AND REFERENCES SUCH AGREEMENT).
TERM NOTE
---------
$3,000,000.00 November 26, 1996
FOR VALUE RECEIVED, the undersigned, INTERNATIONAL TOTAL SERVICES, INC.
("Maker"), hereby jointly and severally promises to pay to the order of Seidler
Capital Partners L.P., a Delaware limited partnership (together with its
successors and assigns, herein called the "Lender"), at its offices at 3030
Plaza VII, 45 South Seventh Street, Minneapolis, Minnesota 55402 (or at such
other place as the holder may from time to time designate) the principal sum of
THREE MILLION AND NO/100 DOLLARS ($3,000,000.00) (the "ORIGINAL PRINCIPAL
Balance") together with interest, as provided herein.
This Note is the Note referred to in the Note Purchase Agreement dated
the date hereof by and between the undersigned and Lender (the "PURCHASE
AGREEMENT"). Capitalized terms used in this Note and not otherwise defined shall
have the meaning ascribed thereto in the Purchase Agreement. This Note is
entitled to the benefits of the Purchase Agreement. Payment of this Note is
secured pursuant to the terms of the Security Documents. This Note may not be
prepaid, in whole or in part, except in accordance with the terms and conditions
set forth in the Purchase Agreement.
The outstanding principal balance of this Note shall be due and payable
in immediately available funds as provided in SECTION 3.1(a) of the Purchase
Agreement. Interest on the principal amount of this Note from time to time
outstanding shall be due and payable in immediately available funds as provided
in SECTION 3.1(b) of the Purchase Agreement, at the annual rate of interest set
forth in SECTION 2.1 of the Purchase Agreement (computed on the basis of the
actual number of days elapsed over a 360-day year). In no event, however, shall
interest exceed the maximum rate permitted by law.
As provided in SECTION 9.2 of the Purchase Agreement, (a) upon the
occurrence of an Event of Default under SECTION 9.1(f) of the Purchase
Agreement, this Note, and all amounts payable hereunder in accordance with the
terms of the Purchase Agreement and all other Obligations, shall immediately
become due and payable, without notice of any kind, and (b) upon the declaration
of Lender following the occurrence of any other Event of Default under the
Purchase Agreement, this Note, and all amounts payable hereunder in accordance
with the terms of the Purchase Agreement and all other Obligations, shall be
immediately due and payable.
THIS NOTE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO THE
CHOICE-OF-LAW RULES THEREOF OR ANY OTHER PRINCIPLES THAT COULD REQUIRE THE
APPLICATION OF THE SUBSTANTIVE LAW OF ANY OTHER JURISDICTION. THE UNDERSIGNED
CONSENTS TO THE PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN
THE STATE OF MINNESOTA IN CONNECTION WITH ANY CONTROVERSY RELATED TO THIS
AGREEMENT, WAIVES ANY ARGUMENT THAT VENUE IN ANY SUCH FORUM IS NOT CONVENIENT,
AND AGREES THAT ANY LITIGATION INITIATED BY ANY OF THEM IN CONNECTION WITH THIS
AGREEMENT SHALL BE
<PAGE> 2
VENUED IN EITHER THE DISTRICT COURT OF HENNEPIN COUNTY OR RAMSEY COUNTY,
MINNESOTA, OR THE UNITED STATES DISTRICT COURT, DISTRICT OF MINNESOTA.
The undersigned expressly waives any presentment, demand, protest,
notice of default, notice of intention to accelerate, notice of acceleration or
notice of any other kind except as expressly provided in the Purchase Agreement.
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE UNDERSIGNED EACH
HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY
ARISING OUT OF OR RELATING TO THIS NOTE, THE PURCHASE AGREEMENT OR ANY OTHER
AGREEMENT ENTERED INTO IN CONNECTION THEREWITH OR THE TRANSACTIONS CONTEMPLATED
THEREBY OR THE ACTIONS OF LENDER IN THE NEGOTIATIONS, ADMINISTRATION OR
ENFORCEMENT THEREOF.
INTERNATIONAL TOTAL SERVICES,
INC,
By:
---------------------------------
Name:
-------------------------------
Title:
-------------------------------
-2-
<PAGE> 1
Exhibit 10.8
EMPLOYMENT AGREEMENT
BETWEEN
INTERNATIONAL TOTAL SERVICES, INC.
AND
ROBERT A. WEITZEL
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of the day of , 1997,
between International Total Services, Inc., an Ohio corporation (the "Company"),
and Robert A. Weitzel (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to be employed by the Company, on the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
1. Employment.
(a) The Company hereby employs the Executive as its Chief Executive
Officer, and the Executive hereby accepts such employment, on the terms and
subject to the conditions hereinafter set forth.
(b) During the term of this Employment Agreement and any renewal
hereof (all references herein to the term of this Employment Agreement shall
include references to the period of renewal hereof, if any), the Executive shall
be and have the title of Chief Executive Officer and shall devote such business
time and all reasonable efforts to his employment as the Executive deems
appropriate and perform diligently such duties as are customarily performed by
Chief Executive Officers of publicly-held companies of comparable size in the
same or related industries, together with such other duties as may be reasonably
requested from time to time by the Board of Directors of the Company (the
"Board"), which duties shall be consistent with his positions as set forth above
and as provided in Paragraph 2.
2. Term and Positions.
(a) Subject to the provisions for renewal and termination
hereinafter provided, the term of this Employment Agreement shall begin on the
date hereof and shall continue until December 31, 2000. Such term automatically
shall be extended for one (1) additional calendar year, unless: (i) this
Employment Agreement is terminated as provided in Paragraph 4(a)(i) or 4(a)(ii)
or (ii) either the Company or the Executive shall give written notice of
non-extension of this Employment Agreement to the other on or before June 30,
2000.
(b) The Executive shall be entitled to serve as the Chief Executive
of the Company. Without limiting the generality of any of
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the foregoing, except as hereafter expressly agreed in writing by the Executive:
(i) the Executive shall be required to report only to the Board as an entire
body, and (ii) no other individual shall be elected or appointed as Chief
Executive Officer of the Company. For service as an officer and employee of the
Company, the Executive shall be entitled to the full protection of applicable
indemnification provisions of the articles of incorporation and code of
regulations of the Company, as the same may be amended from time to time.
(c) If:
(i) the Company materially changes the Executive's duties and
responsibilities as set forth in Paragraph 1(b) or 2(b) without his
consent (including, without limitation, by violating any of the
provisions of clause (i) or (ii) of Paragraph 2 (b));
(ii) the Executive's place of employment or the principal
executive offices of the Company are moved to a location more than
fifty (50) miles from the geographical center of Cleveland, Ohio;
(iii) there occurs a material breach by the Company of any of its
obligations under this Employment Agreement (other than those
specified in this Section 2(c)), which breach has not been cured in
all material respects within ten (10) days after the Executive gives
notice thereof to the Company; or
(iv) there occurs a "change in control" (as hereinafter defined)
of the Company,
then the Executive shall have the right to terminate his employment with the
Company, but such termination shall not be considered a voluntary resignation or
termination of such employment or of this Employment Agreement by the Executive
but rather a discharge of the Executive by the Company without "cause" (as
defined in Paragraph 4(a)(ii)).
(d) The Executive shall be considered not to have consented to any
written proposal calling for a material change in his duties and
responsibilities unless he shall give written notice of his consent thereto to
the Board within fifteen (15) days after receipt of such written proposal. If
the Executive shall not have given such consent, the Company shall have the
opportunity to withdraw such proposed material change by written notice to the
Executive given within ten (10) days after the end of said fifteen (15) day
period.
(e) The term "change in control" means the first to occur of the
following events:
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(i) any person or group of commonly controlled persons other than
Executive or any such group of which Executive is a member, owns or
controls, directly or indirectly, fifty percent (50%) or more of the
voting control or value of the equity interests in the Company
following consummation of the initial public offering of the Company's
Common Shares, without par value (the "IPO"); or
(ii) any person or group of commonly controlled persons who own
less than five percent (5%) of the voting control or value of the
equity interests in the Company during the first 30 days following the
consummation of the IPO acquire ownership or control, directly or
indirectly, of more than twenty percent (20%) of the voting control or
value of the equity interests in the Company; or
(iii) the shareholders of the Company approve an agreement to
merge or consolidate with another corporation or other entity
resulting (whether separately or in connection with a series of
transactions) in a change in ownership of twenty percent (20%) or more
of the voting control or value of the equity interests in the Company,
or an agreement to sell or otherwise dispose of all or substantially
all of the Company's assets (including, without limitation, a plan of
liquidation or dissolution), or otherwise approve of a fundamental
alteration in the nature of the Company's business.
3. Compensation.
During the term of this Employment Agreement the Company shall pay
or provide, as the case may be, to the Executive the compensation and other
benefits and rights set forth in this Paragraph 3.
(a) The Company shall pay to the Executive a base salary payable in
accordance with the Company's usual pay practices (and in any event no less
frequently than monthly) at the rate of Three Hundred Thousand Dollars
($300,000) per annum, to be increased (but not decreased) from time to time
(based upon the performance of the Company and the Executive) as determined by
the Board in its sole discretion.
(b) The Company shall pay to the Executive bonus compensation, not
later than thirty (30) days following the end of each fiscal year or the
termination of his employment, as the case may be, of $100,000 if the Company's
actual net income for the preceding fiscal year equals or exceeds the net income
target in the Company's Annual Budget for that fiscal year. The first bonus
period shall be the fiscal year that ends March 31, 1998. The Executive shall
not receive any bonus if the Company does not meet
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or exceed the net income target in the Annual Budget for a particular fiscal
year.
(c) The Company shall provide to the Executive and his family all
the medical, dental, and all other group insurance benefits which the Company
provides generally to employees of the Company during active employment. In the
event of disability or death of the Executive, these benefits shall be continued
by the Company for life for the Executive and his spouse.
(d) The Executive shall have the right to participate in all
retirement and other benefit plans of the Company generally available from time
to time to employees of the Company and for which the Executive qualifies under
their terms (and nothing in this Agreement shall or shall be considered to in
any way affect the Executive's rights and benefits thereunder except as
expressly provided herein).
(e) The Executive shall be entitled to such periods of vacation and
sick leave allowance each year as are determined by the Executive in his
reasonable and good faith discretion, which in any event shall be not less than
as provided generally under the Company's vacation and sick leave policy for
executive officers.
(f) The Executive shall be entitled to participate in any option or
other employee benefit compensation plan that is generally available to senior
executive officers, as distinguished from general management, of the Company.
The Executive's participation in and benefits under any such plan shall be on
the terms and subject to the conditions specified in the governing document of
that plan.
(g) The Company shall reimburse the Executive or provide him with an
expense allowance during the term of this Employment Agreement for travel,
entertainment and other expenses reasonably and necessarily incurred by the
Executive in connection with the Company's business. The Executive shall furnish
such documentation with respect to reimbursement to be paid hereunder as the
Company shall reasonably request.
4. Termination.
(a) The employment of the Executive under this Employment Agreement,
and the term hereof, may be terminated by the Company:
(i) on the death or permanent disability (as defined below) of
the Executive;
(ii) for cause at any time by action of the Board. For purposes
hereof, the term "cause" shall mean:
(A) The Executive's fraud, commission of a
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felony or of an act or series of acts which result in
material injury to the business or reputation of the
Company, commission of an act or series of repeated acts of
dishonesty which are materially inimical to the best
interests of the Company, or the Executive's willful and
repeated failure to perform his duties under this Employment
Agreement, which failure has not been cured within fifteen
(15) days after the Company gives notice thereof to the
Executive; or
(B) The Executive's material breach of any
other material provision of this Employment Agreement, which
breach has not been cured in all substantial respects within
ten (10) days after the Company gives notice thereof to the
Executive; or
(iii) other than for cause at any time by action of
the Board, subject to the operation of Paragraph 4(d).
The exercise by the Company of its rights of termination under this
Paragraph 4 shall be the Company's sole remedy in the event of the
occurrence of the event as a result of which such right to terminate
arises. Upon any termination of this Employment Agreement, the
Executive shall be deemed to have resigned from all offices and
directorships held by the Executive in the Company.
(b) For purposes of this Employment Agreement, the Executive's
"permanent disability" shall be deemed to have occurred after one hundred twenty
(120) days in the aggregate during any consecutive twelve (12) month period, or
after ninety (90) consecutive days, during which one hundred twenty (120) or
ninety (90) days, as the case may be, the Executive, by reason of his physical
or mental disability or illness, shall have been unable to discharge his duties
under this Employment Agreement. The date of permanent disability shall be such
one hundred twentieth (120th) or ninetieth (90th) day, as the case may be. In
the event either the Company or the Executive, after receipt of notice of the
Executive's permanent disability from the other, dispute that the Executive's
permanent disability shall have occurred, the Executive shall promptly submit to
a physical examination by the chief of medicine of any major accredited hospital
in the Cleveland, Ohio, area and, unless such physician shall issue his written
statement to the effect that in his opinion, based on his diagnosis, the
Executive is capable of resuming his employment and devoting his full time and
energy to discharging his duties within thirty (30) days after the date of such
statement, such permanent disability shall be deemed to have occurred.
(c) In the event of a termination claimed by the Company to be
for "cause" pursuant to Paragraph 4(a)(ii), the Executive shall have the right
to have the justification for said termination
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determined by arbitration in Cleveland, Ohio. In order to exercise such right,
the Executive shall serve on the Company within thirty (30) days after
termination a written request for arbitration. The Company immediately shall
request the appointment of an arbitrator by the American Arbitration Association
and thereafter the question of "cause" shall be determined under the rules of
the American Arbitration Association, and the decision of the arbitrator shall
be final and binding on both parties. The parties shall use all reasonable
efforts to facilitate and expedite the arbitration and shall act to cause the
arbitration to be completed as promptly as possible. During the pendency of the
arbitration, the Executive shall continue to receive all compensation and
benefits to which he is entitled hereunder, and if at any time during the
pendency of such arbitration the Company fails to pay and provide all
compensation and benefits to the Executive in a timely manner, the Company shall
be deemed to have automatically waived whatever rights it then may have had to
terminate the Executive's employment for cause. Expenses of the arbitration
shall be borne equally by the parties.
(d) In the event of termination for any of the reasons set
forth in Paragraph 2(a) or subparagraph (a)(i) or (a)(ii) of this Paragraph 4,
except as otherwise provided in Paragraph 3(c), the Executive shall be entitled
to no further compensation or other benefits under this Employment Agreement,
except as to that portion of any unpaid salary and other benefits accrued and
earned by him hereunder up to and including the effective date of such
termination. If the Company terminates the Executive's employment other than
pursuant to Paragraph 2(a) or subparagraph 4(a)(i) or 4(a)(ii) or the Executive
terminates his employment pursuant to subparagraph 2(c), all of the compensation
and benefits payable to the Executive pursuant to this Employment Agreement
shall be paid to the Executive for the remainder of the term of this Employment
Agreement (as that term is defined in subparagraph 2(a)).
5. Covenants and Confidential Information.
(a) The Executive acknowledges the Company's reliance and
expectation of the Executive's continued commitment to performance of his duties
and responsibilities during the term of this Employment Agreement. In light of
such reliance and expectation on the part of the Company, during the term of
this Employment Agreement and for a period of two (2) years thereafter (and, as
to clause (ii) of this subparagraph (a), at any time during and after the term
of this Employment Agreement), the Executive shall not, directly or indirectly,
do or suffer either of the following:
(i) Own, manage, control or participate in the
ownership, management, or control of, or be employed or engaged by or
otherwise affiliated or associated as a consultant, independent
contractor or otherwise with, any other corporation, partnership,
proprietorship, limited
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liability company, firm, association or other business entity engaged
in the business of, or otherwise engage in the business of, aviation
services or commercial security; except that the Executive may own not
more than one percent (1%) of any class of publicly traded securities
of any entity, and own interests in the Company subject only to any
restriction imposed by any agreement or instrument other than this
Agreement; or
(ii) Disclose, divulge, discuss, copy or otherwise
use or suffer to be used in any manner, in competition with, or
contrary to the interests of, the Company, any confidential information
relating to the Company's operations, properties or otherwise to its
particular business or other trade secrets of the Company, it being
acknowledged by the Executive that all such information regarding the
business of the Company compiled or obtained by, or furnished to, the
Executive while the Executive shall have been employed by or associated
with the Company is confidential information and the Company's
exclusive property; provided, however, that the foregoing restrictions
shall not apply to the extent that such information: (A) is clearly
obtainable in the public domain, (B) becomes obtainable in the public
domain, except by reason of the breach by the Executive of the terms
hereof, (C) was not acquired by the Executive in connection with his
employment or affiliation with the Company, (D) was not acquired by the
Executive from the Company or its representatives, or (E) is required
to be disclosed by rule of law or by order of a court or governmental
body or agency.
(b) The Executive agrees and understands that the remedy at
law for any breach by him of this Paragraph 5 will be inadequate and that the
damages flowing from such breach are not readily susceptible to being measured
in monetary terms. Accordingly, it is acknowledged that, upon adequate proof of
the Executive's violation of any legally enforceable provision of this Paragraph
5, the Company shall be entitled to immediate injunctive relief and may obtain a
temporary order restraining any threatened or further breach. Nothing in this
Paragraph 5 shall be deemed to limit the Company's remedies at law or in equity
for any breach by the Executive of any of the provisions of this Paragraph 5
which may be pursued or availed of by the Company.
(c) The Executive has carefully considered the nature and
extent of the restrictions upon him and the rights and remedies conferred upon
the Company under this Paragraph 5, and hereby acknowledges and agrees that the
same are reasonable in time and territory, are designed to eliminate competition
which otherwise would be unfair to the Company, do not stifle the inherent skill
and experience of the Executive, would not operate as a bar to the Executive's
sole means of support, are fully required to protect the legitimate interests of
the Company and do not confer a benefit
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upon the Company disproportionate to the detriment to the Executive.
6. Tax Adjustment Payments. If all or any portion of the amounts
payable to the Executive under this Employment Agreement (together with all
other payments of cash or property, whether pursuant to this Employment
Agreement or otherwise, including, without limitation, the issuance of common
shares of the Company, or the granting, exercise or termination of options
therefor) constitutes "excess parachute payments" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code") that are
subject to the excise tax imposed by Section 4999 of the Code (or any similar
tax or assessment), the amounts payable hereunder shall be increased to the
extent necessary to place the Executive in the same after-tax position as he
would have been in had no such tax assessment been imposed on any such payment
paid or payable to the Executive under this Employment Agreement or any other
payment that the Executive may receive in connection therewith. The
determination of the amount of any such tax or assessment and the incremental
payment required hereby in connection therewith shall be made by the accounting
firm employed by the Executive within thirty (30) calendar days after such
payment and said incremental payment shall be made within five (5) calendar days
after determination has been made. If, after the date upon which the payment
required by this Paragraph 6 has been made, it is determined (pursuant to final
regulations or published rulings of the Internal Revenue Service, final judgment
of a court of competent jurisdiction, Internal Revenue Service audit assessment,
or otherwise) that the amount of excise or other similar taxes or assessments
payable by the Executive is greater than the amount initially so determined,
then the Company shall pay the Executive an amount equal to the sum of: (i) such
additional excise or other taxes, PLUS (ii) any interest, fines and penalties
resulting from such underpayment, PLUS (iii) an amount necessary to reimburse
the Executive for any income, excise or other tax assessment payable by the
Executive with respect to the amounts specified in (i) and (ii) above, and the
reimbursement provided by this clause (iii), in the manner described above in
this Paragraph 6. Payment thereof shall be made within five (5) calendar days
after the date upon which such subsequent determination is made.
7. Representations and Warranties of the Company.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Ohio, and has all
requisite corporate power and authority to enter into, execute and deliver this
Employment Agreement, fulfill its obligations hereunder and consummate the
transactions contemplated hereby.
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(b) The execution and delivery of, performance of obligations
under, and consummation of the transactions contemplated by, this Employment
Agreement have been duly authorized and approved by all requisite corporate
action by or in respect of the Company, and this Employment Agreement
constitutes the legally valid and binding obligation of the Company, enforceable
by the Executive in accordance with its terms.
(c) No provision of the Company's governing documents or any
agreement to which it is a party or by which it is bound or of any material law
or regulation of the kind usually applicable to and binding upon the Company
prohibits or limits its ability to enter into, execute and deliver this
Employment Agreement, fulfill its obligations hereunder and consummate the
transactions contemplated hereby.
8. Miscellaneous.
(a) The Executive represents and warrants that he is not a
party to any agreement, contract or understanding, whether employment or
otherwise, which would restrict or prohibit him from undertaking or performing
employment in accordance with the terms and conditions of this Employment
Agreement.
(b) The provisions of this Employment Agreement are severable
and if any provision may be determined to be illegal or otherwise unenforceable,
in whole or in part, the remaining provisions and any partially unenforceable
provision, to the extent enforceable in any jurisdiction, nevertheless shall be
binding and enforceable.
(c) The rights and obligations of the Company under this
Employment Agreement shall inure to the benefit of, and shall be binding on, the
Company and its successors and assigns, and the rights and obligations (other
than obligations to perform services) of the Executive under this Employment
Agreement shall inure to the benefit of, and shall be binding upon, the
Executive and his heirs, personal representatives and assigns.
(d) Any controversy or claim arising out of or relating to
this Employment Agreement, or the breach thereof, shall be settled by
arbitration in accordance with the Rules of the American Arbitration Association
then pertaining in the City of Cleveland, Ohio, and judgment upon the award
rendered by the arbitrator or arbitrators may be entered in any court having
jurisdiction thereof. The arbitrator or arbitrators shall be deemed to possess
the powers to issue mandatory orders and restraining orders in connection with
such arbitration; provided, however, that nothing in this Paragraph 8(d) shall
be construed so as to deny the Company the right and power to seek and obtain
any remedy available in a court for any breach or threatened breach by the
Executive of any of his covenants contained in Paragraph 5 hereof.
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(e) Any notice to be given under this Employment Agreement
shall be personally delivered in writing or shall have been deemed duly given
when received after it is posted in the United States mail, postage prepaid,
registered or certified, return receipt requested, and if mailed to the Company,
shall be addressed to its principal place of business, attention: General
Counsel, and if mailed to the Executive, shall be addressed to him at his home
address last known on the records of the Company, or at such other address or
addresses as either the Company or the Executive, as addressee, may hereafter
designate in writing to the other.
(f) The failure of either party to enforce any provision of
this Employment Agreement shall not in any way be construed as a waiver of any
such provision as to any future violation thereof, or prevent that party
thereafter from enforcing each and every other provision of this Employment
Agreement. The rights granted the parties herein are cumulative and the waiver
of any single remedy shall not constitute a waiver of such party's right to
assert all other remedies available to it under the circumstances.
(g) This Employment Agreement supersedes all prior agreements
and understandings between the parties and may not be modified or terminated
orally. No modification, termination or attempted waiver shall be valid unless
in writing and signed by the party against whom the same is sought to be
enforced.
(h) This Employment Agreement shall be governed by and
construed according to the laws of the State of Ohio.
(i) Where necessary or appropriate to the meaning hereof, the
singular and plural shall be deemed to include each other, and the masculine,
feminine and neuter shall be deemed to include each other.
INTERNATIONAL TOTAL SERVICES, INC.
By:_________________________
Title:______________________
And By:_____________________
Title:______________________
____________________________
ROBERT A. WEITZEL
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Exhibit 10.9
EMPLOYMENT AGREEMENT
BETWEEN
INTERNATIONAL TOTAL SERVICES, INC.
AND
JAMES O. SINGER
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of the day of ,
1997 , between International Total Services, Inc., an Ohio corporation
(the "Company"), and James O. Singer (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to be employed by the Company, on the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
1. Employment.
(a) The Company hereby employs the Executive as its President
and Chief Operating Officer, and the Executive hereby accepts such employment,
on the terms and subject to the conditions hereinafter set forth.
(b) During the term of this Employment Agreement and any
renewal hereof (all references herein to the term of this Employment Agreement
shall include references to the period of renewal hereof, if any), the Executive
shall be and have the title of President and Chief Operating Officer and shall
devote such business time and all reasonable efforts to his employment as the
Executive deems appropriate and perform diligently such duties as are
customarily performed by Presidents and Chief Operating Officers of
publicly-held companies of comparable size in the same or related industries,
together with such other duties as may be reasonably requested from time to time
by the Board of Directors of the Company (the "Board"), which duties shall be
consistent with his positions as set forth above and as provided in Paragraph 2.
The Executive's duties will include supervision of the day-to-day operations of
the Company.
2. Term and Positions.
(a) Subject to the provisions for renewal and termination
hereinafter provided, the term of this Employment Agreement shall begin on the
date hereof and shall continue until December 31, 1999. Such term automatically
shall be extended for one (1) additional calendar year, unless: (i) this
Employment Agreement is terminated as provided in Paragraph 4(a)(i) or 4(a)(ii)
or (ii) either the Company or the Executive shall give written notice of
nonextension of this Employment Agreement on or before June 30, 1999.
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(b) The Executive shall be entitled to serve as the President
and Chief Operating Officer of the Company. Without limiting the generality of
any of the foregoing, except as hereafter expressly agreed in writing by the
Executive: (i) the Executive shall be required to report only to the Chief
Executive Officer and the Board as an entire body, and (ii) no other individual
shall be elected or appointed as President or Chief Operating Officer of the
Company. For service as an officer and employee of the Company, the Executive
shall be entitled to the full protection of applicable indemnification
provisions of the articles of incorporation and code of regulations of the
Company, as the same may be amended from time to time.
(c) If:
(i) the Company materially changes the Executive's
duties and responsibilities as set forth in Paragraph 1(b) or 2(b)
without his consent (including, without limitation, by violating any of
the provisions of clause (i) or (ii) of Paragraph 2 (b));
(ii) the Executive's place of employment or the
principal executive offices of the Company are moved to a location more
than fifty (50) miles from the geographical center of Cleveland, Ohio;
(iii) there occurs a material breach by the Company
of any of its obligations under this Employment Agreement (other than
those specified in this Section 2(c)), which breach has not been cured
in all material respects within ten (10) days after the Executive gives
notice thereof to the Company; or
(iv) there occurs a "change in control" (as
hereinafter defined) of the Company,
then the Executive shall have the right to terminate his employment with the
Company, but such termination shall not be considered a voluntary resignation or
termination of such employment or of this Employment Agreement by the Executive
but rather a discharge of the Executive by the Company without "cause" (as
defined in Paragraph 4(a)(ii)).
(d) The Executive shall be considered not to have consented to
any written proposal calling for a material change in his duties and
responsibilities unless he shall give written notice of his consent thereto to
the Board within fifteen (15) days after receipt of such written proposal. If
the Executive shall not have given such consent, the Company shall have the
opportunity to withdraw such proposed material change by written notice to the
Executive given within ten (10) days after the end of said fifteen (15) day
period.
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(e) The term "change in control" means the first to occur
of the following events:
(i) any person or group of commonly controlled
persons, other than Robert A. Weitzel or any such group of which Robert
A. Weitzel is a member, owns or controls, directly or indirectly, fifty
percent (50%) or more of the voting control or value of the equity
interests in the Company following consummation of the initial public
offering of the Company's Common Shares, without par value (the "IPO");
or
(ii) any person or group of commonly controlled
persons who own less than five percent (5%) of the voting control or
value of the equity interests in the Company during the first 30 days
following the consummation of the IPO acquire ownership or control,
directly or indirectly, of more than twenty percent (20%) of the voting
control or value of the equity interests in the Company; or
(iii) the shareholders of the Company approve an
agreement to merge or consolidate with another corporation or other
entity resulting (whether separately or in connection with a series of
transactions) in a change in ownership of twenty percent (20%) or more
of the voting control or value of the equity interests in the Company,
or an agreement to sell or otherwise dispose of all or substantially
all of the Company's assets (including, without limitation, a plan of
liquidation or dissolution), or otherwise approve of a fundamental
alteration in the nature of the Company's business.
3. Compensation.
During the term of this Employment Agreement the Company shall
pay or provide, as the case may be, to the Executive the compensation and other
benefits and rights set forth in this Paragraph 3.
(a) The Company shall pay to the Executive a base salary
payable in accordance with the Company's usual pay practices (and in any event
no less frequently than monthly) at the rate of One Hundred and Fifty Thousand
Dollars ($150,000) per annum, to be increased (but not decreased) from time to
time (based upon the performance of the Company and the Executive) as determined
by the Board in its sole discretion.
(b) The Company shall pay to the Executive bonus compensation
for each calendar year of the Company, not later than sixty (60) days following
the end of such calendar year or the termination of his employment, as the case
may be, prorated on a per diem basis for partial calendar years, and determined
and
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calculated in a manner set forth on Exhibit A attached hereto.
(c) The Company shall provide to the Executive and his family
all the medical, dental, and all other group insurance benefits which the
Company provides generally to employees of the Company during active employment.
In the event of disability or death of the Executive, these benefits shall be
continued by the Company for life for the Executive and his spouse.
(d) The Executive shall have the right to participate in all
retirement and other benefit plans of the Company generally available from time
to time to employees of the Company and for which the Executive qualifies under
their terms (and nothing in this Agreement shall or shall be considered to in
any way affect the Executive's rights and benefits thereunder except as
expressly provided herein).
(e) The Executive shall be entitled to such periods of
vacation and sick leave allowance each year as are determined by the Executive
in his reasonable and good faith discretion, which in any event shall be not
less than as provided generally under the Company's vacation and sick leave
policy for executive officers.
(f) The Executive shall be entitled to participate in any
option or other employee benefit compensation plan that is generally available
to senior executive officers, as distinguished from general management, of the
Company. The Executive's participation in and benefits under any such plan shall
be on the terms and subject to the conditions specified in the governing
document of that plan.
(g) The Company shall reimburse the Executive or provide him
with an expense allowance during the term of this Employment Agreement for
travel, entertainment and other expenses reasonably and necessarily incurred by
the Executive in connection with the Company's business. The Executive shall
furnish such documentation with respect to reimbursement to be paid hereunder as
the Company shall reasonably request.
4. Termination.
(a) The employment of the Executive under this Employment
Agreement, and the term hereof, may be terminated by the Company:
(i) on the death or permanent disability (as defined
below) of the Executive;
(ii) for cause at any time by action of the Board.
For purposes hereof, the term "cause" shall mean:
(A) The Executive's fraud, commission of a
felony or of an act or series of acts which result in
-4-
<PAGE> 6
material injury to the business or reputation of the Company,
commission of an act or series of repeated acts of dishonesty
which are materially inimical to the best interests of the
Company, or the Executive's willful and repeated failure to
perform his duties under this Employment Agreement, which
failure has not been cured within fifteen (15) days after the
Company gives notice thereof to the Executive; or
(B) The Executive's material breach of any
other material provision of this Employment Agreement, which
breach has not been cured in all substantial respects within
ten (10) days after the Company gives notice thereof to the
Executive; or
(iii) other than for cause at any time by action of
the Board, subject to the operation of Paragraph 4(d).
The exercise by the Company of its rights of termination under this
Paragraph 4 shall be the Company's sole remedy in the event of the
occurrence of the event as a result of which such right to terminate
arises. Upon any termination of this Employment Agreement, the
Executive shall be deemed to have resigned from all offices and
directorships held by the Executive in the Company.
(b) For purposes of this Employment Agreement, the Executive's
"permanent disability" shall be deemed to have occurred after one hundred twenty
(120) days in the aggregate during any consecutive twelve (12) month period, or
after ninety (90) consecutive days, during which one hundred twenty (120) or
ninety (90) days, as the case may be, the Executive, by reason of his physical
or mental disability or illness, shall have been unable to discharge his duties
under this Employment Agreement. The date of permanent disability shall be such
one hundred twentieth (120th) or ninetieth (90th) day, as the case may be. In
the event either the Company or the Executive, after receipt of notice of the
Executive's permanent disability from the other, dispute that the Executive's
permanent disability shall have occurred, the Executive shall promptly submit to
a physical examination by the chief of medicine of any major accredited hospital
in the Cleveland, Ohio, area and, unless such physician shall issue his written
statement to the effect that in his opinion, based on his diagnosis, the
Executive is capable of resuming his employment and devoting his full time and
energy to discharging his duties within thirty (30) days after the date of such
statement, such permanent disability shall be deemed to have occurred.
(c) In the event of a termination claimed by the Company to be
for "cause" pursuant to Paragraph 4(a)(ii), the Executive shall have the right
to have the justification for said termination determined by arbitration in
Cleveland, Ohio. In order to exercise
-5-
<PAGE> 7
such right, the Executive shall serve on the Company within thirty (30) days
after termination a written request for arbitration. The Company immediately
shall request the appointment of an arbitrator by the American Arbitration
Association and thereafter the question of "cause" shall be determined under the
rules of the American Arbitration Association, and the decision of the
arbitrator shall be final and binding on both parties. The parties shall use all
reasonable efforts to facilitate and expedite the arbitration and shall act to
cause the arbitration to be completed as promptly as possible. During the
pendency of the arbitration, the Executive shall continue to receive all
compensation and benefits to which he is entitled hereunder, and if at any time
during the pendency of such arbitration the Company fails to pay and provide all
compensation and benefits to the Executive in a timely manner, the Company shall
be deemed to have automatically waived whatever rights it then may have had to
terminate the Executive's employment for cause. Expenses of the arbitration
shall be borne equally by the parties.
(d) In the event of termination for any of the reasons set
forth in Paragraph 2(a) or subparagraph (a)(i) or (a)(ii) of this Paragraph 4,
except as otherwise provided in Paragraph 3(c), the Executive shall be entitled
to no further compensation or other benefits under this Employment Agreement,
except as to that portion of any unpaid salary and other benefits accrued and
earned by him hereunder up to and including the effective date of such
termination. If the Company terminates the Executive's employment other than
pursuant to Paragraph 2(a) or subparagraph 4(a)(i) or 4(a)(ii) or the Executive
terminates his employment pursuant to subparagraph 2(c), all of the compensation
and benefits payable to the Executive pursuant to this Employment Agreement
shall be paid to the Executive for the remainder of the term of this Employment
Agreement (as that term is defined in subparagraph 2(a)).
5. Covenants and Confidential Information.
(a) The Executive acknowledges the Company's reliance and
expectation of the Executive's continued commitment to performance of his duties
and responsibilities during the term of this Employment Agreement. In light of
such reliance and expectation on the part of the Company, during the term of
this Employment Agreement and for a period of two (2) years thereafter (and, as
to clause (ii) of this subparagraph (a), at any time during and after the term
of this Employment Agreement), the Executive shall not, directly or indirectly,
do or suffer either of the following:
(i) Own, manage, control or participate in the
ownership, management, or control of, or be employed or engaged by or
otherwise affiliated or associated as a consultant, independent
contractor or otherwise with, any other corporation, partnership,
proprietorship, limited
-6-
<PAGE> 8
liability company, firm, association or other business entity engaged
in the business of, or otherwise engage in the business of, aviation
services or commercial security; except that the Executive may own not
more than one percent (1%) of any class of publicly traded securities
of any entity, and own interests in the Company subject only to any
restriction imposed by any agreement or instrument other than this
Agreement; or
(ii) Disclose, divulge, discuss, copy or otherwise
use or suffer to be used in any manner, in competition with, or
contrary to the interests of, the Company, any confidential information
relating to the Company's operations, properties or otherwise to its
particular business or other trade secrets of the Company, it being
acknowledged by the Executive that all such information regarding the
business of the Company compiled or obtained by, or furnished to, the
Executive while the Executive shall have been employed by or associated
with the Company is confidential information and the Company's
exclusive property; provided, however, that the foregoing restrictions
shall not apply to the extent that such information: (A) is clearly
obtainable in the public domain, (B) becomes obtainable in the public
domain, except by reason of the breach by the Executive of the terms
hereof, (C) was not acquired by the Executive in connection with his
employment or affiliation with the Company, (D) was not acquired by the
Executive from the Company or its representatives, or (E) is required
to be disclosed by rule of law or by order of a court or governmental
body or agency.
(b) The Executive agrees and understands that the remedy at
law for any breach by him of this Paragraph 5 will be inadequate and that the
damages flowing from such breach are not readily susceptible to being measured
in monetary terms. Accordingly, it is acknowledged that, upon adequate proof of
the Executive's violation of any legally enforceable provision of this Paragraph
5, the Company shall be entitled to immediate injunctive relief and may obtain a
temporary order restraining any threatened or further breach. Nothing in this
Paragraph 5 shall be deemed to limit the Company's remedies at law or in equity
for any breach by the Executive of any of the provisions of this Paragraph 5
which may be pursued or availed of by the Company.
(c) The Executive has carefully considered the nature and
extent of the restrictions upon him and the rights and remedies conferred upon
the Company under this Paragraph 5, and hereby acknowledges and agrees that the
same are reasonable in time and territory, are designed to eliminate competition
which otherwise would be unfair to the Company, do not stifle the inherent skill
and experience of the Executive, would not operate as a bar to the Executive's
sole means of support, are fully required to protect the legitimate interests of
the Company and do not confer a benefit
-7-
<PAGE> 9
upon the Company disproportionate to the detriment to the Executive.
6. Tax Adjustment Payments. If all or any portion of the amounts
payable to the Executive under this Employment Agreement (together with all
other payments of cash or property, whether pursuant to this Employment
Agreement or otherwise, including, without limitation, the issuance of common
shares of the Company, or the granting, exercise or termination of options
therefor) constitutes "excess parachute payments" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code") that are
subject to the excise tax imposed by Section 4999 of the Code (or any similar
tax or assessment), the amounts payable hereunder shall be increased to the
extent necessary to place the Executive in the same after-tax position as he
would have been in had no such tax assessment been imposed on any such payment
paid or payable to the Executive under this Employment Agreement or any other
payment that the Executive may receive in connection therewith. The
determination of the amount of any such tax or assessment and the incremental
payment required hereby in connection therewith shall be made by the accounting
firm employed by the Executive within thirty (30) calendar days after such
payment and said incremental payment shall be made within five (5) calendar days
after determination has been made. If, after the date upon which the payment
required by this Paragraph 6 has been made, it is determined (pursuant to final
regulations or published rulings of the Internal Revenue Service, final judgment
of a court of competent jurisdiction, Internal Revenue Service audit assessment,
or otherwise) that the amount of excise or other similar taxes or assessments
payable by the Executive is greater than the amount initially so determined,
then the Company shall pay the Executive an amount equal to the sum of: (i) such
additional excise or other taxes, PLUS (ii) any interest, fines and penalties
resulting from such underpayment, PLUS (iii) an amount necessary to reimburse
the Executive for any income, excise or other tax assessment payable by the
Executive with respect to the amounts specified in (i) and (ii) above, and the
reimbursement provided by this clause (iii), in the manner described above in
this Paragraph 6. Payment thereof shall be made within five (5) calendar days
after the date upon which such subsequent determination is made.
7. Representations and Warranties of the Company.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Ohio, and has all
requisite corporate power and authority to enter into, execute and deliver this
Employment Agreement, fulfill its obligations hereunder and consummate the
transactions contemplated hereby.
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<PAGE> 10
(b) The execution and delivery of, performance of obligations
under, and consummation of the transactions contemplated by, this Employment
Agreement have been duly authorized and approved by all requisite corporate
action by or in respect of the Company, and this Employment Agreement
constitutes the legally valid and binding obligation of the Company, enforceable
by the Executive in accordance with its terms.
(c) No provision of the Company's governing documents or any
agreement to which it is a party or by which it is bound or of any material law
or regulation of the kind usually applicable to and binding upon the Company
prohibits or limits its ability to enter into, execute and deliver this
Employment Agreement, fulfill its obligations hereunder and consummate the
transactions contemplated hereby.
8. Miscellaneous.
(a) The Executive represents and warrants that he is not a
party to any agreement, contract or understanding, whether employment or
otherwise, which would restrict or prohibit him from undertaking or performing
employment in accordance with the terms and conditions of this Employment
Agreement.
(b) The provisions of this Employment Agreement are severable
and if any provision may be determined to be illegal or otherwise unenforceable,
in whole or in part, the remaining provisions and any partially unenforceable
provision, to the extent enforceable in any jurisdiction, nevertheless shall be
binding and enforceable.
(c) The rights and obligations of the Company under this
Employment Agreement shall inure to the benefit of, and shall be binding on, the
Company and its successors and assigns, and the rights and obligations (other
than obligations to perform services) of the Executive under this Employment
Agreement shall inure to the benefit of, and shall be binding upon, the
Executive and his heirs, personal representatives and assigns.
(d) Any controversy or claim arising out of or relating to
this Employment Agreement, or the breach thereof, shall be settled by
arbitration in accordance with the Rules of the American Arbitration Association
then pertaining in the City of Cleveland, Ohio, and judgment upon the award
rendered by the arbitrator or arbitrators may be entered in any court having
jurisdiction thereof. The arbitrator or arbitrators shall be deemed to possess
the powers to issue mandatory orders and restraining orders in connection with
such arbitration; provided, however, that nothing in this Paragraph 8(d) shall
be construed so as to deny the Company the right and power to seek and obtain
any remedy available in a court for any breach or threatened breach by the
Executive of any of his covenants contained in Paragraph 5 hereof.
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<PAGE> 11
(e) Any notice to be given under this Employment Agreement
shall be personally delivered in writing or shall have been deemed duly given
when received after it is posted in the United States mail, postage prepaid,
registered or certified, return receipt requested, and if mailed to the Company,
shall be addressed to its principal place of business, attention: General
Counsel, and if mailed to the Executive, shall be addressed to him at his home
address last known on the records of the Company, or at such other address or
addresses as either the Company or the Executive, as addressee, may hereafter
designate in writing to the other.
(f) The failure of either party to enforce any provision of
this Employment Agreement shall not in any way be construed as a waiver of any
such provision as to any future violation thereof, or prevent that party
thereafter from enforcing each and every other provision of this Employment
Agreement. The rights granted the parties herein are cumulative and the waiver
of any single remedy shall not constitute a waiver of such party's right to
assert all other remedies available to it under the circumstances.
(g) This Employment Agreement supersedes all prior agreements
and understandings between the parties and may not be modified or terminated
orally. No modification, termination or attempted waiver shall be valid unless
in writing and signed by the party against whom the same is sought to be
enforced.
(h) This Employment Agreement shall be governed by and
construed according to the laws of the State of Ohio.
(i) Where necessary or appropriate to the meaning hereof, the
singular and plural shall be deemed to include each other, and the masculine,
feminine and neuter shall be deemed to include each other.
INTERNATIONAL TOTAL SERVICES, INC.
By:_________________________
Title:______________________
And By:_____________________
Title:______________________
____________________________
JAMES O. SINGER
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<PAGE> 12
<TABLE>
<CAPTION>
EXHIBIT A [TO EX 10.9]
4/97. ITS
- ---- ---
SALES GROWTH & OPERATING INCOME BONUS PROGRAM
---------------------------------------------
JIM SINGER
----------
TARGET
3/31/97 YEAR-END %
ANNUALIZED INCREASE 3/31/98 GROWTH
-----------------------------------------------------------------------------------
$163,931 $24,590 $188,520 15%
===================================================================================
INCL. INTEX $33,264 AND MINIMUM WAGE $8,000 STARTING 9/1/97.
- -------------------------------------------------------------
WILL NOT INCLUDE ANY ACQUISITIONS NOT BROUGHT ON BY JIM.
- -------------------------------------------------------------
TOTAL BONUS
REVENUE @ (.0020334) *
CUMULATIVE NEEDED FOR INCREMENTAL
QUARTER PERIODS INCREMENT GROWTH BONUS GROWTH
- ------- ------- ------------ ---------------------------------- -----------------
<S> <S> <S> <C> <C> <C>
1ST 6 $ 1,892 $ 42,874 $ 3,846
2ND 21 $ 4,729 $ 6,620 $ 88,586 $ 9,615
3RD 45 $ 7,566 $14,186 $137,134 $ 15,385
4TH 78 $10,403 $24,590 $188,520 $ 21,154
----------- -----------------
TOTALS $24,590
===========
TOTAL BONUS AVAILABLE - SALES GROWTH ABOVE $ 50,000
TOTAL BONUS AVAILABLE - OPERATING INCOME $ 50,000
-----------------
($12,500 PAID QUARTERLY FOR MAKING THE 3/31/98 BUDGETED OPERATING INCOME $).
TOTAL BONUSES AVAILABLE $100,000
BASE SALARY $150,000
-----------------
TOTAL $250,000
=================
</TABLE>
<PAGE> 1
Exhibit 10.10
EMPLOYMENT AGREEMENT
BETWEEN
INTERNATIONAL TOTAL SERVICES, INC.
AND
ROBERT A. SWARTZ
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of the day
of , 1997, between International Total Services, Inc., an Ohio
corporation (the "Company"), and Robert A. Swartz (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to be employed by the Company, on the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
1. Employment.
(a) The Company hereby employs the Executive as its Chief
Financial Officer, and the Executive hereby accepts such employment, on the
terms and subject to the conditions hereinafter set forth.
(b) During the term of this Employment Agreement and any
renewal hereof (all references herein to the term of this Employment Agreement
shall include references to the period of renewal hereof, if any), the Executive
shall be and have the titles of Vice President and Chief Financial Officer and
shall devote such business time and all reasonable efforts to his employment as
the Executive deems appropriate and perform diligently such duties as are
customarily performed by Chief Financial Officers of publicly-held companies of
comparable size in the same or related industries, together with such other
duties as may be reasonably requested from time to time by the Board of
Directors of the Company (the "Board"), which duties shall be consistent with
his positions as set forth above and as provided in Paragraph 2.
2. Term and Positions.
(a) Subject to the provisions for renewal and termination
hereinafter provided, the term of this Employment Agreement shall begin on the
date hereof and shall continue until December 31, 1998. Such term automatically
shall be extended for one (1) additional calendar year, unless: (i) this
Employment Agreement is terminated as provided in Paragraph 4(a)(i) or 4(a)(ii)
or (ii) either the Company or the Executive shall give at least 180 days written
notice of non-extension of this Employment Agreement to the other on or before
June 30, 1998.
(b) The Executive shall be entitled to serve as the Chief
Financial Officer of the Company. Without limiting the generality
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<PAGE> 3
of any of the foregoing, except as hereafter expressly agreed in writing by the
Executive: (i) the Executive shall be required to report only to the Chief
Executive Officer and the Board as an entire body, and (ii) no other individual
shall be elected or appointed as Chief Financial Officer of the Company. For
service as an officer and employee of the Company, the Executive shall be
entitled to the full protection of applicable indemnification provisions of the
articles of incorporation and code of regulations of the Company, as the same
may be amended from time to time.
(c) If:
(i) the Company materially changes the Executive's
duties and responsibilities as set forth in Paragraph 1(b) or 2(b)
without his consent (including, without limitation, by violating any of
the provisions of clause (i) or (ii) of Paragraph 2 (b));
(ii) the Executive's place of employment or the
principal executive offices of the Company are moved to a location more
than fifty (50) miles from the geographical center of Cleveland, Ohio;
(iii) there occurs a material breach by the Company
of any of its obligations under this Employment Agreement (other than
those specified in this Section 2(c)), which breach has not been cured
in all material respects within ten (10) days after the Executive gives
notice thereof to the Company; or
(iv) there occurs a "change in control" (as
hereinafter defined) of the Company,
then the Executive shall have the right to terminate his employment with the
Company, but such termination shall not be considered a voluntary resignation or
termination of such employment or of this Employment Agreement by the Executive
but rather a discharge of the Executive by the Company without "cause" (as
defined in Paragraph 4(a)(ii)).
(d) The Executive shall be considered not to have consented to
any written proposal calling for a material change in his duties and
responsibilities unless he shall give written notice of his consent thereto to
the Board within fifteen (15) days after receipt of such written proposal. If
the Executive shall not have given such consent, the Company shall have the
opportunity to withdraw such proposed material change by written notice to the
Executive given within ten (10) days after the end of said fifteen (15) day
period.
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<PAGE> 4
(e) The term "change in control" means the first to occur
of the following events:
(i) any person or group of commonly controlled
persons, other than Robert A. Weitzel or any such group of which Robert
A. Weitzel is a member, owns or controls, directly or indirectly, fifty
percent (50%) or more of the voting control or value of the equity
interests in the Company following consummation of the initial public
offering of the Company's Common Shares, without par value (the "IPO");
or
(ii) any person or group of commonly controlled
persons who own less than five percent (5%) of the voting control or
value of the equity interests in the Company during the first 30 days
following the consummation of the IPO acquire ownership or control,
directly or indirectly, of more than twenty percent (20%) of the voting
control or value of the equity interests in the Company; or
(iii) the shareholders of the Company approve an
agreement to merge or consolidate with another corporation or other
entity resulting (whether separately or in connection with a series of
transactions) in a change in ownership of twenty percent (20%) or more
of the voting control or value of the equity interests in the Company,
or an agreement to sell or otherwise dispose of all or substantially
all of the Company's assets (including, without limitation, a plan of
liquidation or dissolution), or otherwise approve of a fundamental
alteration in the nature of the Company's business.
3. Compensation.
During the term of this Employment Agreement the Company shall
pay or provide, as the case may be, to the Executive the compensation and other
benefits and rights set forth in this Paragraph 3.
(a) The Company shall pay to the Executive a base salary
payable in accordance with the Company's usual pay practices (and in any event
no less frequently than monthly) at the rate of Seventy Thousand Five Hundred
Dollars ($71,500) per annum, to be increased (but not decreased) from time to
time (based upon the performance of the Company and the Executive) as determined
by the Board in its sole discretion.
(b) The Company shall pay to the Executive bonus compensation
for each calendar month of the Company, not later than sixty (60) days following
the end of such calendar month or the termination of his employment, as the case
may be, prorated on a per diem basis for partial calendar months, of 0.75% of
the
-3-
<PAGE> 5
Company's operating income for that month if the Company achieves its operating
budget goals for that month, to be increased or decreased from time to time as
determined by the Board in its sole discretion.
(c) The Company shall provide to the Executive and his family
all the medical, dental, and all other group insurance benefits which the
Company provides generally to employees of the Company during active employment.
In the event of disability or death of the Executive, these benefits shall be
continued by the Company for life for the Executive and his spouse.
(d) The Executive shall have the right to participate in all
retirement and other benefit plans of the Company generally available from time
to time to employees of the Company and for which the Executive qualifies under
their terms (and nothing in this Agreement shall or shall be considered to in
any way affect the Executive's rights and benefits thereunder except as
expressly provided herein).
(e) The Executive shall be entitled to such periods of
vacation and sick leave allowance each year as are determined by the Executive
in his reasonable and good faith discretion, which in any event shall be not
less than as provided generally under the Company's vacation and sick leave
policy for executive officers.
(f) The Executive shall be entitled to participate in any
option or other employee benefit compensation plan that is generally available
to senior executive officers, as distinguished from general management, of the
Company. The Executive's participation in and benefits under any such plan shall
be on the terms and subject to the conditions specified in the governing
document of that plan.
(g) The Company shall reimburse the Executive or provide him
with an expense allowance during the term of this Employment Agreement for
travel, entertainment and other expenses reasonably and necessarily incurred by
the Executive in connection with the Company's business. The Executive shall
furnish such documentation with respect to reimbursement to be paid hereunder as
the Company shall reasonably request.
4. Termination.
(a) The employment of the Executive under this Employment
Agreement, and the term hereof, may be terminated by the Company:
(i) on the death or permanent disability (as defined
below) of the Executive;
(ii) for cause at any time by action of the Board.
For purposes hereof, the term "cause" shall mean:
-4-
<PAGE> 6
(A) The Executive's fraud, commission of a
felony or of an act or series of acts which result in material
injury to the business or reputation of the Company,
commission of an act or series of repeated acts of dishonesty
which are materially inimical to the best interests of the
Company, or the Executive's willful and repeated failure to
perform his duties under this Employment Agreement, which
failure has not been cured within fifteen (15) days after the
Company gives notice thereof to the Executive; or
(B) The Executive's material breach of any
other material provision of this Employment Agreement, which
breach has not been cured in all substantial respects within
ten (10) days after the Company gives notice thereof to the
Executive; or
(iii) other than for cause at any time by action of
the Board, subject to the operation of Paragraph 4(d).
The exercise by the Company of its rights of termination under this
Paragraph 4 shall be the Company's sole remedy in the event of the
occurrence of the event as a result of which such right to terminate
arises. Upon any termination of this Employment Agreement, the
Executive shall be deemed to have resigned from all offices and
directorships held by the Executive in the Company.
(b) For purposes of this Employment Agreement, the Executive's
"permanent disability" shall be deemed to have occurred after one hundred twenty
(120) days in the aggregate during any consecutive twelve (12) month period, or
after ninety (90) consecutive days, during which one hundred twenty (120) or
ninety (90) days, as the case may be, the Executive, by reason of his physical
or mental disability or illness, shall have been unable to discharge his duties
under this Employment Agreement. The date of permanent disability shall be such
one hundred twentieth (120th) or ninetieth (90th) day, as the case may be. In
the event either the Company or the Executive, after receipt of notice of the
Executive's permanent disability from the other, dispute that the Executive's
permanent disability shall have occurred, the Executive shall promptly submit to
a physical examination by the chief of medicine of any major accredited hospital
in the Cleveland, Ohio, area and, unless such physician shall issue his written
statement to the effect that in his opinion, based on his diagnosis, the
Executive is capable of resuming his employment and devoting his full time and
energy to discharging his duties within thirty (30) days after the date of such
statement, such permanent disability shall be deemed to have occurred.
(c) In the event of a termination claimed by the Company
to be for "cause" pursuant to Paragraph 4(a)(ii), the Executive
-5-
<PAGE> 7
shall have the right to have the justification for said termination determined
by arbitration in Cleveland, Ohio. In order to exercise such right, the
Executive shall serve on the Company within thirty (30) days after termination a
written request for arbitration. The Company immediately shall request the
appointment of an arbitrator by the American Arbitration Association and
thereafter the question of "cause" shall be determined under the rules of the
American Arbitration Association, and the decision of the arbitrator shall be
final and binding on both parties. The parties shall use all reasonable efforts
to facilitate and expedite the arbitration and shall act to cause the
arbitration to be completed as promptly as possible. During the pendency of the
arbitration, the Executive shall continue to receive all compensation and
benefits to which he is entitled hereunder, and if at any time during the
pendency of such arbitration the Company fails to pay and provide all
compensation and benefits to the Executive in a timely manner, the Company shall
be deemed to have automatically waived whatever rights it then may have had to
terminate the Executive's employment for cause. Expenses of the arbitration
shall be borne equally by the parties.
(d) In the event of termination for any of the reasons set
forth in Paragraph 2(a) or subparagraph (a)(i) or (a)(ii) of this Paragraph 4,
except as otherwise provided in Paragraph 3(c), the Executive shall be entitled
to no further compensation or other benefits under this Employment Agreement,
except as to that portion of any unpaid salary and other benefits accrued and
earned by him hereunder up to and including the effective date of such
termination. If the Company terminates the Executive's employment other than
pursuant to Paragraph 2(a) or subparagraph 4(a)(i) or 4(a)(ii) or the Executive
terminates his employment pursuant to subparagraph 2(c), all of the compensation
and benefits payable to the Executive pursuant to this Employment Agreement
shall be paid to the Executive for the remainder of the term of this Employment
Agreement (as that term is defined in subparagraph 2(a)).
5. Covenants and Confidential Information.
(a) The Executive acknowledges the Company's reliance and
expectation of the Executive's continued commitment to performance of his duties
and responsibilities during the term of this Employment Agreement. In light of
such reliance and expectation on the part of the Company, during the term of
this Employment Agreement and for a period of two (2) years thereafter (and, as
to clause (ii) of this subparagraph (a), at any time during and after the term
of this Employment Agreement), the Executive shall not, directly or indirectly,
do or suffer either of the following:
(i) Own, manage, control or participate in the
ownership, management, or control of, or be employed or engaged by or
otherwise affiliated or associated as a consultant, independent
contractor or otherwise with, any
-6-
<PAGE> 8
other corporation, partnership, proprietorship, limited liability
company, firm, association or other business entity engaged in the
business of, or otherwise engage in the business of, aviation services
or commercial security; except that the Executive may own not more than
one percent (1%) of any class of publicly traded securities of any
entity, and own interests in the Company subject only to any
restriction imposed by any agreement or instrument other than this
Agreement; or
(ii) Disclose, divulge, discuss, copy or otherwise
use or suffer to be used in any manner, in competition with, or
contrary to the interests of, the Company, any confidential information
relating to the Company's operations, properties or otherwise to its
particular business or other trade secrets of the Company, it being
acknowledged by the Executive that all such information regarding the
business of the Company compiled or obtained by, or furnished to, the
Executive while the Executive shall have been employed by or associated
with the Company is confidential information and the Company's
exclusive property; provided, however, that the foregoing restrictions
shall not apply to the extent that such information: (A) is clearly
obtainable in the public domain, (B) becomes obtainable in the public
domain, except by reason of the breach by the Executive of the terms
hereof, (C) was not acquired by the Executive in connection with his
employment or affiliation with the Company, (D) was not acquired by the
Executive from the Company or its representatives, or (E) is required
to be disclosed by rule of law or by order of a court or governmental
body or agency.
(b) The Executive agrees and understands that the remedy at
law for any breach by him of this Paragraph 5 will be inadequate and that the
damages flowing from such breach are not readily susceptible to being measured
in monetary terms. Accordingly, it is acknowledged that, upon adequate proof of
the Executive's violation of any legally enforceable provision of this Paragraph
5, the Company shall be entitled to immediate injunctive relief and may obtain a
temporary order restraining any threatened or further breach. Nothing in this
Paragraph 5 shall be deemed to limit the Company's remedies at law or in equity
for any breach by the Executive of any of the provisions of this Paragraph 5
which may be pursued or availed of by the Company.
(c) The Executive has carefully considered the nature and
extent of the restrictions upon him and the rights and remedies conferred upon
the Company under this Paragraph 5, and hereby acknowledges and agrees that the
same are reasonable in time and territory, are designed to eliminate competition
which otherwise would be unfair to the Company, do not stifle the inherent skill
and experience of the Executive, would not operate as a bar to the Executive's
sole means of support, are fully required to protect
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<PAGE> 9
the legitimate interests of the Company and do not confer a benefit upon the
Company disproportionate to the detriment to the Executive.
6. Tax Adjustment Payments. If all or any portion of the amounts
payable to the Executive under this Employment Agreement (together with all
other payments of cash or property, whether pursuant to this Employment
Agreement or otherwise, including, without limitation, the issuance of common
shares of the Company, or the granting, exercise or termination of options
therefor) constitutes "excess parachute payments" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code") that are
subject to the excise tax imposed by Section 4999 of the Code (or any similar
tax or assessment), the amounts payable hereunder shall be increased to the
extent necessary to place the Executive in the same after-tax position as he
would have been in had no such tax assessment been imposed on any such payment
paid or payable to the Executive under this Employment Agreement or any other
payment that the Executive may receive in connection therewith. The
determination of the amount of any such tax or assessment and the incremental
payment required hereby in connection therewith shall be made by the accounting
firm employed by the Executive within thirty (30) calendar days after such
payment and said incremental payment shall be made within five (5) calendar days
after determination has been made. If, after the date upon which the payment
required by this Paragraph 6 has been made, it is determined (pursuant to final
regulations or published rulings of the Internal Revenue Service, final judgment
of a court of competent jurisdiction, Internal Revenue Service audit assessment,
or otherwise) that the amount of excise or other similar taxes or assessments
payable by the Executive is greater than the amount initially so determined,
then the Company shall pay the Executive an amount equal to the sum of: (i) such
additional excise or other taxes, PLUS (ii) any interest, fines and penalties
resulting from such underpayment, PLUS (iii) an amount necessary to reimburse
the Executive for any income, excise or other tax assessment payable by the
Executive with respect to the amounts specified in (i) and (ii) above, and the
reimbursement provided by this clause (iii), in the manner described above in
this Paragraph 6. Payment thereof shall be made within five (5) calendar days
after the date upon which such subsequent determination is made.
7. Representations and Warranties of the Company.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Ohio, and has all
requisite corporate power and authority to enter into, execute and deliver this
Employment Agreement, fulfill its obligations hereunder and consummate the
transactions contemplated hereby.
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<PAGE> 10
(b) The execution and delivery of, performance of obligations
under, and consummation of the transactions contemplated by, this Employment
Agreement have been duly authorized and approved by all requisite corporate
action by or in respect of the Company, and this Employment Agreement
constitutes the legally valid and binding obligation of the Company, enforceable
by the Executive in accordance with its terms.
(c) No provision of the Company's governing documents or any
agreement to which it is a party or by which it is bound or of any material law
or regulation of the kind usually applicable to and binding upon the Company
prohibits or limits its ability to enter into, execute and deliver this
Employment Agreement, fulfill its obligations hereunder and consummate the
transactions contemplated hereby.
8. Miscellaneous.
(a) The Executive represents and warrants that he is not a
party to any agreement, contract or understanding, whether employment or
otherwise, which would restrict or prohibit him from undertaking or performing
employment in accordance with the terms and conditions of this Employment
Agreement.
(b) The provisions of this Employment Agreement are severable
and if any provision may be determined to be illegal or otherwise unenforceable,
in whole or in part, the remaining provisions and any partially unenforceable
provision, to the extent enforceable in any jurisdiction, nevertheless shall be
binding and enforceable.
(c) The rights and obligations of the Company under this
Employment Agreement shall inure to the benefit of, and shall be binding on, the
Company and its successors and assigns, and the rights and obligations (other
than obligations to perform services) of the Executive under this Employment
Agreement shall inure to the benefit of, and shall be binding upon, the
Executive and his heirs, personal representatives and assigns.
(d) Any controversy or claim arising out of or relating to
this Employment Agreement, or the breach thereof, shall be settled by
arbitration in accordance with the Rules of the American Arbitration Association
then pertaining in the City of Cleveland, Ohio, and judgment upon the award
rendered by the arbitrator or arbitrators may be entered in any court having
jurisdiction thereof. The arbitrator or arbitrators shall be deemed to possess
the powers to issue mandatory orders and restraining orders in connection with
such arbitration; provided, however, that nothing in this Paragraph 8(d) shall
be construed so as to deny the Company the right and power to seek and obtain
any remedy available in a court for any breach or threatened breach by the
Executive of any of his covenants contained in Paragraph 5 hereof.
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<PAGE> 11
(e) Any notice to be given under this Employment Agreement
shall be personally delivered in writing or shall have been deemed duly given
when received after it is posted in the United States mail, postage prepaid,
registered or certified, return receipt requested, and if mailed to the Company,
shall be addressed to its principal place of business, attention: General
Counsel, and if mailed to the Executive, shall be addressed to him at his home
address last known on the records of the Company, or at such other address or
addresses as either the Company or the Executive, as addressee, may hereafter
designate in writing to the other.
(f) The failure of either party to enforce any provision of
this Employment Agreement shall not in any way be construed as a waiver of any
such provision as to any future violation thereof, or prevent that party
thereafter from enforcing each and every other provision of this Employment
Agreement. The rights granted the parties herein are cumulative and the waiver
of any single remedy shall not constitute a waiver of such party's right to
assert all other remedies available to it under the circumstances.
(g) This Employment Agreement supersedes all prior agreements
and understandings between the parties and may not be modified or terminated
orally. No modification, termination or attempted waiver shall be valid unless
in writing and signed by the party against whom the same is sought to be
enforced.
(h) This Employment Agreement shall be governed by and
construed according to the laws of the State of Ohio.
(i) Where necessary or appropriate to the meaning hereof, the
singular and plural shall be deemed to include each other, and the masculine,
feminine and neuter shall be deemed to include each other.
INTERNATIONAL TOTAL SERVICES, INC.
By:_________________________
Title:______________________
And By:_____________________
Title:______________________
____________________________
ROBERT A. SWARTZ
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<PAGE> 1
Exhibit 10.11
EMPLOYMENT AGREEMENT
BETWEEN
INTERNATIONAL TOTAL SERVICES, INC.
AND
SCOTT E. BREWER
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of the day of , 1997,
between International Total Services, Inc., an Ohio corporation (the "Company"),
and Scott E. Brewer (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to be employed by the Company, on the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
1. Employment.
(a) The Company hereby employs the Executive as its General
Counsel, and the Executive hereby accepts such employment, on the terms and
subject to the conditions hereinafter set forth.
(b) During the term of this Employment Agreement and any
renewal hereof (all references herein to the term of this Employment Agreement
shall include references to the period of renewal hereof, if any), the Executive
shall be and have the titles of Vice President and General Counsel and shall
devote such business time and all reasonable efforts to his employment as the
Executive deems appropriate and perform diligently such duties as are
customarily performed by Vice President and General Counsel of publicly-held
companies of comparable size in the same or related industries, together with
such other duties as may be reasonably requested from time to time by the Board
of Directors of the Company (the "Board"), which duties shall be consistent with
his positions as set forth above and as provided in Paragraph 2.
2. Term and Positions.
(a) Subject to the provisions for renewal and termination
hereinafter provided, the term of this Employment Agreement shall begin on the
date hereof and shall continue until December 31, 1998. Such term automatically
shall be extended for one (1) additional calendar year, unless: (i) this
Employment Agreement is terminated as provided in Paragraph 4(a)(i) or 4(a)(ii)
or (ii) either the Company or the Executive shall give at least 180 days written
notice of non-extension of this Employment Agreement to the other on or before
June 30, 1998.
(b) The Executive shall be entitled to serve as the General
Counsel of the Company. Without limiting the generality of any of the foregoing,
except as hereafter expressly agreed in writing by the Executive: (i) the
Executive shall be required to
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<PAGE> 3
report only to the Chief Executive Officer and the Board as an entire body, and
(ii) no other individual shall be elected or appointed as General Counsel of the
Company. For service as an officer and employee of the Company, the Executive
shall be entitled to the full protection of applicable indemnification
provisions of the articles of incorporation and code of regulations of the
Company, as the same may be amended from time to time.
(c) If:
(i) the Company materially changes the Executive's
duties and responsibilities as set forth in Paragraph 1(b) or 2(b)
without his consent (including, without limitation, by violating any of
the provisions of clause (i) or (ii) of Paragraph 2 (b));
(ii) the Executive's place of employment or the
principal executive offices of the Company are moved to a location more
than fifty (50) miles from the geographical center of Cleveland, Ohio;
(iii) there occurs a material breach by the Company
of any of its obligations under this Employment Agreement (other than
those specified in this Section 2(c)), which breach has not been cured
in all material respects within ten (10) days after the Executive gives
notice thereof to the Company; or
(iv) there occurs a "change in control" (as
hereinafter defined) of the Company,
then the Executive shall have the right to terminate his employment with the
Company, but such termination shall not be considered a voluntary resignation or
termination of such employment or of this Employment Agreement by the Executive
but rather a discharge of the Executive by the Company without "cause" (as
defined in Paragraph 4(a)(ii)).
(d) The Executive shall be considered not to have consented to
any written proposal calling for a material change in his duties and
responsibilities unless he shall give written notice of his consent thereto to
the Board within fifteen (15) days after receipt of such written proposal. If
the Executive shall not have given such consent, the Company shall have the
opportunity to withdraw such proposed material change by written notice to the
Executive given within ten (10) days after the end of said fifteen (15) day
period.
(e) The term "change in control" means the first to occur
of the following events:
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<PAGE> 4
(i) any person or group of commonly controlled
persons, other than Robert A. Weitzel or any such group of which Robert
A. Weitzel is a member, owns or controls, directly or indirectly, fifty
percent (50%) or more of the voting control or value of the equity
interests in the Company following consummation of the initial public
offering of the Company's Common Shares, without par value (the "IPO");
or
(ii) any person or group of commonly controlled
persons who own less than five percent (5%) of the voting control or
value of the equity interests in the Company during the first 30 days
following the consummation of the IPO acquire ownership or control,
directly or indirectly, of more than twenty percent (20%) of the voting
control or value of the equity interests in the Company; or
(iii) the shareholders of the Company approve an
agreement to merge or consolidate with another corporation or other
entity resulting (whether separately or in connection with a series of
transactions) in a change in ownership of twenty percent (20%) or more
of the voting control or value of the equity interests in the Company,
or an agreement to sell or otherwise dispose of all or substantially
all of the Company's assets (including, without limitation, a plan of
liquidation or dissolution), or otherwise approve of a fundamental
alteration in the nature of the Company's business.
3. Compensation.
During the term of this Employment Agreement the Company shall
pay or provide, as the case may be, to the Executive the compensation and other
benefits and rights set forth in this Paragraph 3.
(a) The Company shall pay to the Executive a base salary
payable in accordance with the Company's usual pay practices (and in any event
no less frequently than monthly) at the rate of Fifty Thousand Dollars ($50,000)
per annum, to be increased (but not decreased) from time to time (based upon the
performance of the Company and the Executive) as determined by the Board in its
sole discretion.
(b) The Company shall pay to the Executive bonus compensation
for each calendar month of the Company, not later than sixty (60) days following
the end of such calendar month or the termination of his employment, as the case
may be, prorated on a per diem basis for partial calendar months, of 0.75% of
the Company's operating income for that month if the Company achieves its
operating budget goals for that month, to be increased or decreased from time to
time (based upon the performance of the
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<PAGE> 5
Company and the Executive) as determined by the Board in its sole discretion.
(c) The Company shall provide to the Executive and his family
all the medical, dental, and all other group insurance benefits which the
Company provides generally to employees of the Company during active employment.
In the event of disability or death of the Executive, these benefits shall be
continued by the Company for life for the Executive and his spouse.
(d) The Executive shall have the right to participate in all
retirement and other benefit plans of the Company generally available from time
to time to employees of the Company and for which the Executive qualifies under
their terms (and nothing in this Agreement shall or shall be considered to in
any way affect the Executive's rights and benefits thereunder except as
expressly provided herein).
(e) The Executive shall be entitled to such periods of
vacation and sick leave allowance each year as are determined by the Executive
in his reasonable and good faith discretion, which in any event shall be not
less than as provided generally under the Company's vacation and sick leave
policy for executive officers.
(f) The Executive shall be entitled to participate in any
option or other employee benefit compensation plan that is generally available
to senior executive officers, as distinguished from general management, of the
Company. The Executive's participation in and benefits under any such plan shall
be on the terms and subject to the conditions specified in the governing
document of that plan.
(g) The Company shall reimburse the Executive or provide him
with an expense allowance during the term of this Employment Agreement for
travel, entertainment and other expenses reasonably and necessarily incurred by
the Executive in connection with the Company's business. The Executive shall
furnish such documentation with respect to reimbursement to be paid hereunder as
the Company shall reasonably request.
4. Termination.
(a) The employment of the Executive under this Employment
Agreement, and the term hereof, may be terminated by the Company:
(i) on the death or permanent disability (as defined
below) of the Executive;
(ii) for cause at any time by action of the Board.
For purposes hereof, the term "cause" shall mean:
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<PAGE> 6
(A) The Executive's fraud, commission of a
felony or of an act or series of acts which result in material
injury to the business or reputation of the Company,
commission of an act or series of repeated acts of dishonesty
which are materially inimical to the best interests of the
Company, or the Executive's willful and repeated failure to
perform his duties under this Employment Agreement, which
failure has not been cured within fifteen (15) days after the
Company gives notice thereof to the Executive; or
(B) The Executive's material breach of any
other material provision of this Employment Agreement, which
breach has not been cured in all substantial respects within
ten (10) days after the Company gives notice thereof to the
Executive; or
(iii) other than for cause at any time by action of
the Board, subject to the operation of Paragraph 4(d).
The exercise by the Company of its rights of termination under this
Paragraph 4 shall be the Company's sole remedy in the event of the
occurrence of the event as a result of which such right to terminate
arises. Upon any termination of this Employment Agreement, the
Executive shall be deemed to have resigned from all offices and
directorships held by the Executive in the Company.
(b) For purposes of this Employment Agreement, the Executive's
"permanent disability" shall be deemed to have occurred after one hundred twenty
(120) days in the aggregate during any consecutive twelve (12) month period, or
after ninety (90) consecutive days, during which one hundred twenty (120) or
ninety (90) days, as the case may be, the Executive, by reason of his physical
or mental disability or illness, shall have been unable to discharge his duties
under this Employment Agreement. The date of permanent disability shall be such
one hundred twentieth (120th) or ninetieth (90th) day, as the case may be. In
the event either the Company or the Executive, after receipt of notice of the
Executive's permanent disability from the other, dispute that the Executive's
permanent disability shall have occurred, the Executive shall promptly submit to
a physical examination by the chief of medicine of any major accredited hospital
in the Cleveland, Ohio, area and, unless such physician shall issue his written
statement to the effect that in his opinion, based on his diagnosis, the
Executive is capable of resuming his employment and devoting his full time and
energy to discharging his duties within thirty (30) days after the date of such
statement, such permanent disability shall be deemed to have occurred.
(c) In the event of a termination claimed by the Company
to be for "cause" pursuant to Paragraph 4(a)(ii), the Executive
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<PAGE> 7
shall have the right to have the justification for said termination determined
by arbitration in Cleveland, Ohio. In order to exercise such right, the
Executive shall serve on the Company within thirty (30) days after termination a
written request for arbitration. The Company immediately shall request the
appointment of an arbitrator by the American Arbitration Association and
thereafter the question of "cause" shall be determined under the rules of the
American Arbitration Association, and the decision of the arbitrator shall be
final and binding on both parties. The parties shall use all reasonable efforts
to facilitate and expedite the arbitration and shall act to cause the
arbitration to be completed as promptly as possible. During the pendency of the
arbitration, the Executive shall continue to receive all compensation and
benefits to which he is entitled hereunder, and if at any time during the
pendency of such arbitration the Company fails to pay and provide all
compensation and benefits to the Executive in a timely manner, the Company shall
be deemed to have automatically waived whatever rights it then may have had to
terminate the Executive's employment for cause. Expenses of the arbitration
shall be borne equally by the parties.
(d) In the event of termination for any of the reasons set
forth in Paragraph 2(a) or subparagraph (a)(i) or (a)(ii) of this Paragraph 4,
except as otherwise provided in Paragraph 3(c), the Executive shall be entitled
to no further compensation or other benefits under this Employment Agreement,
except as to that portion of any unpaid salary and other benefits accrued and
earned by him hereunder up to and including the effective date of such
termination. If the Company terminates the Executive's employment other than
pursuant to Paragraph 2(a) or subparagraph 4(a)(i) or 4(a)(ii) or the Executive
terminates his employment pursuant to subparagraph 2(c), all of the compensation
and benefits payable to the Executive pursuant to this Employment Agreement
shall be paid to the Executive for the remainder of the term of this Employment
Agreement (as that term is defined in subparagraph 2(a)).
5. Covenants and Confidential Information.
(a) The Executive acknowledges the Company's reliance and
expectation of the Executive's continued commitment to performance of his duties
and responsibilities during the term of this Employment Agreement. In light of
such reliance and expectation on the part of the Company, during the term of
this Employment Agreement and for a period of two (2) years thereafter (and, as
to clause (ii) of this subparagraph (a), at any time during and after the term
of this Employment Agreement), the Executive shall not, directly or indirectly,
do or suffer either of the following:
(i) Own, manage, control or participate in the
ownership, management, or control of, or be employed or engaged by or
otherwise affiliated or associated as a consultant, independent
contractor or otherwise with, any
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<PAGE> 8
other corporation, partnership, proprietorship, limited liability
company, firm, association or other business entity engaged in the
business of, or otherwise engage in the business of, aviation services
or commercial security; except that the Executive may own not more than
one percent (1%) of any class of publicly traded securities of any
entity, and own interests in the Company subject only to any
restriction imposed by any agreement or instrument other than this
Agreement; or
(ii) Disclose, divulge, discuss, copy or otherwise
use or suffer to be used in any manner, in competition with, or
contrary to the interests of, the Company, any confidential information
relating to the Company's operations, properties or otherwise to its
particular business or other trade secrets of the Company, it being
acknowledged by the Executive that all such information regarding the
business of the Company compiled or obtained by, or furnished to, the
Executive while the Executive shall have been employed by or associated
with the Company is confidential information and the Company's
exclusive property; provided, however, that the foregoing restrictions
shall not apply to the extent that such information: (A) is clearly
obtainable in the public domain, (B) becomes obtainable in the public
domain, except by reason of the breach by the Executive of the terms
hereof, (C) was not acquired by the Executive in connection with his
employment or affiliation with the Company, (D) was not acquired by the
Executive from the Company or its representatives, or (E) is required
to be disclosed by rule of law or by order of a court or governmental
body or agency.
(b) The Executive agrees and understands that the remedy at
law for any breach by him of this Paragraph 5 will be inadequate and that the
damages flowing from such breach are not readily susceptible to being measured
in monetary terms. Accordingly, it is acknowledged that, upon adequate proof of
the Executive's violation of any legally enforceable provision of this Paragraph
5, the Company shall be entitled to immediate injunctive relief and may obtain a
temporary order restraining any threatened or further breach. Nothing in this
Paragraph 5 shall be deemed to limit the Company's remedies at law or in equity
for any breach by the Executive of any of the provisions of this Paragraph 5
which may be pursued or availed of by the Company.
(c) The Executive has carefully considered the nature and
extent of the restrictions upon him and the rights and remedies conferred upon
the Company under this Paragraph 5, and hereby acknowledges and agrees that the
same are reasonable in time and territory, are designed to eliminate competition
which otherwise would be unfair to the Company, do not stifle the inherent skill
and experience of the Executive, would not operate as a bar to the Executive's
sole means of support, are fully required to protect
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<PAGE> 9
the legitimate interests of the Company and do not confer a benefit upon the
Company disproportionate to the detriment to the Executive.
6. Tax Adjustment Payments. If all or any portion of the amounts
payable to the Executive under this Employment Agreement (together with all
other payments of cash or property, whether pursuant to this Employment
Agreement or otherwise, including, without limitation, the issuance of common
shares of the Company, or the granting, exercise or termination of options
therefor) constitutes "excess parachute payments" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended (the "Code") that are
subject to the excise tax imposed by Section 4999 of the Code (or any similar
tax or assessment), the amounts payable hereunder shall be increased to the
extent necessary to place the Executive in the same after-tax position as he
would have been in had no such tax assessment been imposed on any such payment
paid or payable to the Executive under this Employment Agreement or any other
payment that the Executive may receive in connection therewith. The
determination of the amount of any such tax or assessment and the incremental
payment required hereby in connection therewith shall be made by the accounting
firm employed by the Executive within thirty (30) calendar days after such
payment and said incremental payment shall be made within five (5) calendar days
after determination has been made. If, after the date upon which the payment
required by this Paragraph 6 has been made, it is determined (pursuant to final
regulations or published rulings of the Internal Revenue Service, final judgment
of a court of competent jurisdiction, Internal Revenue Service audit assessment,
or otherwise) that the amount of excise or other similar taxes or assessments
payable by the Executive is greater than the amount initially so determined,
then the Company shall pay the Executive an amount equal to the sum of: (i) such
additional excise or other taxes, PLUS (ii) any interest, fines and penalties
resulting from such underpayment, PLUS (iii) an amount necessary to reimburse
the Executive for any income, excise or other tax assessment payable by the
Executive with respect to the amounts specified in (i) and (ii) above, and the
reimbursement provided by this clause (iii), in the manner described above in
this Paragraph 6. Payment thereof shall be made within five (5) calendar days
after the date upon which such subsequent determination is made.
7. Representations and Warranties of the Company.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Ohio, and has all
requisite corporate power and authority to enter into, execute and deliver this
Employment Agreement, fulfill its obligations hereunder and consummate the
transactions contemplated hereby.
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<PAGE> 10
(b) The execution and delivery of, performance of obligations
under, and consummation of the transactions contemplated by, this Employment
Agreement have been duly authorized and approved by all requisite corporate
action by or in respect of the Company, and this Employment Agreement
constitutes the legally valid and binding obligation of the Company, enforceable
by the Executive in accordance with its terms.
(c) No provision of the Company's governing documents or any
agreement to which it is a party or by which it is bound or of any material law
or regulation of the kind usually applicable to and binding upon the Company
prohibits or limits its ability to enter into, execute and deliver this
Employment Agreement, fulfill its obligations hereunder and consummate the
transactions contemplated hereby.
8. Miscellaneous.
(a) The Executive represents and warrants that he is not a
party to any agreement, contract or understanding, whether employment or
otherwise, which would restrict or prohibit him from undertaking or performing
employment in accordance with the terms and conditions of this Employment
Agreement.
(b) The provisions of this Employment Agreement are severable
and if any provision may be determined to be illegal or otherwise unenforceable,
in whole or in part, the remaining provisions and any partially unenforceable
provision, to the extent enforceable in any jurisdiction, nevertheless shall be
binding and enforceable.
(c) The rights and obligations of the Company under this
Employment Agreement shall inure to the benefit of, and shall be binding on, the
Company and its successors and assigns, and the rights and obligations (other
than obligations to perform services) of the Executive under this Employment
Agreement shall inure to the benefit of, and shall be binding upon, the
Executive and his heirs, personal representatives and assigns.
(d) Any controversy or claim arising out of or relating to
this Employment Agreement, or the breach thereof, shall be settled by
arbitration in accordance with the Rules of the American Arbitration Association
then pertaining in the City of Cleveland, Ohio, and judgment upon the award
rendered by the arbitrator or arbitrators may be entered in any court having
jurisdiction thereof. The arbitrator or arbitrators shall be deemed to possess
the powers to issue mandatory orders and restraining orders in connection with
such arbitration; provided, however, that nothing in this Paragraph 8(d) shall
be construed so as to deny the Company the right and power to seek and obtain
any remedy available in a court for any breach or threatened breach by the
Executive of any of his covenants contained in Paragraph 5 hereof.
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<PAGE> 11
(e) Any notice to be given under this Employment Agreement
shall be personally delivered in writing or shall have been deemed duly given
when received after it is posted in the United States mail, postage prepaid,
registered or certified, return receipt requested, and if mailed to the Company,
shall be addressed to its principal place of business, attention: General
Counsel, and if mailed to the Executive, shall be addressed to him at his home
address last known on the records of the Company, or at such other address or
addresses as either the Company or the Executive, as addressee, may hereafter
designate in writing to the other.
(f) The failure of either party to enforce any provision of
this Employment Agreement shall not in any way be construed as a waiver of any
such provision as to any future violations thereof, or prevent that party
thereafter from enforcing each and every other provision of this Employment
Agreement. The rights granted the parties herein are cumulative and the waiver
of any single remedy shall not constitute a waiver of such party's right to
assert all other remedies available to it under the circumstances.
(g) This Employment Agreement supersedes all prior agreements
and understandings between the parties and may not be modified or terminated
orally. No modification, termination or attempted waiver shall be valid unless
in writing and signed by the party against whom the same is sought to be
enforced.
(h) This Employment Agreement shall be governed by and
construed according to the laws of the State of Ohio.
(i) Where necessary or appropriate to the meaning hereof, the
singular and plural shall be deemed to include each other, and the masculine,
feminine and neuter shall be deemed to include each other.
INTERNATIONAL TOTAL SERVICES, INC.
By:_________________________
Title:______________________
And By:_____________________
Title:______________________
____________________________
SCOTT E. BREWER
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<PAGE> 1
Exhibit 10.12
BUY-SELL AGREEMENT
This Agreement made and entered into this ____ day of
__________________, 1995 by and between Gene Empey, (hereinafter referred to as
"Shareholder") and International Total Services, Inc., an Ohio corporation
having its principal place of business at 5005 Rockside Road, Cleveland, Ohio
44131 (hereinafter referred to as "Corporation").
RECITALS
--------
WHEREAS, the Shareholder is the beneficial owner and holder of record
of issued and outstanding common stock of the Corporation, and the individual
ownership of the Shareholder is as follows:
Shareholder Number of Shares
----------- ----------------
Gene Empey .5
WHEREAS, it is the desire of the Corporation and the Shareholder in
order to provide for the continuity and harmonious management in the affairs of
the Corporation that ownership of these shares in the Corporation shall be
retained by the Shareholder of the Corporation; and
WHEREAS, the Shareholder in consideration hereof desires to place
certain restrictions on the right of the Shareholder to sell or otherwise
dispose of his shares during his term of employment, and further to provide for
the purchase by the Corporation of the stock of a deceased Shareholder and to
avoid deadlock in control of the Corporation.
NOW, THEREFORE, the parties agree:
A. No shareholder shall offer or transfer any shares or interests
therein by sale, gift, exchange, assignment, pledge, contribution to a trust or
otherwise except with prior written consent of the Corporation and compliance
with the provisions hereinafter set forth.
B. A Shareholder desiring to sell or transfer all or any part of the
shares owned by said Shareholder shall first give written notice to the
Corporation and to the other Shareholders for any such proposed sale or
transfer, such notice shall state the name and address of the proposed
1
<PAGE> 2
transferee, the number of shares, the price, terms of payment and conditions of
such proposed sale or transfer.
C. The Corporation shall have the exclusive option for a period of
ninety (90) days after receipt of such notice in which to purchase, and to the
extent the company does not exercise its said option, the remaining Shareholders
shall have the exclusive option for a period of sixty (60) days next succeeding
the expiration of the first ninety (90) day option period to purchase the shares
so proposed to be sold or transferred by the Shareholder giving notice, at the
price stated in such notice, or at the price determined under the provisions of
Paragraph 5 hereof, whichever is less. The right of the other Shareholders to
purchase such stock offered for sale shall be in the percentage their respective
stock ownership in the Corporation is to all the outstanding stock of the
Corporation, exclusive of the shares owned by the selling or transferring
Shareholder. If any Shareholder fails to exercise his option to purchase shares
or any portion thereof within said sixty (60) days, the remaining
Shareholder(s), if any, shall have an additional thirty (30) days in which to
purchase the shares or any portion thereof covered by said option, under the
same terms as otherwise stated herein. The above mentioned options shall be
exercised by giving written notice thereof to the selling Shareholder, to the
Corporation, and to any other Shareholder. If an option is exercised, the party
exercising same shall also specify a choice of the alternate methods of payment
of the purchase price which are provided for in Paragraph 6 hereof and a date
for closing which shall be not more than thirty (30) days after date of exercise
of option. To the extent the Corporation nor the other Shareholder(s) do not
elect to exercise the aforesaid options, then the offering Shareholder shall be
free, for an ensuing period of thirty (30) days from and after the expiration of
the Option periods herein provided, to sell the shares in the Corporation to the
third party, free and clear, provided the following conditions are satisfied (i)
the purchase price is no higher than set forth in the original notice to the
Corporation and the other Shareholders: (ii) the purchase would not contravene
the Corporation's Articles of Incorporation: and (iii) the transferee must prior
to or simultaneously with such transfer, enter into an Agreement with the
remaining parties hereto substantially identical to this Agreement
2
<PAGE> 3
restricting further transfer of such shares. If no such sale is consummated with
the applicable periods provided for above, the restrictions and options herein
provided shall be restored and shall continue in full force and effect, and so
long as these restrictions and opinion remain in effect, the offering
Shareholder shall not thereafter sell or transfer any of the shares in the
Corporation without first giving the Corporation and the other Shareholder(s)
notice as herein provided and otherwise complying with the foregoing provisions.
D. No Shareholder shall pledge, hypothecate and/or in any other way
encumber all or any party of his shares of stock in the Corporation as
collateral for loans or for any other purpose without the prior written consent
of the Corporation and the other Shareholder(s).
E. Any shares of the stock of the Corporation sold or transferred by
one stockholder to any other stockholder(s) at any time shall be, become and
remain subject to all the provisions of this Agreement in the same manner and to
the same extent as though owned by such other stockholders at the date of the
execution hereof.
2. DEATH OF SHAREHOLDER.
A. Upon the death of any one of the Shareholders, all of the shares of
stock in the Corporation owned by said Shareholder and to which he or his
personal representatives shall be entitled shall be sold to and purchased by the
Corporation from his personal representatives at the net book value and as
hereinafter provided, or pursuant to the price set forth in Paragraph 5 of this
Agreement.
B. The closing of any purchase of the Corporation stock on the sale of
the Shareholder shall take place at the office of the Corporation and on a date
agreed to by the Corporation and the personal representatives of the deceased
Shareholder but in no case more than one hundred eighty (180) days following the
date of qualification of the personal representatives of the deceased
Shareholder or of the Shareholder.
3
<PAGE> 4
3. TERMINATION OF EMPLOYMENT. Upon the voluntary or involuntary
termination of a Shareholder's employment with the Corporation, the Corporation
shall purchase the shares of such Shareholder. The shares of the terminated
employee/Shareholder shall not be purchased for a price greater than the price
determined under the provisions of Paragraph 5 hereof.
4. DISABILITY OF SHAREHOLDER. If a Shareholder shall become totally
disabled, the Corporation or the remaining Shareholders shall have the option to
purchase all, but not less than all of the disabled Shareholder's shares. The
option to purchase shall be exercised within thirty (30) days from the
commencement of the total disability. If neither the Shareholder nor the
Corporation exercises the option within the first thirty (30) day period, the
options shall be restored every ninety (90) days thereafter. Should the
Shareholders exercise said option, they shall purchase the disabled
Shareholder's shares in the percentage of their respective stock ownership in
the Corporation to all the outstanding stock of the Corporation exclusive of the
shares owned by the disable Shareholder.
"Totally disabled" for the purpose of this Agreement shall mean that as
a result of physical and/or mental illness, a Shareholder is unable to perform
his duties for a period of six (6) consecutive months and his disability shall
be deemed to have commenced at the end of said six (6) month period.
5. VALUATION.
A. During the twelve (12) months from the execution date of this
Agreement, the price for purposes of this contract for the sale of the shares of
the Corporation shall be an amount as determined by the majority Shareholder.
B. Every twelve (12) months thereafter, the majority shareholder and
the Corporation shall stipulate the agreed value of the shares of stock to be
effective during the next twelve (12) month period. This value will at no time
exceed the net book value of the shares of stock.
4
<PAGE> 5
6. CORPORATE PROFITS.
If the Divisions the Shareholders are responsible for do not
attain projected profits established by the Corporation, then the Corporation
shall have the option upon 90 days written notice to repurchase the shares from
the Shareholder whose division is not making its profit goals. The price per
share will be established pursuant to the valuations set out in Paragraph 5 of
this Agreement.
7. PAYMENT.
A. Payment of the price for the shares of stock purchased by each and
any of the parties hereunder shall be made as follows:
(i) At the closing, any purchaser may pay in cash the total aggregate
purchase price of all shares being purchased thereunder in exchange for the
receipt of certificates for the shares of stock so purchased, duly endorsed to
the purchaser of in blank, provided, however, if the selling Shareholder or
personal representative of a deceased Shareholder is selling less than ten
percent (10%) of the stock of the outstanding stock of the Corporation, the same
must be paid for in cash; and
(ii) At the closing, if the purchase does not elect to pay the purchase
price in full in cash as hereinabove provided, he shall make an initial payment
in cash of any amount not less than twenty-five percent (25%) of the total
purchase price for the outstanding shares purchased by him or the available
proceeds of
5
<PAGE> 6
all policies of insurance on the life of a deceased Shareholder, whichever
amount is the greater. Such initial payment shall be paid by the purchaser to
the selling Shareholder or his estate and the balance of the purchase price, if
any, remaining after credit from any such initial payment shall be payable in
not more than two (2) equal annual installments under the terms of a negotiable
promissory note dated as of the closing, bearing interest at the rate of ten
percent (10%) per annum on the unpaid balance. The terms of the installment
promissory note as described hereinabove shall provide for acceleration, at the
option of the holder thereof, of the entire amount of principal and interest
upon a default for a period of thirty (30) days or more in the payment of any
installment of principal or interest, and shall provide also for prepayment of
any or all installments without penalty on interest after the date of such
prepayment. The first payment under such note shall be made within thirty (30)
days after the close of the first fiscal year subsequent to the initial payment.
B. So long as any part of the purchase price of the shares of stock
sold to the Corporation in accordance with this Agreement remains unpaid, the
Corporation shall not without the prior consent of the holder of any such note
being first obtained:
(i) Declare or pay any dividends on its common stock in
6
<PAGE> 7
excess of the dividend paid on its common stock on a per share basis in the
fiscal year preceding the year of the issuance of said installment promissory
note.
(ii) Reorganize its capital structure.
(iii) Merge or consolidate with any other corporation, reorganize or
otherwise sell any of its assets except in the regular course of business.
(iv) Will not issue any new or additional shares of stock nor issue any
authorized but unissued shares of stock.
(v) So long as any or all of the purchase price of the shares of stock
of the Corporation sold to the Corporation shall remain unpaid, the holder of
such installment promissory note shall have the right to examine the bonds and
records of the Corporation and from time to time and at reasonable times and
places receive copies or reports and federal income tax returns prepared for or
on behalf of the Corporation.
8. MISCELLANEOUS.
A. The parties hereto agree that when any stock is purchased pursuant
to this Agreement that the Corporation, the Shareholder and the personal
representative of any deceased Shareholder shall do all things and execute and
deliver all papers as may be necessary fully to consummate such purchase in
accordance with the terms of this Agreement.
7
<PAGE> 8
B. Each stock certificate representing shares of stock of the
Corporation now or hereafter held by the Shareholder during the term of this
Agreement except as otherwise herein provided shall be stamped with a legend
stating the following:
Transfers of shares of the Corporation shall be made on the share
records of the Corporation only by the holder of record thereof, in person or by
his duly authorized attorney, upon surrender for cancellation of the certificate
or certificates representing such shares, with an assignment or power of
transfer endorsed thereon or delivered therewith, duly executed, with such proof
of the authenticity of the signature and of authority to transfer and of payment
of transfer taxes as the Corporation or its agents may require.
The Corporation shall be entitled to treat the holder of record of any
share or shares as the absolute owner thereof for all purposes and, accordingly,
shall not be bound to recognize any legal, equitable or other claim to, or
interest in, such share or shares on the part of any person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by law.
C. Any and all notices, designations, consents, offers, acceptances or
other communications provided for herein shall be given in writing by Certified
mail which shall be addressed in the case of the Corporation to its principal
office and in the case of a Shareholder, to his or its address appearing on the
stock records of the Corporation or such other address as may be designated by
him or it.
8
<PAGE> 9
D. The invalidity or unenforceability of any particular provision or
provisions of this Agreement shall not affect the other provisions hereof and
the Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted. No change, modification or alteration of
the terms of this Agreement shall be valid unless the same shall be in writing
signed by all of the parties who are then bound by the terms hereof. This
Agreement shall terminate upon the occurrence of any of the following events:
(i) Cessation of the Corporation's business;
(ii) Bankruptcy, receivership or dissolution of the Corporation;
(iii) The voluntary agreement of the parties who are then bound by the
terms hereof; and
(iv) As otherwise provided herein.
THIS AGREEMENT shall be binding upon the parties hereto, their heirs,
personal representatives, successors and assigns.
THIS AGREEMENT cancels, terminates and supersedes all prior agreements
of the parties to any of them respecting any and all subject matter contained
herein.
THIS AGREEMENT shall be governed by the laws of the State of Ohio.
IN WITNESS WHEREOF, the Shareholder has hereunto set his hand and the
Corporation has caused the corporate name to be executed and signed by its duly
authorized officers hereto the month, day and year first hereinabove written.
WITNESSED BY: INTERNATIONAL TOTAL SERVICES, INC.
BY:
- ----------------------------- -------------------------------------
AND:
- ----------------------------- ----------------------------------
Gene Empey
9
<PAGE> 1
Exhibit 10.13
BUY-SELL AGREEMENT
This Agreement made and entered into this ____ day of January, 1996 by
and between Scott E. Brewer (hereinafter referred to individually as
"Shareholder") and International Total Services, Inc., an Ohio corporation
having its principal place of business at 5005 Rockside Road, Cleveland, Ohio
44131 (hereinafter referred to as "Corporation")
RECITALS
WHEREAS, the Shareholder is the beneficial owner and holder of record
of issued and outstanding common stock of the Corporation, and the individual
ownership is as follows:
Shareholder Number of Shares
Scott E. Brewer .5
WHEREAS, it is the desire of the Corporation and the Shareholder in
order to provide for the continuity and harmonious management in the affairs of
the Corporation that ownership of this share in the Corporation shall be
retained by the Shareholder of the Corporation; and
WHEREAS, the Shareholder in consideration hereof desire to place
certain restrictions on the right of the Shareholder to sell or otherwise
dispose of his shares during his term of employment, and further to provide for
the purchase by the Corporation of the stock of a deceased Shareholder and to
avoid deadlock in control of the Corporation.
NOW, THEREFORE, the parties agree:
A. No shareholder shall offer or transfer any shares or interests
therein by sale, gift, exchange, assignment, pledge, contribution to a trust or
otherwise except with prior written consent of the Corporation and compliance
with the provisions hereinafter set forth.
B. A Shareholder desiring to sell or transfer all or any part of the
shares owned by said Shareholder shall first give written notice to the
Corporation and to the other Shareholders for any such proposed sale or
transfer, such notice shall state the name and address of the proposed
transferee, the number of shares, the price, terms of payment and conditions of
such proposed sale or transfer.
C. The Corporation shall have the exclusive option for a period of
ninety (90) days after receipt of such notice in which to purchase, and to the
extent the company does not exercise its said option, the remaining Shareholders
shall have the exclusive option for a period of sixty (60) days next succeeding
the expiration of the first ninety (90) day option period to purchase the shares
so proposed to be sold or transferred by the Shareholder giving notice, at the
price stated in such notice, or at the price determined under the provisions of
Paragraph 5 hereof, whichever is less. The right of the other Shareholders to
purchase such stock offered for sale shall be in the percentage their respective
stock ownership in the Corporation is to all the outstanding stock of the
Corporation, exclusive of the shares owned by the selling or transferring
Shareholder. If any Shareholder fails to exercise his option to purchase shares
or any portion thereof within said sixty (60) days, the remaining
Shareholder(s), if any, shall have an additional thirty (30) days in which to
purchase the shares or any
<PAGE> 2
portion thereof covered by said option, under the same terms as otherwise stated
herein. The above mentioned options shall be exercised by giving written notice
thereof to the selling Shareholder, to the Corporation, and to any other
Shareholder. If an option is exercised, the party exercising same shall also
specify a choice of the alternate methods of payment of the purchase price which
are provided for in Paragraph 6 hereof and a date for closing which shall be not
more than thirty (30) days after date of exercise of option. To the extent the
Corporation nor the other Shareholder(s) do not elect to exercise the aforesaid
options, then the offering Shareholder shall be free, for an ensuing period of
thirty (30) days from and after the expiration of the Option periods herein
provided, to sell the shares in the Corporation to the third party, free and
clear, provided the following conditions are satisfied (i) the purchase price is
no higher than set forth in the original notice to the Corporation and the other
Shareholders: (ii) the purchase would not contravene the Corporation's Articles
of Incorporation: and (iii) the transferee must prior to or simultaneously with
such transfer, enter into an Agreement with the remaining parties hereto
substantially identical to this Agreement restricting further transfer of such
shares. If no such sale is consummated with the applicable periods provided for
above, the restrictions and options herein provided shall be restored and shall
continue in full force and effect, and so long as these restrictions and opinion
remain in effect, the offering Shareholder shall not thereafter sell or transfer
any of the shares in the Corporation without first giving the Corporation and
the other Shareholder(s) notice as herein provided and otherwise complying with
the foregoing provisions.
D. No Shareholder shall pledge, hypothecate and/or in any other way
encumber all or any party of his shares of stock in the Corporation as
collateral for loans or for any other purpose without the prior written consent
of the Corporation and the other Shareholder(s).
E. Any shares of the stock of the Corporation sold or transferred by
one stockholder to any other stockholder(s) at any time shall be, become and
remain subject to all the provisions of this Agreement in the same manner and to
the same extent as though owned by such other stockholders at the date of the
execution hereof.
2. Death of Shareholder.
A. Upon the death of the Shareholder, all of the shares of stock in the
Corporation owned by said Shareholder and to which he or his personal
representatives shall be entitled shall be sold to and purchased by the
Corporation from his personal representatives at the net book value and as
hereinafter provided, or pursuant to the price set forth in Paragraph 5 of this
Agreement.
B. The closing of any purchase of the Corporation stock on the sale of
the Shareholder shall take place at the office of the Corporation and on a date
agreed to by the Corporation and the personal representatives of the deceased
Shareholder but in no case more than one hundred eighty (180) days following the
date of qualification of the personal representatives of the deceased
Shareholder or of the Shareholder.
<PAGE> 3
3. Termination of Employment. Upon the voluntary or involuntary
termination of a Shareholder's employment with the Corporation, the Corporation
shall purchase the shares of such Shareholder. The shares of the terminated
employee/Shareholder shall not be purchased for a price greater than the price
determined under the provisions of Paragraph 5 hereof.
4. Disability of Shareholder. If a Shareholder shall become totally
disabled, the Corporation or the remaining Shareholders shall have the option to
purchase all, but not less than all of the disabled Shareholder's shares. The
option to purchase shall be exercised within thirty (30) days from the
commencement of the total disability. If neither the Shareholder nor the
Corporation exercises the option within the first thirty (30) day period, the
options shall be restored every ninety (90) days thereafter. Should the
Shareholders exercise said option, they shall purchase the disabled
Shareholder's shares in the percentage of their respective stock ownership in
the Corporation to all the outstanding stock of the Corporation exclusive of the
shares owned by the disable Shareholder.
"Totally disabled" for the purpose of this Agreement shall mean that as
a result of physical and/or mental illness, a Shareholder is unable to perform
his duties for a period of six (6) consecutive months and his disability shall
be deemed to have commenced at the end of said six (6) month period.
5. Valuation.
A. During the twelve (12) months from the execution date of this
Agreement, the price for purposes of this contract for the sale of the shares of
the Corporation shall be an amount as determined by the majority Shareholder.
This value will not exceed the red book value of the shares.
B. Every twelve (12) months thereafter, the majority shareholder and
the Corporation shall stipulate the agreed value of the shares of stock to be
effective during the next twelve (12) month period. This value will at no time
exceed the net book value of the shares.
6. Corporate Profits.
If the Division the Shareholder is responsible for does not
attain projected profits established by the Corporation, then the Corporation
shall have the option upon ninety (90) days written notice, to repurchase the
shares from the Shareholder. The price per share for the buyout will be
established pursuant to the valuations set out in Paragraph 5 of this Agreement.
7. Payment.
A. Payment of the price for the shares of stock purchased by each and
any of the parties hereunder shall be made as follows:
(i) At the closing, any purchaser may pay in cash the total aggregate
purchase price
<PAGE> 4
of all shares being purchased thereunder in exchange for the receipt of
certificates for the shares of stock so purchased, duly endorsed to the
purchaser of in blank, provided, however, if the selling Shareholder or personal
representative of a deceased Shareholder is selling less than ten percent (10%)
of the stock of the outstanding stock of the Corporation, the same must be paid
for in cash; and
(ii) At the closing, if the Purchaser does not elect to pay the
purchase price in full in cash as hereinabove provided, he shall make an initial
payment in cash of any amount not less than twenty-five percent (25%) of the
total purchase price for the outstanding shares purchased by him or the
available proceeds of all policies of insurance on the life of a deceased
Shareholder, whichever amount is the greater. Such initial payment shall be paid
by the purchaser to the selling Shareholder or his estate and the balance of the
purchase price, if any, remaining after credit from any such initial payment
shall be payable in not more than two (2) equal annual installments under the
terms of a negotiable promissory note dated as of the closing, bearing interest
at the rate of ten percent (10%) per annum on the unpaid balance. The terms of
the installment promissory note as described hereinabove shall provide for
acceleration, at the option of the holder thereof, of the entire amount of
principal and interest upon a default for a period of thirty (30) days or more
in the payment of any installment of principal or interest, and shall provide
also for prepayment of any or all installments without penalty on interest after
the date of such prepayment. The first
<PAGE> 5
payment under such note shall be made within thirty (30) days after the close of
the first fiscal year subsequent to the initial payment.
B. So long as any part of the purchase price of the shares of stock
sold to the Corporation in accordance with this Agreement remains unpaid, the
Corporation shall not without the prior consent of the holder of any such note
being first obtained:
(i) Declare or pay any dividends on its common stock in excess of the
dividend paid on its common stock on a per share basis in the fiscal year
preceding the year of the issuance of said installment promissory note.
(ii) Reorganize its capital structure.
(iii) Merge or consolidate with any other corporation, reorganize or
otherwise sell any of its assets except in the regular course of business.
(iv) Will not issue any new or additional shares of stock nor issue any
authorized but unissued shares of stock.
(v) So long as any or all of the purchase price of the shares of stock
of the Corporation sold to the Corporation shall remain unpaid, the holder of
such installment promissory note shall have the right to examine the bonds and
records of the Corporation and from time to time and at reasonable times and
places receive copies or reports and federal income tax returns prepared for or
on behalf of the Corporation.
8. Miscellaneous.
A. The parties hereto agree that when any stock is purchased pursuant
to this Agreement that the Corporation, the Shareholder and the personal
representative of any deceased Shareholder shall do all things and execute and
deliver all papers as may be necessary fully to consummate such purchase in
accordance with the terms of this Agreement.
B. Each stock certificate representing shares of stock of the
Corporation now or hereafter held by the Shareholders during the term of this
Agreement except as otherwise herein provided shall be stamped with a legend
stating the following:
<PAGE> 6
Transfers of shares of the Corporation shall be made on the share
records of the Corporation only by the holder of record thereof, in person or by
his duly authorized attorney, upon surrender for cancellation of the certificate
or certificates representing such shares, with an assignment or power of
transfer endorsed thereon or delivered therewith, duly executed, with such proof
of the authenticity of the signature and of authority to transfer and of payment
of transfer taxes as the Corporation or its agents may require.
The Corporation shall be entitled to treat the holder of record of any
share or shares as the absolute owner thereof for all purposes and, accordingly,
shall not be bound to recognize any legal, equitable or other claim to, or
interest in, such share or shares on the part of any person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by law.
C. Any and all notices, designations, consents, offers, acceptances or
other communications provided for herein shall be given in writing by Certified
mail which shall be addressed in the case of the Corporation to its principal
office and in the case of a Shareholder, to his or its address appearing on the
stock records of the Corporation or such other address as may be designated by
him or it.
D. The invalidity or unenforceability of any particular provision or
provisions of this Agreement shall not affect the other provisions hereof and
the Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted. No change, modification or alteration of
the terms of this Agreement shall be valid unless the same shall be in writing
signed by all of the parties who are then bound by the terms hereof. This
Agreement shall terminate upon the occurrence of any of the following events:
(i) Cessation of the Corporation's business;
(ii) Bankruptcy, receivership or dissolution of the Corporation;
(iii) The voluntary agreement of the parties who are then bound by the
terms hereof; and
(iv) As otherwise provided herein.
THIS AGREEMENT shall be binding upon the parties hereto, their heirs,
personal representatives, successors and assigns.
<PAGE> 7
THIS AGREEMENT cancels, terminates and supersedes all prior agreements
of the parties to any of them respecting any and all subject matter contained
herein.
THIS AGREEMENT shall be governed by the laws of the State of Ohio.
IN WITNESS WHEREOF, the Shareholders have hereunto set their hands and
the Corporation has caused the corporate name to be executed and signed by its
duly authorized officers hereto the month, day and year first hereinabove
written.
WITNESSED BY: INTERNATIONAL TOTAL SERVICES, INC.
BY:
- ----------------------------- --------------------------------
Robert A. Weitzel
AND:
- ----------------------------- --------------------------------
Scott E. Brewer
<PAGE> 1
Exhibit 10.14
BUY-SELL AGREEMENT
This Agreement made and entered into this 27 day of February, 1996 by
and between Bob Swartz (hereinafter referred to individually as "Shareholder")
and International Total Services, Inc., an Ohio corporation having its principal
place of business at 5005 Rockside Road, Cleveland, Ohio 44131 (hereinafter
referred to as "Corporation").
RECITALS
WHEREAS, the Shareholder is the beneficial owner and holder of record
of issued and outstanding common stock of the Corporation, and the individual
ownership is as follows:
Shareholder Number of Shares
Bob Swartz .75
WHEREAS, it is the desire of the Corporation and the Shareholder in
order to provide for the continuity and harmonious management in the affairs of
the Corporation that ownership of this share in the Corporation shall be
retained by the Shareholder of the Corporation; and
WHEREAS, the Shareholder in consideration hereof desire to place
certain restrictions on the right of the Shareholder to sell or otherwise
dispose of his shares during his term of employment, and further to provide for
the purchase by the Corporation of the stock of a deceased Shareholder and to
avoid deadlock in control of the Corporation.
NOW, THEREFORE, the parties agree:
A. No shareholder shall offer or transfer any shares or interests
therein by sale, gift, exchange, assignment, pledge, contribution to a trust or
otherwise except with prior written consent of the Corporation and compliance
with the provisions hereinafter set forth.
B. A Shareholder desiring to sell or transfer all or any part of the
shares owned by said Shareholder shall first give written notice to the
Corporation and to the other Shareholders for any such proposed sale or
transfer, such notice shall state the name and address of the proposed
transferee, the number of shares, the price, terms of payment and conditions of
such proposed sale or transfer.
C. The Corporation shall have the exclusive option for a period of
ninety (90) days after receipt of such notice in which to purchase, and to the
extent the company does not exercise its said option, the remaining Shareholders
shall have the exclusive option for a period of sixty (60) days next succeeding
the expiration of the first ninety (90) day option period to purchase the shares
so proposed to be sold or transferred by the Shareholder giving notice, at the
price stated in such notice, or at the price determined under the provisions of
Paragraph 5 hereof, whichever is less. The right of the other Shareholders to
purchase such stock offered for sale shall be in the percentage their respective
stock ownership in the Corporation is to all the outstanding stock of the
Corporation, exclusive of the shares owned by the selling or transferring
Shareholder. If any Shareholder fails to exercise his option to purchase shares
or any portion thereof within said sixty (60) days, the remaining
Shareholder(s), if any, shall have an additional thirty (30) days in which to
purchase the shares or any
<PAGE> 2
portion thereof covered by said option, under the same terms as otherwise stated
herein. The above mentioned options shall be exercised by giving written notice
thereof to the selling Shareholder, to the Corporation, and to any other
Shareholder. If an option is exercised, the party exercising same shall also
specify a choice of the alternate methods of payment of the purchase price which
are provided for in Paragraph 6 hereof and a date for closing which shall be not
more than thirty (30) days after date of exercise of option. To the extent the
Corporation nor the other Shareholder(s) do not elect to exercise the aforesaid
options, then the offering Shareholder shall be free, for an ensuing period of
thirty (30) days from and after the expiration of the Option periods herein
provided, to sell the shares in the Corporation to the third party, free and
clear, provided the following conditions are satisfied (i) the purchase price is
no higher than set forth in the original notice to the Corporation and the other
Shareholders: (ii) the purchase would not contravene the Corporation's Articles
of Incorporation: and (iii) the transferee must prior to or simultaneously with
such transfer, enter into an Agreement with the remaining parties hereto
substantially identical to this Agreement restricting further transfer of such
shares. If no such sale is consummated with the applicable periods provided for
above, the restrictions and options herein provided shall be restored and shall
continue in full force and effect, and so long as these restrictions and opinion
remain in effect, the offering Shareholder shall not thereafter sell or transfer
any of the shares in the Corporation without first giving the Corporation and
the other Shareholder(s) notice as herein provided and otherwise complying with
the foregoing provisions.
D. No Shareholder shall pledge, hypothecate and/or in any other way
encumber all or any party of his shares of stock in the Corporation as
collateral for loans or for any other purpose without the prior written consent
of the Corporation and the other Shareholder(s).
E. Any shares of the stock of the Corporation sold or transferred by
one stockholder to any other stockholder(s) at any time shall be, become and
remain subject to all the provisions of this Agreement in the same manner and to
the same extent as though owned by such other stockholders at the date of the
execution hereof.
2. Death of Shareholder.
A. Upon the death of the Shareholder, all of the shares of stock in the
Corporation owned by said Shareholder and to which he or his personal
representatives shall be entitled shall be sold to and purchased by the
Corporation from his personal representatives at the net book value and as
hereinafter provided, or pursuant to the price set forth in Paragraph 5 of this
Agreement.
B. The closing of any purchase of the Corporation stock on the sale of
the Shareholder shall take place at the office of the Corporation and on a date
agreed to by the Corporation and the personal representatives of the deceased
Shareholder but in no case more than one hundred eighty (180) days following the
date of qualification of the personal representatives of the deceased
Shareholder or of the Shareholder.
<PAGE> 3
3. Termination of Employment. Upon the voluntary or involuntary
termination of a Shareholder's employment with the Corporation, the Corporation
shall purchase the shares of such Shareholder. The shares of the terminated
employee/Shareholder shall not be purchased for a price greater than the price
determined under the provisions of Paragraph 5 hereof.
4. Disability of Shareholder. If a Shareholder shall become totally
disabled, the Corporation or the remaining Shareholders shall have the option to
purchase all, but not less than all of the disabled Shareholder's shares. The
option to purchase shall be exercised within thirty (30) days from the
commencement of the total disability. If neither the Shareholder nor the
Corporation exercises the option within the first thirty (30) day period, the
options shall be restored every ninety (90) days thereafter. Should the
Shareholders exercise said option, they shall purchase the disabled
Shareholder's shares in the percentage of their respective stock ownership in
the Corporation to all the outstanding stock of the Corporation exclusive of the
shares owned by the disable Shareholder.
"Totally disabled" for the purpose of this Agreement shall mean that as
a result of physical and/or mental illness, a Shareholder is unable to perform
his duties for a period of six (6) consecutive months and his disability shall
be deemed to have commenced at the end of said six (6) month period.
5. Valuation.
A. During the twelve (12) months from the execution date of this
Agreement, the price for purposes of this contract for the sale of the shares of
the Corporation shall be an amount as determined by the majority Shareholder.
This value will not exceed the red book value of the shares.
B. Every twelve (12) months thereafter, the majority shareholder and
the Corporation shall stipulate the agreed value of the shares of stock to be
effective during the next twelve (12) month period. This value will at no time
exceed the net book value of the shares.
6. Corporate Profits.
If the Division the Shareholder is responsible for does not
attain projected profits established by the Corporation, then the Corporation
shall have the option upon ninety (90) days written notice, to repurchase the
shares from the Shareholder. The price per share for the buyout will be
established pursuant to the valuations set out in Paragraph 5 of this Agreement.
7. Payment.
A. Payment of the price for the shares of stock purchased by each and
any of the parties hereunder shall be made as follows:
(i) At the closing, any purchaser may pay in cash the total aggregate
purchase price
<PAGE> 4
of all shares being purchased thereunder in exchange for the receipt of
certificates for the shares of stock so purchased, duly endorsed to the
purchaser of in blank, provided, however, if the selling Shareholder or personal
representative of a deceased Shareholder is selling less than ten percent (10%)
of the stock of the outstanding stock of the Corporation, the same must be paid
for in cash; and
(ii) At the closing, if the Purchaser does not elect to pay the purchase price
in full in cash as hereinabove provided, he shall make an initial payment in
cash of any amount not less than twenty-five percent (25%) of the total purchase
price for the outstanding shares purchased by him or the available proceeds of
all policies of insurance on the life of a deceased Shareholder, whichever
amount is the greater. Such initial payment shall be paid by the purchaser to
the selling Shareholder or his estate and the balance of the purchase price, if
any, remaining after credit from any such initial payment shall be payable in
not more than two (2) equal annual installments under the terms of a negotiable
promissory note dated as of the closing, bearing interest at the rate of ten
percent (10%) per annum on the unpaid balance. The terms of the installment
promissory note as described hereinabove shall provide for acceleration, at the
option of the holder thereof, of the entire amount of principal and interest
upon a default for a period of thirty (30) days or more in the payment of any
installment of principal or interest, and shall provide also for prepayment of
any or all installments without penalty on interest after the date of such
prepayment. The first
<PAGE> 5
payment under such note shall be made within thirty (30) days after the close of
the first fiscal year subsequent to the initial payment.
B. So long as any part of the purchase price of the shares of stock
sold to the Corporation in accordance with this Agreement remains unpaid, the
Corporation shall not without the prior consent of the holder of any such note
being first obtained:
(i) Declare or pay any dividends on its common stock in excess of the
dividend paid on its common stock on a per share basis in the fiscal year
preceding the year of the issuance of said installment promissory note.
(ii) Reorganize its capital structure.
(iii) Merge or consolidate with any other corporation, reorganize or
otherwise sell any of its assets except in the regular course of business.
(iv) Will not issue any new or additional shares of stock nor issue any
authorized but unissued shares of stock.
(v) So long as any or all of the purchase price of the shares of stock
of the Corporation sold to the Corporation shall remain unpaid, the holder of
such installment promissory note shall have the right to examine the bonds and
records of the Corporation and from time to time and at reasonable times and
places receive copies or reports and federal income tax returns prepared for or
on behalf of the Corporation.
8. Miscellaneous.
A. The parties hereto agree that when any stock is purchased pursuant
to this Agreement that the Corporation, the Shareholder and the personal
representative of any deceased Shareholder shall do all things and execute and
deliver all papers as may be necessary fully to consummate such purchase in
accordance with the terms of this Agreement.
B. Each stock certificate representing shares of stock of the
Corporation now or hereafter held by the Shareholders during the term of this
Agreement except as otherwise herein provided shall be stamped with a legend
stating the following:
<PAGE> 6
Transfers of shares of the Corporation shall be made on the share
records of the Corporation only by the holder of record thereof, in person or by
his duly authorized attorney, upon surrender for cancellation of the certificate
or certificates representing such shares, with an assignment or power of
transfer endorsed thereon or delivered therewith, duly executed, with such proof
of the authenticity of the signature and of authority to transfer and of payment
of transfer taxes as the Corporation or its agents may require.
The Corporation shall be entitled to treat the holder of record of any
share or shares as the absolute owner thereof for all purposes and, accordingly,
shall not be bound to recognize any legal, equitable or other claim to, or
interest in, such share or shares on the part of any person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by law.
C. Any and all notices, designations, consents, offers, acceptances or
other communications provided for herein shall be given in writing by Certified
mail which shall be addressed in the case of the Corporation to its principal
office and in the case of a Shareholder, to his or its address appearing on the
stock records of the Corporation or such other address as may be designated by
him or it.
D. The invalidity or unenforceability of any particular provision or
provisions of this Agreement shall not affect the other provisions hereof and
the Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted. No change, modification or alteration of
the terms of this Agreement shall be valid unless the same shall be in writing
signed by all of the parties who are then bound by the terms hereof. This
Agreement shall terminate upon the occurrence of any of the following events:
(i) Cessation of the Corporation's business;
(ii) Bankruptcy, receivership or dissolution of the Corporation;
(iii) The voluntary agreement of the parties who are then bound by the
terms hereof; and
(iv) As otherwise provided herein.
THIS AGREEMENT shall be binding upon the parties hereto, their heirs,
personal representatives, successors and assigns.
THIS AGREEMENT cancels, terminates and supersedes all prior agreements
of the parties to any of them respecting any and all subject matter contained
herein.
THIS AGREEMENT shall be governed by the laws of the State of Ohio.
IN WITNESS WHEREOF, the Shareholders have hereunto set their hands and
the Corporation has caused the corporate name to be executed and signed by its
duly authorized officers hereto the month, day and year first hereinabove
written.
<PAGE> 7
WITNESSED BY: INTERNATIONAL TOTAL SERVICES, INC.
BY:
- ----------------------------- ----------------------------------
Robert A. Weitzel
AND:
- ----------------------------- ----------------------------------
Bob Swartz
<PAGE> 1
Exhibit 10.15
BUY-SELL AGREEMENT
This Agreement made and entered into this 27 day of November, 1996 by
and between Bob Swartz (hereinafter referred to individually as "Shareholder")
and International Total Services, Inc., an Ohio corporation having its principal
place of business at 5005 Rockside Road, Cleveland, Ohio 44131 (hereinafter
referred to as "Corporation").
RECITALS
WHEREAS, the Shareholder is the beneficial owner and holder of record
of issued and outstanding common stock of the Corporation, and the individual
ownership is as follows:
Shareholder Number of Shares
Bob Swartz 2.00
WHEREAS, it is the desire of the Corporation and the Shareholder in
order to provide for the continuity and harmonious management in the affairs of
the Corporation that ownership of this share in the Corporation shall be
retained by the Shareholder of the Corporation; and
WHEREAS, the Shareholder in consideration hereof desire to place
certain restrictions on the right of the Shareholder to sell or otherwise
dispose of his shares during his term of employment, and further to provide for
the purchase by the Corporation of the stock of a deceased Shareholder and to
avoid deadlock in control of the Corporation.
NOW, THEREFORE, the parties agree:
A. No shareholder shall offer or transfer any shares or interests
therein by sale, gift, exchange, assignment, pledge, contribution to a trust or
otherwise except with prior written consent of the Corporation and compliance
with the provisions hereinafter set forth.
B. A Shareholder desiring to sell or transfer all or any part of the
shares owned by said Shareholder shall first give written notice to the
Corporation and to the other Shareholders for any such proposed sale or
transfer, such notice shall state the name and address of the proposed
transferee, the number of shares, the price, terms of payment and conditions of
such proposed sale or transfer.
C. The Corporation shall have the exclusive option for a period of
ninety (90) days after receipt of such notice in which to purchase, and to the
extent the company does not exercise its said option, the remaining Shareholders
shall have the exclusive option for a period of sixty (60) days next succeeding
the expiration of the first ninety (90) day option period to purchase the shares
so proposed to be sold or transferred by the Shareholder giving notice, at the
price stated in such notice, or at the price determined under the provisions of
Paragraph 5 hereof, whichever is less. The right of the other Shareholders to
purchase such stock offered for sale shall be in the percentage their respective
stock ownership in the Corporation is to all the outstanding stock of the
Corporation, exclusive of the shares owned by the selling or transferring
Shareholder. If any Shareholder fails to exercise his option to purchase shares
or any portion thereof within said sixty (60) days, the remaining
Shareholder(s), if any, shall have an additional thirty (30) days in which to
purchase the shares or any
<PAGE> 2
portion thereof covered by said option, under the same terms as otherwise stated
herein. The above mentioned options shall be exercised by giving written notice
thereof to the selling Shareholder, to the Corporation, and to any other
Shareholder. If an option is exercised, the party exercising same shall also
specify a choice of the alternate methods of payment of the purchase price which
are provided for in Paragraph 6 hereof and a date for closing which shall be not
more than thirty (30) days after date of exercise of option. To the extent the
Corporation nor the other Shareholder(s) do not elect to exercise the aforesaid
options, then the offering Shareholder shall be free, for an ensuing period of
thirty (30) days from and after the expiration of the Option periods herein
provided, to sell the shares in the Corporation to the third party, free and
clear, provided the following conditions are satisfied (i) the purchase price is
no higher than set forth in the original notice to the Corporation and the other
Shareholders: (ii) the purchase would not contravene the Corporation's Articles
of Incorporation: and (iii) the transferee must prior to or simultaneously with
such transfer, enter into an Agreement with the remaining parties hereto
substantially identical to this Agreement restricting further transfer of such
shares. If no such sale is consummated with the applicable periods provided for
above, the restrictions and options herein provided shall be restored and shall
continue in full force and effect, and so long as these restrictions and opinion
remain in effect, the offering Shareholder shall not thereafter sell or transfer
any of the shares in the Corporation without first giving the Corporation and
the other Shareholder(s) notice as herein provided and otherwise complying with
the foregoing provisions.
D. No Shareholder shall pledge, hypothecate and/or in any other way
encumber all or any party of his shares of stock in the Corporation as
collateral for loans or for any other purpose without the prior written consent
of the Corporation and the other Shareholder(s).
E. Any shares of the stock of the Corporation sold or transferred by
one stockholder to any other stockholder(s) at any time shall be, become and
remain subject to all the provisions of this Agreement in the same manner and to
the same extent as though owned by such other stockholders at the date of the
execution hereof.
2. Death of Shareholder.
A. Upon the death of the Shareholder, all of the shares of stock in the
Corporation owned by said Shareholder and to which he or his personal
representatives shall be entitled shall be sold to and purchased by the
Corporation from his personal representatives at the net book value and as
hereinafter provided, or pursuant to the price set forth in Paragraph 5 of this
Agreement.
B. The closing of any purchase of the Corporation stock on the sale of
the Shareholder shall take place at the office of the Corporation and on a date
agreed to by the Corporation and the personal representatives of the deceased
Shareholder but in no case more than one hundred eighty (180) days following the
date of qualification of the personal representatives of the deceased
Shareholder or of the Shareholder.
<PAGE> 3
3. Termination of Employment. Upon the voluntary or involuntary
termination of a Shareholder's employment with the Corporation, the Corporation
shall purchase the shares of such Shareholder. The shares of the terminated
employee/Shareholder shall not be purchased for a price greater than the price
determined under the provisions of Paragraph 5 hereof.
4. Disability of Shareholder. If a Shareholder shall become totally
disabled, the Corporation or the remaining Shareholders shall have the option to
purchase all, but not less than all of the disabled Shareholder's shares. The
option to purchase shall be exercised within thirty (30) days from the
commencement of the total disability. If neither the Shareholder nor the
Corporation exercises the option within the first thirty (30) day period, the
options shall be restored every ninety (90) days thereafter. Should the
Shareholders exercise said option, they shall purchase the disabled
Shareholder's shares in the percentage of their respective stock ownership in
the Corporation to all the outstanding stock of the Corporation exclusive of the
shares owned by the disable Shareholder.
"Totally disabled" for the purpose of this Agreement shall mean that as
a result of physical and/or mental illness, a Shareholder is unable to perform
his duties for a period of six (6) consecutive months and his disability shall
be deemed to have commenced at the end of said six (6) month period.
5. Valuation.
A. During the twelve (12) months from the execution date of this
Agreement, the price for purposes of this contract for the sale of the shares of
the Corporation shall be an amount as determined by the majority Shareholder.
This value will not exceed the red book value of the shares.
B. Every twelve (12) months thereafter, the majority shareholder and
the Corporation shall stipulate the agreed value of the shares of stock to be
effective during the next twelve (12) month period. This value will at no time
exceed the net book value of the shares.
6. Corporate Profits.
If the Division the Shareholder is responsible for does not
attain projected profits established by the Corporation, then the Corporation
shall have the option upon ninety (90) days written notice, to repurchase the
shares from the Shareholder. The price per share for the buyout will be
established pursuant to the valuations set out in Paragraph 5 of this Agreement.
7. Payment.
A. Payment of the price for the shares of stock purchased by each and
any of the parties hereunder shall be made as follows:
(i) At the closing, any purchaser may pay in cash the total aggregate
purchase price
<PAGE> 4
of all shares being purchased thereunder in exchange for the receipt of
certificates for the shares of stock so purchased, duly endorsed to the
purchaser of in blank, provided, however, if the selling Shareholder or personal
representative of a deceased Shareholder is selling less than ten percent (10%)
of the stock of the outstanding stock of the Corporation, the same must be paid
for in cash; and
(ii) At the closing, if the Purchaser does not elect to pay the purchase price
in full in cash as hereinabove provided, he shall make an initial payment in
cash of any amount not less than twenty-five percent (25%) of the total purchase
price for the outstanding shares purchased by him or the available proceeds of
all policies of insurance on the life of a deceased Shareholder, whichever
amount is the greater. Such initial payment shall be paid by the purchaser to
the selling Shareholder or his estate and the balance of the purchase price, if
any, remaining after credit from any such initial payment shall be payable in
not more than two (2) equal annual installments under the terms of a negotiable
promissory note dated as of the closing, bearing interest at the rate of ten
percent (10%) per annum on the unpaid balance. The terms of the installment
promissory note as described hereinabove shall provide for acceleration, at the
option of the holder thereof, of the entire amount of principal and interest
upon a default for a period of thirty (30) days or more in the payment of any
installment of principal or interest, and shall provide also for prepayment of
any or all installments without penalty on interest after the date of such
prepayment. The first
<PAGE> 5
payment under such note shall be made within thirty (30) days after the close of
the first fiscal year subsequent to the initial payment.
B. So long as any part of the purchase price of the shares of stock
sold to the Corporation in accordance with this Agreement remains unpaid, the
Corporation shall not without the prior consent of the holder of any such note
being first obtained:
(i) Declare or pay any dividends on its common stock in excess of the
dividend paid on its common stock on a per share basis in the fiscal year
preceding the year of the issuance of said installment promissory note.
(ii) Reorganize its capital structure.
(iii) Merge or consolidate with any other corporation, reorganize or
otherwise sell any of its assets except in the regular course of business.
(iv) Will not issue any new or additional shares of stock nor issue any
authorized but unissued shares of stock.
(v) So long as any or all of the purchase price of the shares of stock
of the Corporation sold to the Corporation shall remain unpaid, the holder of
such installment promissory note shall have the right to examine the bonds and
records of the Corporation and from time to time and at reasonable times and
places receive copies or reports and federal income tax returns prepared for or
on behalf of the Corporation.
8. Miscellaneous.
A. The parties hereto agree that when any stock is purchased pursuant
to this Agreement that the Corporation, the Shareholder and the personal
representative of any deceased Shareholder shall do all things and execute and
deliver all papers as may be necessary fully to consummate such purchase in
accordance with the terms of this Agreement.
B. Each stock certificate representing shares of stock of the
Corporation now or hereafter held by the Shareholders during the term of this
Agreement except as otherwise herein provided shall be stamped with a legend
stating the following:
<PAGE> 6
Transfers of shares of the Corporation shall be made on the share
records of the Corporation only by the holder of record thereof, in person or by
his duly authorized attorney, upon surrender for cancellation of the certificate
or certificates representing such shares, with an assignment or power of
transfer endorsed thereon or delivered therewith, duly executed, with such proof
of the authenticity of the signature and of authority to transfer and of payment
of transfer taxes as the Corporation or its agents may require.
The Corporation shall be entitled to treat the holder of record of any
share or shares as the absolute owner thereof for all purposes and, accordingly,
shall not be bound to recognize any legal, equitable or other claim to, or
interest in, such share or shares on the part of any person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by law.
C. Any and all notices, designations, consents, offers, acceptances or
other communications provided for herein shall be given in writing by Certified
mail which shall be addressed in the case of the Corporation to its principal
office and in the case of a Shareholder, to his or its address appearing on the
stock records of the Corporation or such other address as may be designated by
him or it.
D. The invalidity or unenforceability of any particular provision or
provisions of this Agreement shall not affect the other provisions hereof and
the Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted. No change, modification or alteration of
the terms of this Agreement shall be valid unless the same shall be in writing
signed by all of the parties who are then bound by the terms hereof. This
Agreement shall terminate upon the occurrence of any of the following events:
(i) Cessation of the Corporation's business;
(ii) Bankruptcy, receivership or dissolution of the Corporation;
(iii) The voluntary agreement of the parties who are then bound by the
terms hereof; and
(iv) As otherwise provided herein.
THIS AGREEMENT shall be binding upon the parties hereto, their heirs,
personal representatives, successors and assigns.
THIS AGREEMENT cancels, terminates and supersedes all prior agreements
of the parties to any of them respecting any and all subject matter contained
herein.
THIS AGREEMENT shall be governed by the laws of the State of Ohio.
IN WITNESS WHEREOF, the Shareholder have hereunto set their hands and
the Corporation has caused the corporate name to be executed and signed by its
duly authorized officers hereto the month, day and year first hereinabove
written.
<PAGE> 7
WITNESSED BY: INTERNATIONAL TOTAL SERVICES, INC.
BY:
- ----------------------------- --------------------------------------
Robert A. Weitzel
AND:
- ----------------------------- --------------------------------------
Bob Swartz
<PAGE> 1
Exhibit 10.16
BUY-SELL AGREEMENT
This Agreement made and entered into this 27 day of November, 1996 by
and between Bob Swartz (hereinafter referred to individually as "Shareholder")
and International Total Services, Inc., an Ohio corporation having its principal
place of business at 5005 Rockside Road, Cleveland, Ohio 44131 (hereinafter
referred to as "Corporation").
RECITALS
WHEREAS, the Shareholder is the beneficial owner and holder of record
of issued and outstanding common stock of the Corporation, and the individual
ownership is as follows:
Shareholder Number of Shares
Bob Swartz 2.00
WHEREAS, it is the desire of the Corporation and the Shareholder in
order to provide for the continuity and harmonious management in the affairs of
the Corporation that ownership of this share in the Corporation shall be
retained by the Shareholder of the Corporation; and
WHEREAS, the Shareholder in consideration hereof desire to place
certain restrictions on the right of the Shareholder to sell or otherwise
dispose of his shares during his term of employment, and further to provide for
the purchase by the Corporation of the stock of a deceased Shareholder and to
avoid deadlock in control of the Corporation.
NOW, THEREFORE, the parties agree:
A. No shareholder shall offer or transfer any shares or interests
therein by sale, gift, exchange, assignment, pledge, contribution to a trust or
otherwise except with prior written consent of the Corporation and compliance
with the provisions hereinafter set forth.
B. A Shareholder desiring to sell or transfer all or any part of the
shares owned by said Shareholder shall first give written notice to the
Corporation and to the other Shareholders for any such proposed sale or
transfer, such notice shall state the name and address of the proposed
transferee, the number of shares, the price, terms of payment and conditions of
such proposed sale or transfer.
C. The Corporation shall have the exclusive option for a period of
ninety (90) days after receipt of such notice in which to purchase, and to the
extent the company does not exercise its said option, the remaining Shareholders
shall have the exclusive option for a period of sixty (60) days next succeeding
the expiration of the first ninety (90) day option period to purchase the shares
so proposed to be sold or transferred by the Shareholder giving notice, at the
price stated in such notice, or at the price determined under the provisions of
Paragraph 5 hereof, whichever is less. The right of the other Shareholders to
purchase such stock offered for sale shall be in the percentage their respective
stock ownership in the Corporation is to all the outstanding stock of the
Corporation, exclusive of the shares owned by the selling or transferring
Shareholder. If any Shareholder fails to exercise his option to purchase shares
or any portion thereof within said sixty (60) days, the remaining
Shareholder(s), if any, shall have an additional thirty (30) days in which to
purchase the shares or any
<PAGE> 2
portion thereof covered by said option, under the same terms as otherwise stated
herein. The above mentioned options shall be exercised by giving written notice
thereof to the selling Shareholder, to the Corporation, and to any other
Shareholder. If an option is exercised, the party exercising same shall also
specify a choice of the alternate methods of payment of the purchase price which
are provided for in Paragraph 6 hereof and a date for closing which shall be not
more than thirty (30) days after date of exercise of option. To the extent the
Corporation nor the other Shareholder(s) do not elect to exercise the aforesaid
options, then the offering Shareholder shall be free, for an ensuing period of
thirty (30) days from and after the expiration of the Option periods herein
provided, to sell the shares in the Corporation to the third party, free and
clear, provided the following conditions are satisfied (i) the purchase price is
no higher than set forth in the original notice to the Corporation and the other
Shareholders: (ii) the purchase would not contravene the Corporation's Articles
of Incorporation: and (iii) the transferee must prior to or simultaneously with
such transfer, enter into an Agreement with the remaining parties hereto
substantially identical to this Agreement restricting further transfer of such
shares. If no such sale is consummated with the applicable periods provided for
above, the restrictions and options herein provided shall be restored and shall
continue in full force and effect, and so long as these restrictions and opinion
remain in effect, the offering Shareholder shall not thereafter sell or transfer
any of the shares in the Corporation without first giving the Corporation and
the other Shareholder(s) notice as herein provided and otherwise complying with
the foregoing provisions.
D. No Shareholder shall pledge, hypothecate and/or in any other way
encumber all or any party of his shares of stock in the Corporation as
collateral for loans or for any other purpose without the prior written consent
of the Corporation and the other Shareholder(s).
E. Any shares of the stock of the Corporation sold or transferred by
one stockholder to any other stockholder(s) at any time shall be, become and
remain subject to all the provisions of this Agreement in the same manner and to
the same extent as though owned by such other stockholders at the date of the
execution hereof.
2. Death of Shareholder.
A. Upon the death of the Shareholder, all of the shares of stock in the
Corporation owned by said Shareholder and to which he or his personal
representatives shall be entitled shall be sold to and purchased by the
Corporation from his personal representatives at the net book value and as
hereinafter provided, or pursuant to the price set forth in Paragraph 5 of this
Agreement.
B. The closing of any purchase of the Corporation stock on the sale of
the Shareholder shall take place at the office of the Corporation and on a date
agreed to by the Corporation and the personal representatives of the deceased
Shareholder but in no case more than one hundred eighty (180) days following the
date of qualification of the personal representatives of the deceased
Shareholder or of the Shareholder.
<PAGE> 3
3. Termination of Employment. Upon the voluntary or involuntary
termination of a Shareholder's employment with the Corporation, the Corporation
shall purchase the shares of such Shareholder. The shares of the terminated
employee/Shareholder shall not be purchased for a price greater than the price
determined under the provisions of Paragraph 5 hereof.
4. Disability of Shareholder. If a Shareholder shall become totally
disabled, the Corporation or the remaining Shareholders shall have the option to
purchase all, but not less than all of the disabled Shareholder's shares. The
option to purchase shall be exercised within thirty (30) days from the
commencement of the total disability. If neither the Shareholder nor the
Corporation exercises the option within the first thirty (30) day period, the
options shall be restored every ninety (90) days thereafter. Should the
Shareholders exercise said option, they shall purchase the disabled
Shareholder's shares in the percentage of their respective stock ownership in
the Corporation to all the outstanding stock of the Corporation exclusive of the
shares owned by the disable Shareholder.
"Totally disabled" for the purpose of this Agreement shall mean that as
a result of physical and/or mental illness, a Shareholder is unable to perform
his duties for a period of six (6) consecutive months and his disability shall
be deemed to have commenced at the end of said six (6) month period.
5. Valuation.
A. During the twelve (12) months from the execution date of this
Agreement, the price for purposes of this contract for the sale of the shares of
the Corporation shall be an amount as determined by the majority Shareholder.
This value will not exceed the red book value of the shares.
B. Every twelve (12) months thereafter, the majority shareholder and
the Corporation shall stipulate the agreed value of the shares of stock to be
effective during the next twelve (12) month period. This value will at no time
exceed the net book value of the shares.
6. Corporate Profits.
If the Division the Shareholder is responsible for does not
attain projected profits established by the Corporation, then the Corporation
shall have the option upon ninety (90) days written notice, to repurchase the
shares from the Shareholder. The price per share for the buyout will be
established pursuant to the valuations set out in Paragraph 5 of this Agreement.
7. Payment.
A. Payment of the price for the shares of stock purchased by each and
any of the parties hereunder shall be made as follows:
(i) At the closing, any purchaser may pay in cash the total aggregate
purchase price
<PAGE> 4
of all shares being purchased thereunder in exchange for the receipt of
certificates for the shares of stock so purchased, duly endorsed to the
purchaser of in blank, provided, however, if the selling Shareholder or personal
representative of a deceased Shareholder is selling less than ten percent (10%)
of the stock of the outstanding stock of the Corporation, the same must be paid
for in cash; and
(ii) At the closing, if the Purchaser does not elect to pay the
purchase price in full in cash as hereinabove provided, he shall make an initial
payment in cash of any amount not less than twenty-five percent (25%) of the
total purchase price for the outstanding shares purchased by him or the
available proceeds of all policies of insurance on the life of a deceased
Shareholder, whichever amount is the greater. Such initial payment shall be paid
by the purchaser to the selling Shareholder or his estate and the balance of the
purchase price, if any, remaining after credit from any such initial payment
shall be payable in not more than two (2) equal annual installments under the
terms of a negotiable promissory note dated as of the closing, bearing interest
at the rate of ten percent (10%) per annum on the unpaid balance. The terms of
the installment promissory note as described hereinabove shall provide for
acceleration, at the option of the holder thereof, of the entire amount of
principal and interest upon a default for a period of thirty (30) days or more
in the payment of any installment of principal or interest, and shall provide
also for prepayment of any or all installments without penalty on interest after
the date of such prepayment. The first
<PAGE> 5
payment under such note shall be made within thirty (30) days after the close of
the first fiscal year subsequent to the initial payment.
B. So long as any part of the purchase price of the shares of stock
sold to the Corporation in accordance with this Agreement remains unpaid, the
Corporation shall not without the prior consent of the holder of any such note
being first obtained:
(i) Declare or pay any dividends on its common stock in excess of the
dividend paid on its common stock on a per share basis in the fiscal year
preceding the year of the issuance of said installment promissory note.
(ii) Reorganize its capital structure.
(iii) Merge or consolidate with any other corporation, reorganize or
otherwise sell any of its assets except in the regular course of business.
(iv) Will not issue any new or additional shares of stock nor issue any
authorized but unissued shares of stock.
(v) So long as any or all of the purchase price of the shares of stock
of the Corporation sold to the Corporation shall remain unpaid, the holder of
such installment promissory note shall have the right to examine the bonds and
records of the Corporation and from time to time and at reasonable times and
places receive copies or reports and federal income tax returns prepared for or
on behalf of the Corporation.
8. Miscellaneous.
A. The parties hereto agree that when any stock is purchased pursuant
to this Agreement that the Corporation, the Shareholder and the personal
representative of any deceased Shareholder shall do all things and execute and
deliver all papers as may be necessary fully to consummate such purchase in
accordance with the terms of this Agreement.
B. Each stock certificate representing shares of stock of the
Corporation now or hereafter held by the Shareholders during the term of this
Agreement except as otherwise herein provided shall be stamped with a legend
stating the following:
<PAGE> 6
Transfers of shares of the Corporation shall be made on the share
records of the Corporation only by the holder of record thereof, in person or by
his duly authorized attorney, upon surrender for cancellation of the certificate
or certificates representing such shares, with an assignment or power of
transfer endorsed thereon or delivered therewith, duly executed, with such proof
of the authenticity of the signature and of authority to transfer and of payment
of transfer taxes as the Corporation or its agents may require.
The Corporation shall be entitled to treat the holder of record of any
share or shares as the absolute owner thereof for all purposes and, accordingly,
shall not be bound to recognize any legal, equitable or other claim to, or
interest in, such share or shares on the part of any person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by law.
C. Any and all notices, designations, consents, offers, acceptances or
other communications provided for herein shall be given in writing by Certified
mail which shall be addressed in the case of the Corporation to its principal
office and in the case of a Shareholder, to his or its address appearing on the
stock records of the Corporation or such other address as may be designated by
him or it.
D. The invalidity or unenforceability of any particular provision or
provisions of this Agreement shall not affect the other provisions hereof and
the Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted. No change, modification or alteration of
the terms of this Agreement shall be valid unless the same shall be in writing
signed by all of the parties who are then bound by the terms hereof. This
Agreement shall terminate upon the occurrence of any of the following events:
(i) Cessation of the Corporation's business;
(ii) Bankruptcy, receivership or dissolution of the Corporation;
(iii) The voluntary agreement of the parties who are then bound by the
terms hereof; and
(iv) As otherwise provided herein.
THIS AGREEMENT shall be binding upon the parties hereto, their heirs,
personal representatives, successors and assigns.
<PAGE> 7
THIS AGREEMENT cancels, terminates and supersedes all prior agreements
of the parties to any of them respecting any and all subject matter contained
herein.
THIS AGREEMENT shall be governed by the laws of the State of Ohio.
IN WITNESS WHEREOF, the Shareholder have hereunto set their hands and
the Corporation has caused the corporate name to be executed and signed by its
duly authorized officers hereto the month, day and year first hereinabove
written.
WITNESSED BY: INTERNATIONAL TOTAL SERVICES, INC.
BY:
- ----------------------------- --------------------------------------
Robert A. Weitzel
AND:
- ----------------------------- ------------------------------------
Scott E. Brewer
<PAGE> 1
Exhibit 10.17
BUY-SELL AGREEMENT
This Agreement made and entered into this 27 day of February, 1997 by
and between Bob Swartz (hereinafter referred to individually as "Shareholder")
and International Total Services, Inc., an Ohio corporation having its principal
place of business at 5005 Rockside Road, Cleveland, Ohio 44131 (hereinafter
referred to as "Corporation").
RECITALS
WHEREAS, the Shareholder is the beneficial owner and holder of record
of issued and outstanding common stock of the Corporation, and the individual
ownership is as follows:
Shareholder Number of Shares
Bob Swartz .75
WHEREAS, it is the desire of the Corporation and the Shareholder in
order to provide for the continuity and harmonious management in the affairs of
the Corporation that ownership of this share in the Corporation shall be
retained by the Shareholder of the Corporation; and
WHEREAS, the Shareholder in consideration hereof desire to place
certain restrictions on the right of the Shareholder to sell or otherwise
dispose of his shares during his term of employment, and further to provide for
the purchase by the Corporation of the stock of a deceased Shareholder and to
avoid deadlock in control of the Corporation.
NOW, THEREFORE, the parties agree:
A. No shareholder shall offer or transfer any shares or interests
therein by sale, gift, exchange, assignment, pledge, contribution to a trust or
otherwise except with prior written consent of the Corporation and compliance
with the provisions hereinafter set forth.
B. A Shareholder desiring to sell or transfer all or any part of the
shares owned by said Shareholder shall first give written notice to the
Corporation and to the other Shareholders for any such proposed sale or
transfer, such notice shall state the name and address of the proposed
transferee, the number of shares, the price, terms of payment and conditions of
such proposed sale or transfer.
C. The Corporation shall have the exclusive option for a period of
ninety (90) days after receipt of such notice in which to purchase, and to the
extent the company does not exercise its said option, the remaining Shareholders
shall have the exclusive option for a period of sixty (60) days next succeeding
the expiration of the first ninety (90) day option period to purchase the shares
so proposed to be sold or transferred by the Shareholder giving notice, at the
price stated in such notice, or at the price determined under the provisions of
Paragraph 5 hereof, whichever is less. The right of the other Shareholders to
purchase such stock offered for sale shall be in the percentage their respective
stock ownership in the Corporation is to all the outstanding stock of the
Corporation, exclusive of the shares owned by the selling or transferring
Shareholder. If any Shareholder fails to exercise his option to purchase shares
or any portion thereof within said sixty (60) days, the remaining
Shareholder(s), if any, shall have an additional thirty (30) days in which to
purchase the shares or any
<PAGE> 2
portion thereof covered by said option, under the same terms as otherwise stated
herein. The above mentioned options shall be exercised by giving written notice
thereof to the selling Shareholder, to the Corporation, and to any other
Shareholder. If an option is exercised, the party exercising same shall also
specify a choice of the alternate methods of payment of the purchase price which
are provided for in Paragraph 6 hereof and a date for closing which shall be not
more than thirty (30) days after date of exercise of option. To the extent the
Corporation nor the other Shareholder(s) do not elect to exercise the aforesaid
options, then the offering Shareholder shall be free, for an ensuing period of
thirty (30) days from and after the expiration of the Option periods herein
provided, to sell the shares in the Corporation to the third party, free and
clear, provided the following conditions are satisfied (i) the purchase price is
no higher than set forth in the original notice to the Corporation and the other
Shareholders: (ii) the purchase would not contravene the Corporation's Articles
of Incorporation: and (iii) the transferee must prior to or simultaneously with
such transfer, enter into an Agreement with the remaining parties hereto
substantially identical to this Agreement restricting further transfer of such
shares. If no such sale is consummated with the applicable periods provided for
above, the restrictions and options herein provided shall be restored and shall
continue in full force and effect, and so long as these restrictions and opinion
remain in effect, the offering Shareholder shall not thereafter sell or transfer
any of the shares in the Corporation without first giving the Corporation and
the other Shareholder(s) notice as herein provided and otherwise complying with
the foregoing provisions.
D. No Shareholder shall pledge, hypothecate and/or in any other way
encumber all or any party of his shares of stock in the Corporation as
collateral for loans or for any other purpose without the prior written consent
of the Corporation and the other Shareholder(s).
E. Any shares of the stock of the Corporation sold or transferred by
one stockholder to any other stockholder(s) at any time shall be, become and
remain subject to all the provisions of this Agreement in the same manner and to
the same extent as though owned by such other stockholders at the date of the
execution hereof.
2. Death of Shareholder.
A. Upon the death of the Shareholder, all of the shares of stock in the
Corporation owned by said Shareholder and to which he or his personal
representatives shall be entitled shall be sold to and purchased by the
Corporation from his personal representatives at the net book value and as
hereinafter provided, or pursuant to the price set forth in Paragraph 5 of this
Agreement.
B. The closing of any purchase of the Corporation stock on the sale of
the Shareholder shall take place at the office of the Corporation and on a date
agreed to by the Corporation and the personal representatives of the deceased
Shareholder but in no case more than one hundred eighty (180) days following the
date of qualification of the personal representatives of the deceased
Shareholder or of the Shareholder.
<PAGE> 3
3. Termination of Employment. Upon the voluntary or involuntary
termination of a Shareholder's employment with the Corporation, the Corporation
shall purchase the shares of such Shareholder. The shares of the terminated
employee/Shareholder shall not be purchased for a price greater than the price
determined under the provisions of Paragraph 5 hereof.
4. Disability of Shareholder. If a Shareholder shall become totally
disabled, the Corporation or the remaining Shareholders shall have the option to
purchase all, but not less than all of the disabled Shareholder's shares. The
option to purchase shall be exercised within thirty (30) days from the
commencement of the total disability. If neither the Shareholder nor the
Corporation exercises the option within the first thirty (30) day period, the
options shall be restored every ninety (90) days thereafter. Should the
Shareholders exercise said option, they shall purchase the disabled
Shareholder's shares in the percentage of their respective stock ownership in
the Corporation to all the outstanding stock of the Corporation exclusive of the
shares owned by the disable Shareholder.
"Totally disabled" for the purpose of this Agreement shall mean that as
a result of physical and/or mental illness, a Shareholder is unable to perform
his duties for a period of six (6) consecutive months and his disability shall
be deemed to have commenced at the end of said six (6) month period.
5. Valuation.
A. During the twelve (12) months from the execution date of this
Agreement, the price for purposes of this contract for the sale of the shares of
the Corporation shall be an amount as determined by the majority Shareholder.
This value will not exceed the red book value of the shares.
B. Every twelve (12) months thereafter, the majority shareholder and
the Corporation shall stipulate the agreed value of the shares of stock to be
effective during the next twelve (12) month period. This value will at no time
exceed the net book value of the shares.
6. Corporate Profits.
If the Division the Shareholder is responsible for does not attain
projected profits established by the Corporation, then the Corporation shall
have the option upon ninety (90) days written notice, to repurchase the shares
from the Shareholder. The price per share for the buyout will be established
pursuant to the valuations set out in Paragraph 5 of this Agreement.
7. Payment.
A. Payment of the price for the shares of stock purchased by each and
any of the parties hereunder shall be made as follows:
(i) At the closing, any purchaser may pay in cash the total aggregate
purchase price
<PAGE> 4
of all shares being purchased thereunder in exchange for the receipt of
certificates for the shares of stock so purchased, duly endorsed to the
purchaser of in blank, provided, however, if the selling Shareholder or personal
representative of a deceased Shareholder is selling less than ten percent (10%)
of the stock of the outstanding stock of the Corporation, the same must be paid
for in cash; and
(ii) At the closing, if the Purchaser does not elect to pay the
purchase price in full in cash as hereinabove provided, he shall make an initial
payment in cash of any amount not less than twenty-five percent (25%) of the
total purchase price for the outstanding shares purchased by him or the
available proceeds of all policies of insurance on the life of a deceased
Shareholder, whichever amount is the greater. Such initial payment shall be paid
by the purchaser to the selling Shareholder or his estate and the balance of the
purchase price, if any, remaining after credit from any such initial payment
shall be payable in not more than two (2) equal annual installments under the
terms of a negotiable promissory note dated as of the closing, bearing interest
at the rate of ten percent (10%) per annum on the unpaid balance. The terms of
the installment promissory note as described hereinabove shall provide for
acceleration, at the option of the holder thereof, of the entire amount of
principal and interest upon a default for a period of thirty (30) days or more
in the payment of any installment of principal or interest, and shall provide
also for prepayment of any or all installments without penalty on interest after
the date of such prepayment. The first
<PAGE> 5
payment under such note shall be made within thirty (30) days after the close of
the first fiscal year subsequent to the initial payment.
B. So long as any part of the purchase price of the shares of stock
sold to the Corporation in accordance with this Agreement remains unpaid, the
Corporation shall not without the prior consent of the holder of any such note
being first obtained:
(i) Declare or pay any dividends on its common stock in excess of the
dividend paid on its common stock on a per share basis in the fiscal year
preceding the year of the issuance of said installment promissory note.
(ii) Reorganize its capital structure.
(iii) Merge or consolidate with any other corporation, reorganize or
otherwise sell any of its assets except in the regular course of business.
(iv) Will not issue any new or additional shares of stock nor issue any
authorized but unissued shares of stock.
(v) So long as any or all of the purchase price of the shares of stock
of the Corporation sold to the Corporation shall remain unpaid, the holder of
such installment promissory note shall have the right to examine the bonds and
records of the Corporation and from time to time and at reasonable times and
places receive copies or reports and federal income tax returns prepared for or
on behalf of the Corporation.
8. Miscellaneous.
A. The parties hereto agree that when any stock is purchased pursuant
to this Agreement that the Corporation, the Shareholder and the personal
representative of any deceased Shareholder shall do all things and execute and
deliver all papers as may be necessary fully to consummate such purchase in
accordance with the terms of this Agreement.
B. Each stock certificate representing shares of stock of the
Corporation now or hereafter held by the Shareholders during the term of this
Agreement except as otherwise herein provided shall be stamped with a legend
stating the following:
<PAGE> 6
Transfers of shares of the Corporation shall be made on the share
records of the Corporation only by the holder of record thereof, in person or by
his duly authorized attorney, upon surrender for cancellation of the certificate
or certificates representing such shares, with an assignment or power of
transfer endorsed thereon or delivered therewith, duly executed, with such proof
of the authenticity of the signature and of authority to transfer and of payment
of transfer taxes as the Corporation or its agents may require.
The Corporation shall be entitled to treat the holder of record of any
share or shares as the absolute owner thereof for all purposes and, accordingly,
shall not be bound to recognize any legal, equitable or other claim to, or
interest in, such share or shares on the part of any person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by law.
C. Any and all notices, designations, consents, offers, acceptances or
other communications provided for herein shall be given in writing by Certified
mail which shall be addressed in the case of the Corporation to its principal
office and in the case of a Shareholder, to his or its address appearing on the
stock records of the Corporation or such other address as may be designated by
him or it.
D. The invalidity or unenforceability of any particular provision or
provisions of this Agreement shall not affect the other provisions hereof and
the Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted. No change, modification or alteration of
the terms of this Agreement shall be valid unless the same shall be in writing
signed by all of the parties who are then bound by the terms hereof. This
Agreement shall terminate upon the occurrence of any of the following events:
(i) Cessation of the Corporation's business;
(ii) Bankruptcy, receivership or dissolution of the Corporation;
(iii) The voluntary agreement of the parties who are then bound by the
terms hereof; and
(iv) As otherwise provided herein.
THIS AGREEMENT shall be binding upon the parties hereto, their heirs,
personal representatives, successors and assigns.
THIS AGREEMENT cancels, terminates and supersedes all prior agreements
of the parties to any of them respecting any and all subject matter contained
herein.
THIS AGREEMENT shall be governed by the laws of the State of Ohio.
IN WITNESS WHEREOF, the Shareholder have hereunto set his hand and the
Corporation has caused the corporate name to be executed and signed by its duly
authorized officers hereto the month, day and year first hereinabove written.
<PAGE> 7
WITNESSED BY: INTERNATIONAL TOTAL SERVICES, INC.
BY:
- ----------------------------- ------------------------------
Robert A. Weitzel
AND:
- ----------------------------- ------------------------------
Bob Swartz
<PAGE> 1
Exhibit 10.18
DIRECTORS' DEFERRED COMPENSATION PLAN
INTERNATIONAL TOTAL SERVICES, INC. (the "Company") desires to establish
a Directors' Deferred Compensation Plan (the "Plan") to assist it in attracting
and retaining persons of competence and stature to serve as outside directors by
enabling them to defer receipt of the fees payable to them by the Company for
their services as directors.
Therefore, the Company hereby adopts the Plan as hereinafter set forth:
1. EFFECTIVE DATE. The Plan shall apply to all elections to defer made
after its adoption and shall apply to all director's fees payable with respect
to periods commencing on or after the consummation of the initial registered
public offering of the shares of the Company.
2. PARTICIPATION. Each director of the Company (a) who is duly elected
or appointed to the Company's Board of Directors and (b) who receives fees for
services as a director may elect to defer receipt of fees otherwise payable to
him, as provided for in the Plan. Each such director who elects to defer fees is
a participant ("Participant")in the Plan.
3. ADMINISTRATION. The Company's Board of Directors appoints Robert A.
Weitzel and Robert A. Swartz, each of whom is an officer of the Company who is
not eligible to become a Participant, to act as the Administrator of the Plan
("Administrators"). The Administrators shall serve at the pleasure of the Board
of Directors and shall administer, construe and interpret the Plan. The
Administrators shall not be liable for any act done or determination made in
good faith. The Board of Directors shall have the power to designate additional
or replacement Administrators at its discretion.
4. DEFERRALS.
(a) DEFERRAL ELECTION. Any eligible director may file with the
Administrators of the Plan, prior to January 1 of each year (except for the year
1997, for which any filing must be made by the 10th day after the adoption of
the plan) an election in writing to participate in the Plan for that year or for
that year and succeeding years. Each director who first becomes eligible to
participate after the date of the adoption of this Plan may make an election for
the portion of the year in which he first became eligible with respect to fees
for services to be rendered after the date of such election. When a deferral
election is filed, no fees will be paid for services so designated for that year
(or portion thereof) or, if the election so provides, for that year and for
succeeding years. If an election has been filed to participate in the Plan for
succeeding years and a Participant wishes to discontinue deferral, an election
to terminate participation in the Plan for any year must be filed prior to
January 1 of that year.
(b) ACCOUNTING. The Company shall maintain appropriate records which
shall list and reflect each Participant's credits and valuations ("Deferral
Accounts"). The Company shall credit to each Participant's Deferral Account an
amount equal to the fees that would have been paid to him if he had not elected
to participate in the Plan. The credit shall be made on the date on which the
fee
<PAGE> 2
would have been paid absent a deferral election. No funds shall be
segregated into any Deferral Account; each such account shall represent a
general unsecured obligation of the Company.
(c) VALUATION. Until the first distribution is made to a Participant,
amounts credited to a Deferral Account of such Participant shall be increased or
decreased as measured by the market value of the Company's Common Shares plus
the value of dividends or other distributions on the Company's Common Shares.
Each amount credited to a Deferral Account shall be assigned a number of Share
Units (including fractions of a Share) determined by dividing the amount
credited to the Deferral Account, whether in lieu of payment of fees for service
as a director or as a dividend or other distribution attributable to such Share
Units, by the fair market value of a share of the Company's Common Shares on the
date of credit. Fair market value shall be the mean between the high and low
selling price of a share of the Company's Common Shares on the Nasdaq National
Market on the applicable date or, if no sales occurred on such date, on the most
recent earlier date on which sales occurred. Each Share Unit shall have the
value of a Common Share of the Company. The number of Share Units shall be
adjusted to reflect stock splits, stock dividends or other capital adjustments
effected without receipt of consideration by the Company.
5. DISTRIBUTION. A Participant shall elect in writing, at the time he
makes each deferral election under subparagraph 4(a), the year in which
distribution of the credits to his Deferral Account to which the deferral
election relates shall commence, and whether distribution will be made in a lump
sum or in installments, as permitted in the second succeeding sentence of this
Section 5. Payment shall commence not earlier than the January 1 following the
year in which the Participant attains age 72. Commencing on the day prior to the
date of the first distribution to a Participant and continuing thereafter,
amounts credited to the Deferral Account of such Participant shall be credited
with interest, compounded quarterly, calculated at a rate per annum for each
fiscal quarter of the Company equal to the prime rate of interest published in
THE WALL STREET JOURNAL on the first business day of that quarter. Payment may
be made in one lump sum, or in five or ten equal annual installments of the
Deferral Account balance allocated to such installment payments determined as of
the December 31 immediately preceding commencement of distribution, with each
payment accompanied by any interest credited during the period preceding payment
of the installment. The time of and method of distribution of benefits may vary
with each separate election, but each election shall be irrevocable. The
Deferral Accounts do not represent rights to acquire the Company's Common
Shares; payment shall be made only in cash.
6. DEATH OR DISABILITY.
(a) If a Participant's service is terminated by reason of death or
disability prior to the distribution of any portion of his benefits, the Company
shall, within ninety (90) days of the date of service termination, commence
distribution of benefits to the Participant (or to his beneficiary or
beneficiaries in the event of death). Distribution shall be made in accordance
with the method of distribution elected by the Participant pursuant to paragraph
5 hereof. If a Participant's death or disability occurs after distribution of
benefits hereunder has begun, the Company shall continue to make distributions
to the Participant (or to his beneficiary or beneficiaries in the event of
death) in accordance with the methods of distribution elected by the Participant
pursuant to paragraph 5 hereof.
<PAGE> 3
(b) Each Participant may designate one or more beneficiaries to receive
distributions in the event of the Participant's death by filing with the Company
a beneficiary designation on a form provided. The designated beneficiary or
beneficiaries may be changed by a Participant at any time prior to his death by
the delivery to the Company of a new beneficiary designation form. If no
beneficiary shall have been designated, or if no designated beneficiary shall
survive the Participant, distributions pursuant to this provision shall be made
to the Participant's estate.
7. ASSIGNMENT AND ALIENATION OF BENEFITS. To the extent permitted by
law, the right of any Participant to any account, benefit or payment hereunder
shall not be subject in any manner to attachment or other legal process for the
debts of such Participant, and no account, benefit or payment shall be subject
to anticipation, alienation, sale, transfer, assignment or encumbrance.
8. AMENDMENT OR TERMINATION. The Board of Directors of the Company may
terminate this Plan at any time or amend it at any time and from time to time.
No amendment or termination of this Plan shall affect the rights of a
Participant accrued prior thereto.
9. TAXES. The Company shall not be responsible for the tax consequences
under federal, state or local law of any election made by any Participant under
the Plan. All payments under the Plan shall be subject to withholding and
reporting requirements to the extent permitted by applicable law.
10. APPLICABLE LAW. This Plan shall be interpreted under the laws of
the State of Ohio.
IN WITNESS WHEREOF, the Company has caused this Plan to be adopted, and
executed by its Chief Executive Officer, this ____ day of _____________, 1997.
By: ____________________________
Robert A. Weitzel,
Chief Executive Officer
-3-
<PAGE> 1
EXHIBIT 10.19
INTERNATIONAL TOTAL SERVICES, INC.
LONG-TERM INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of the International Total Services, Inc. Long-Term
Incentive Plan (the "Plan") is to enable International Total Services, Inc. (the
"Company") to attract, retain and reward key employees of the Company and of its
Affiliates and to strengthen the mutuality of interests between such key
employees and the Company's shareholders by offering such key employees equity
or equity-based incentives.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Affiliate" means any entity (other than the Company and its
Subsidiaries) that is designated by the Board as a participating employer
under the Plan.
(b) "Award" means any award of Stock Options, Restricted Shares,
Deferred Shares, Share Purchase Rights, Share Appreciation Rights or Other
Share-Based Awards under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Change in Control" has the meaning set forth in Section 11(b).
(e) "Change in Control Price" has the meaning set forth in Section
11(d).
(f) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
(g) "Committee" means the Committee referred to in Section 2.
(h) "Company" means International Total Services, Inc., an Ohio
corporation, or any successor corporation.
(i) "Deferred Shares" means an award of the right to receive Shares at
the end of a specified period, granted pursuant to Section 7.
(j) "Disability" means disability as determined under procedures
established by the Committee for purposes of the Plan.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
<PAGE> 2
(l) "Fair Market Value" means, as of any date, the mean between the
highest and lowest quoted selling price, regular way, of the Shares on such
date on the Nasdaq National Market or, if no such sale of the Shares occurs
on the Nasdaq National Market on such date, then such mean price on the
next preceding day on which the Shares were traded. If the Shares are no
longer traded on the Nasdaq National Market, then the Fair Market Value of
the Shares shall be determined by the Committee in good faith.
(m) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422
of the Code or any successor section thereto.
(n) "Non-Employee Director" has the meaning set forth in Rule
16b-3(b)(3) as promulgated by the Securities and Exchange Commission (the
"Commission") under the Exchange Act, or any successor definition adopted
by the Commission.
(o) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(p) "Other Share-Based Award" means an award granted pursuant to
Section 10 that is valued, in whole or in part, by reference to, or is
otherwise based on, Shares.
(q) "Outside Director" has the meaning set forth in Section 162(m) of
the Code and the regulations promulgated thereunder.
(r) "Plan" means the International Total Services, Inc. Long-Term
Incentive Plan, as amended from time to time.
(s) "Potential Change in Control" has the meaning set forth in Section
11(c).
(t) "Restricted Shares" means an award of shares that is granted
pursuant to Section 6 and is subject to restrictions.
(u) "Section 16 Participant" means a participant under the Plan who is
then subject to Section 16 of the Exchange Act.
(v) "Shares" means the common shares, without par value, of the
Company.
(w) "Share Appreciation Right" means an award of a right to receive an
amount from the Company that is granted pursuant to Section 9.
(x) "Stock Option" or "Option" means any option to purchase Shares
(including Restricted Shares and Deferred Shares, if the Committee so
determines) that is granted Pursuant to Section 5.
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(y) "Share Purchase Right" means an award of the right to purchase
Shares that is granted pursuant to Section 8.
(z) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns
stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by a Committee of the Board (the
"Committee"). The Committee shall consist of three directors of the Company, as
designated by the Board from time to time, all of whom shall be Non-Employee
Directors and Outside Directors. Such directors shall be appointed by the Board
and shall serve as the Committee at the pleasure of the Board. The functions of
the Committee specified in the Plan shall be exercised by the Board if and to
the extent that no Committee exists which has the authority to so administer the
Plan.
The Committee shall have full power to interpret and administer the
Plan and full authority to select the individuals to whom Awards will be granted
and to determine the type and amount of Awards to be granted to each
participant, the consideration, if any, to be paid for such Awards, the timing
of such Awards, the terms and conditions of Awards granted under the Plan, and
the terms and conditions of the related agreements which will be entered into
with participants and to certify that any performance goals are satisfied. As to
the selection of and grant of Awards to participants who are not Section 16
Participants, the Committee may delegate its responsibilities to members of the
Company's management consistent with applicable law.
The Committee shall have the authority to adopt, alter and repeal such
rules, guidelines and practices governing the Plan as it shall, from time to
time, deem advisable; to interpret the terms and provisions of the Plan and any
Award issued under the Plan (and any agreements relating thereto); to direct
employees of the Company or other advisors to prepare such materials or perform
such analyses as the Committee deems necessary or appropriate; and otherwise to
supervise the administration of the Plan.
Any interpretation and administration of the Plan by the Committee, and
all actions and determinations of the Committee, shall be final, binding and
conclusive on the Company, its shareholders, Subsidiaries, Affiliates, all
participants in the Plan, their respective legal representatives, successors and
assigns, and all persons claiming under or through any of them. No member of the
Board or of the Committee shall incur any liability for any action taken or
omitted, or any determination made, in good faith in connection with the Plan.
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SECTION 3. SHARES SUBJECT TO THE PLAN.
(a) Aggregate Shares Subject to the Plan. Subject to adjustment as
provided below in Section 3(c), the total number of Shares reserved and
available for Awards under the Plan is 267,015. Shares issued hereunder may
consist, in whole or in part, of authorized and unissued shares or treasury
shares.
(b) Forfeiture or Termination of Awards of Shares. If any Shares
subject to any Award granted hereunder are forfeited or an Award otherwise
terminates or expires without the issuance of Shares, the Shares subject to
such Award shall again be available for distribution in connection with
future Awards under the Plan as set forth in Section 3(a), unless the
participant who had been awarded such forfeited Shares or the expired or
terminated Award has theretofore received dividends or other benefits of
ownership with respect to such Shares. For purposes hereof, a participant
shall not be deemed to have received a benefit of ownership with respect to
such Shares by the exercise of voting rights or the accumulation of
dividends which are not realized because of the forfeiture of such Shares
or the expiration or termination of the related Award without issuance of
such Shares.
(c) Adjustment. In the event of any merger, reorganization,
consolidation, recapitalization, share dividend, share split, combination
of shares or other change in corporate structure of the Company affecting
the Shares, such substitution or adjustment shall be made in the aggregate
number of Shares reserved for issuance under the Plan, in the number and
option price of shares subject to outstanding options granted under the
Plan, in the number and purchase price of shares subject to outstanding
Share Purchase Rights granted under the Plan, and in the number of shares
subject to Restricted Share Awards, Deferred Share Awards and any other
outstanding Awards granted under the Plan as may be approved by the
Committee, in its sole discretion; provided that the number of shares
subject to any Award shall always be a whole number.
(d) Annual Award Limit. No Participant may be granted Stock Options or
Awards under the Plan with respect to an aggregate of more than 100,000
Shares (subject to adjustment as provided in Section 3(c) hereof) during
any calendar year.
SECTION 4. ELIGIBILITY.
Officers and other key employees of the Company and its Subsidiaries
and Affiliates, if any, who are responsible for or contribute to the management,
growth or profitability of the business of the Company or its Subsidiaries or
Affiliates, if any, are eligible to be granted Awards under the Plan.
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SECTION 5. STOCK OPTIONS.
(a) Grant. Stock Options may be granted alone, in addition to or in
tandem with other Awards granted under the Plan or cash awards made outside
the Plan. The Committee shall determine the individuals to whom, and the
time or times at which, grants of Stock Options will be made, the number of
Shares purchasable under each Stock Option and the other terms and
conditions of the Stock Option in addition to those set forth in Sections
5(b) and 5(c). Any Stock Option granted under the Plan shall be in such
form as the Committee may from time to time approve.
Stock Options granted under the Plan may be of two types which shall
be indicated on their face: (i) Incentive Stock Options and (ii)
Non-Qualified Stock Options. Subject to Section 5(c) hereof, the Committee
shall have the authority to grant to any participant Incentive Stock
Options, Non-Qualified Stock Options or both types of Stock Options.
(b) Terms and Conditions. Options granted under the Plan shall be
evidenced by Option Agreements, shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem
desirable:
(1) Option Price. The option price per share of Shares
purchasable under a Non-Qualified Stock Option or an Incentive Stock
Option shall be determined by the Committee at the time of grant and
shall be not less than 100% of the Fair Market Value of the Shares at
the date of grant (or, with respect to an incentive stock option, 110%
of the Fair Market Value of the Shares at the date of grant in the
case of a participant who at the date of grant owns Shares possessing
more than ten percent of the total combined voting power of all
classes of shares of the Company or its parent or Subsidiary
corporations (as determined under Section 424(d), (e) and (f) of the
Code)).
(2) Option Term. The term of each Stock Option shall be fixed
by the Committee and may not exceed ten years from the date the Option
is granted (or, with respect to an Incentive Stock Options, five years
in the case of a participant who at the date of grant owns Shares
possessing more than ten percent of the total combined voting power of
all classes of stock of the Company or its parent or subsidiary
corporations (as determined under Section 424(d), (e) and (f) of the
Code)).
(3) Exercise. Stock Options shall be exercisable at such time
or times and subject to such terms and conditions as shall be
determined by the Committee at or after grant; provided, however,
that, except as provided in Section 5(b)(6) and Section 11, unless
otherwise determined by the Committee at or after grant, no Stock
Option shall be exercisable prior to six months and one day following
the date of
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grant. If any Stock Option is exercisable only in installments or only
after specified exercise dates, the Committee may waive, in whole on
in part, such installment exercise provisions, and may accelerate any
exercise date or dates, at any time at or after grant based on such
factors as the Committee shall determine, in its sole discretion.
(4) Method of Exercise. Subject to any installment exercise
provisions that apply with respect to such Stock Option, and the six
month and one day holding period set forth in Section 5(b)(3), Stock
Options may be exercised in whole or in part, at any time during the
option period, by giving to the Company written notice of exercise
specifying the number of Shares to be purchased.
Such notice shall be accompanied by payment in full of the option
price of the Shares for which the Option is exercised, in cash or
Shares or by check or such other instrument as the Committee may
accept. The value of each such Share surrendered or withheld shall be
100% of the Fair Market Value of the Shares on the date the option is
exercised.
No Shares shall be issued pursuant to an exercise of an Option
until full payment has been made. A participant shall not have rights
to dividends or any other rights of a shareholder with respect to any
Shares subject to an Option unless and until the participant has given
written notice of exercise, has paid in full for such Shares, has
given, if requested, the representation described in Section 14(a) and
such Shares have been issued to him.
(5) Non-Transferability of Options. No Stock Option shall be
transferable by the participant other than by will or by the laws of
descent and distribution, and all Stock Options shall be exercisable,
during the participant's lifetime, only by the Participant or, subject
to Sections 5(b)(3) and 5(c), by the participant's authorized legal
representative if the participant is unable to exercise an option as a
result of the participant's Disability; provided, however, that if so
provided in the instrument evidencing the Option, the Committee may
permit any optionee to transfer the Option during his lifetime to one
or more members of his family, or to one or more trusts for the
benefit of one or more members of his family, provided that no
consideration is paid for the transfer and that such transfer would
not result in the loss of any exemption under Rule 16b-3 for any
Option that the Committee does not permit to be so transferred. The
transferee of an Option shall be subject to all restrictions, terms,
and conditions applicable to the Option prior to its transfer, except
that the Option shall not be further transferable inter vivos by the
transferee. The Committee may impose on any transferable Option and on
the Shares to be issued upon the exercise of the Option such
limitations and conditions as the Committee deems appropriate.
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(6) Termination by Death. Subject to Section 5(c), if any
participant's employment by the Company or any Subsidiary or Affiliate
terminates by reason of death, any Stock Option held by such
Participant may thereafter be exercised, to the extent such Option was
exercisable at the time of death or would have become exercisable
within one year from the time of death had the participant continued
to fulfill all conditions of the Option during such period (or on such
accelerated basis as the Committee may determine at or after grant),
by the estate of the participant (acting through its fiduciary), for a
period of one year (or such other period as the Committee may specify
at or after grant) from the date of such death. The balance of the
Stock Option shall be forfeited.
(7) Termination by Reason of Disability. Subject to Sections
5(b)(3) and 5(c), if a participant's employment by the Company or any
Subsidiary or Affiliate terminates by reason of Disability, any Stock
Option held by such participant may thereafter be exercised, to the
extent such Option was exercisable at the time of termination or would
have become exercisable within one year from the time of termination
had the participant continued to fulfill all conditions of the Option
during such period (or on such accelerated basis as the Committee may
determine at or after grant), by the participant or by the
participant's duly authorized legal representative if the participant
is unable to exercise the Option as a result of the participant's
Disability, for a period of one year (or such other period as the
Committee may specify at or after grant), from the date of such
termination of employment; provided, however, that in no event may any
such Option be exercised prior to six months and one day from the date
of grant; and provided, further, that if the participant dies within
such one-year period (or such other period as the Committee shall
specify at or after grant), any unexercised Stock Option held by such
participant shall thereafter be exercisable by the estate of the
participant (acting though its fiduciary) to the same extent to which
it was exercisable at the time of death for a period of one year from
the date of such termination of employment. The balance of the Stock
Option shall be forfeited.
(8) Other Termination. Unless otherwise determined by the
Committee at or after the time of granting any Stock Option, if a
participant's employment by the Company or any Subsidiary or Affiliate
is terminated for any reason other than death or Disability, all Stock
Options held by such participant shall thereupon terminate 90 days
after the date of such termination.
(c) Incentive Stock Options. Notwithstanding Sections 5(b)(6) and
(7), an Incentive Stock Option shall be exercisable by (i) a participant's
authorized legal representative (if the participant is unable to exercise
the Incentive Stock Option as a result of the participant's Disability)
only if, and to the extent, permitted by Section 422 of the Code and
Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder and (ii) the participant's estate, in the case of death, or
authorized legal representative, in the
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case of Disability, no later than 10 years from the date the Incentive
Stock Option was granted (in addition to any other restrictions or
limitations which may apply). Anything in the Plan to the contrary
notwithstanding, no term or provision of the Plan relating to Incentive
Stock Options shall be interpreted, amended or altered, nor shall any
discretion or authority granted under the Plan be exercised, so as to
disqualify the Plan under Section 422 of the Code, or, without the consent
of the participants affected, to disqualify any Incentive Stock Option
under such Section 422 or any successor section thereto.
(d) Buyout Provisions. The Committee may at any time buy out for a
payment in cash, Shares, Deferred Shares or Restricted Shares an Option
previously granted, based on such terms and conditions as the Committee
shall establish and agree upon with the participant, provided that no such
transaction involving a Section 16 participant shall be structured or
effected in a manner that would violate, or result in any liability on the
part of the participant under, Section 16 of the Exchange Act or the rules
and regulations promulgated thereunder.
SECTION 6. RESTRICTED SHARES.
(a) Grant. Restricted Shares may be issued alone, in addition to or
in tandem with other Awards under the Plan or cash awards made outside of
the Plan. The Committee shall determine the individuals to whom, and the
time or times at which, grants of Restricted Shares will be made, the
number of Restricted Shares to be awarded to each Participant, the price
(if any) to be paid by the participant (subject to Section 6(b)), the date
or dates upon which Restricted Share Awards will vest and the period or
periods within which such Restricted Share Awards may be subject to
forfeiture, and the other terms and conditions of such Awards in addition
to those set forth in Section 6(b).
The Committee may condition the grant of Restricted Shares upon the
attainment of specified performance goals or such other factors as the
Committee may determine in its sole discretion.
(b) Terms and Conditions. Restricted Shares awarded under the Plan
shall be subject to the following terms and conditions and shall contain
such additional terms and conditions, not inconsistent with the provisions
of the Plan, as the Committee shall deem desirable. A Participant who
receives a Restricted Share Award shall not have any rights with respect to
such Award, unless and until such participant has executed an agreement
evidencing the Award in the form approved from time to time by the
Committee and has delivered a fully executed copy thereof to the Company,
and has otherwise complied with the applicable terms and conditions of such
Award.
(1) The purchase price (if any) for Restricted Shares shall be
determined by the Committee at the time of grant.
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(2) Awards of Restricted Shares must be accepted by executing a
Restricted Share Award agreement and paying any price required under
Section 6(b)(1).
(3) Each participant receiving a Restricted Share Award shall
be issued a share certificate in respect of such Restricted Shares.
Such certificate shall be registered in the name of such participant,
and shall bear an appropriate legend referring to the terms,
conditions and restrictions applicable to such Award.
(4) The Committee shall require that the share certificates
evidencing such Restricted Shares be held in custody by the Company
until the restrictions thereon shall have lapsed, and that, as a
condition of any Restricted Shares Award the Participant shall have
delivered to the Company a stock power, endorsed in blank, relating to
the Shares covered by such Award.
(5) Subject to the provisions of this Plan and the Restricted
Share Award agreement, during a period set by the Committee commencing
with the date of such Award (the "Restriction Period"), the
participant shall not be permitted to sell, transfer, pledge, assign
or otherwise encumber (except by will or the applicable laws of
descent and distribution) the Restricted Shares awarded under the
Plan. Subject to these limitations, the Committee, in its sole
discretion, may provide for the lapse of such restrictions in
installments and may accelerate or waive such restrictions, in whole
or in part, based on service, performance or such other factors and
criteria as the Committee may determine, in its sole discretion.
(6) Except as provided in this Section 6(b)(6), Section 6(b)(5)
and Section 6(b)(7) the participant shall have, with respect to the
Restricted Shares awarded, all of the rights of a shareholder of the
Company, including the right to vote the Shares, and the right to
receive any dividends. The Committee, in its sole discretion, as
determined at the time of award, may permit or require the payment of
cash dividends to be deferred and, if the Committee so determines,
reinvested, subject to Section 14(f), in additional Restricted Shares
to the extent Shares are available under Section 3, or otherwise
reinvested. Unless the Committee or Board determines otherwise, share
dividends issued with respect to Restricted Shares shall be treated as
additional Restricted Shares that are subject to the same restrictions
and other terms and conditions that apply to the Shares with respect
to which such dividends are issued.
(7) If a participant's employment by the Company or any
Subsidiary or Affiliate terminates by reason of death, any Restricted
Shares held by such participant shall thereupon vest and all
restrictions thereon shall lapse, to the extent such Restricted Shares
would have become vested or no longer subject to restriction within
one year from the time of death had the participant continued to
fulfill all of
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the conditions of the Restricted Share Award during such period (or on
such accelerated basis as the Committee may determine at or after
grant). The balance of the Restricted Shares shall be forfeited.
(8) If a participant's employment by the Company or any
Subsidiary or Affiliate terminates by reason of Disability, any
Restricted Shares held by such participant shall thereupon vest and
all restrictions thereon shall lapse, to the extent such Restricted
Shares would have become vested or no longer subject to restriction
within one year from the time of termination had the participant
continued to fulfill all of the conditions of the Restricted Share
Award during such period (or on such accelerated basis as the
Committee may determine at or after grant). The balance of the
Restricted Shares shall be forfeited.
(9) Unless otherwise determined by the Committee at or after
the time of granting any Restricted Shares, if a participant's
employment by the Company or any Subsidiary or Affiliate terminates
for any reason other than death or Disability, the Restricted Shares
held by such participant which are unvested or subject to restriction
at the time of termination shall thereupon be forfeited.
(c) Minimum Value Provisions. In order to better ensure that award
payments actually reflect the performance of the Company and service of the
participant, the Committee may provide in its sole discretion for a tandem
performance-based or other award designed to guarantee a minimum value,
payable in cash or Shares to the recipient of a Restricted Share Award,
subject to such performance, future service, deferral and other terms and
conditions as may be specified by the Committee.
SECTION 7. DEFERRED SHARES.
(a) Grant. Deferred Shares may be awarded alone, in addition to or
in tandem with other Awards granted under the Plan or cash awards made
outside the Plan. The Committee shall determine the individuals to whom,
and the time or times at which, Deferred Shares shall be awarded, the
number of Deferred Shares to be awarded to any participant, the duration of
the period (the "Deferral Period") during which, and the conditions under
which, receipt of the Shares will be deferred, and the other terms and
conditions of the Award in addition to those set forth in Section 7(b).
The Committee may condition the grant of Deferred Shares upon the
attainment of specified performance goals or such other factors as the
Committee shall determine, in its sole discretion.
(b) Terms and Conditions. Deferred Share Awards shall be subject to
the following terms and conditions and shall contain such additional terms
and conditions, not inconsistent with the terms of the Plan, as the
Committee considers desirable:
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(1) The purchase price for Deferred Shares shall be determined
at the time of grant by the Committee. Subject to the provisions of
the Plan and the Award agreement referred to in Section 7(b)(9),
Deferred Share Awards may not be sold, assigned, transferred, pledged
or otherwise encumbered (except by will or the applicable laws of
descent and distribution) during the Deferral Period. At the
expiration of the Deferral Period (or the Elective Deferral Period
referred to in Section 7(b)(8), when applicable), share certificates
shall be delivered to the participant, or his legal representative,
for the shares covered by the Deferred Share Award. The Deferral
Period applicable to any Deferred Share Award shall not be less than
six months and one day ("Minimum Deferral Period").
(2) Amounts equal to any dividends declared during the Deferral
Period with respect to the number of Shares covered by a Deferred
Share Award will be paid to the participant currently, or deferred and
deemed to be reinvested in additional Deferred Shares, or otherwise
reinvested, all as determined at or after the time of the Award by the
Committee, in its sole discretion.
(3) If a participant's employment by the Company or any
Subsidiary or Affiliate terminates by reason of death, any Deferred
Shares awarded to by such participant shall thereafter vest and all
restrictions thereon shall lapse, to the extent such Deferred Shares
would have become vested or no longer subject to restriction within
one year from the time of death had the participant continued to
fulfill all of the conditions of the Deferred Share Award during such
period (or on such accelerated basis as the Committee may determine at
or after grant). The balance of the Deferred Shares shall be
forfeited.
(4) If a participant's employment by the Company or any
Subsidiary or Affiliate terminates by reason of Disability, any
Deferred Shares awarded to such participant shall thereafter vest and
all restrictions thereon shall lapse, to the extent such Deferred
Shares would have become vested or no longer subject to restriction
within one year from the time of termination had the participant
continued to fulfill all of the conditions of the Deferred Shares
Award during such period (or on such accelerated basis as the
Committee may determine at or after grant), subject in all cases to
the Minimum Deferral Period requirement. The balance of the Deferred
Shares shall be forfeited.
(5) Unless otherwise determined by the Committee at or after
the time of granting any Deferred Share Award, if a participant's
employment by the Company or any Subsidiary or Affiliate terminates for
any reason other than death or Disability, all Deferred Shares held by
such participant which are unvested or subject to restriction shall
thereupon be forfeited.
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(6) Based on service, performance or such other factors or
criteria as the Committee may determine, the Committee may, at or
after grant, accelerate the vesting of all or any part of any Deferred
Share Award or waive a portion of the Deferral Period for all or any
part of such Award, subject in all cases to the Minimum Deferral
Period requirement.
(7) A participant may elect to further defer receipt of a
Deferred Share Award (or an installment of an Award) for a specified
period or until a specified event (the "Elective Deferral Period"),
subject in each case to the Committee's approval and the terms of this
Section 7 and such other terms as are determined by the Committee, all
in its sole discretion. Subject to any exceptions approved by the
Committee, such election must be made at least 12 months prior to
completion of the Deferral Period for such Deferred Share Award (or
such installment).
(8) Each such Award shall be confirmed by, and subject to the
terms of, a Deferred Share Award agreement evidencing the Award in the
form approved from time to time by the Committee.
(c) Minimum Value Provisions. In order to better ensure that award
payments actually reflect the performance of the Company and service of the
Participant, the Committee may provide, in its sole discretion, for a
tandem performance-based or other Award designed to guarantee a minimum
value, payable in cash or Shares to the recipient of a Deferred Share
Award, subject to such performance, future service, deferral and other
terms and conditions as may be specified by the Committee.
SECTION 8. SHARE PURCHASE RIGHTS.
(a) Grant. Share Purchase Rights may be granted alone, in addition to
or in tandem with other Awards granted under the Plan or cash awards made
outside the Plan. The committee shall determine the individuals to whom,
and the time or times at which, grants of Share Purchase Rights will be
made, the number of Shares which may be purchased pursuant to Share
Purchase Rights, and the other terms and conditions of the Share Purchase
Rights in addition to those set forth in Section 8(b). The Shares subject
to the Share Purchase Rights may be purchased at the Fair Market Value of
such Shares on the date of grant.
Subject to Section 8(b) hereof, the Committee may also impose such
deferral, forfeiture or other terms and conditions as it shall determine,
in its sole discretion, on such Share Purchase Rights or the exercise
thereof.
Each Share Purchase Right Award shall be confirmed by, and be subject
to the terms of, a Share Purchase Rights Agreement which shall be in form
approved by the Committee.
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(b) Terms and Conditions. Share Purchase Rights may contain such
additional terms and conditions not inconsistent with the terms of the Plan
as the Committee shall deem desirable, and shall generally be exercisable
for such period as shall be determined by the Committee. However, Share
Purchase Rights granted to Section 16 participants shall not become
exercisable earlier than six months and one day after the grant date. Share
Purchase Rights shall not be transferable by a participant other than by
will or by the laws of descent and distribution.
SECTION 9. SHARE APPRECIATION RIGHTS.
(a) Grant. Share Appreciation Rights may be granted in connection
with all or any part of an Option, either concurrently with the grant of
the Option or, if the Option is a Non-Qualified Stock Option, by an
amendment to the Option at any time thereafter during the term of the
Option. Share Appreciation Rights may be exercised in whole or in part at
such times under such conditions as may be specified by the Committee in
the participant's Option Agreement.
(b) Terms and Conditions. The following terms and conditions apply to
all Share Appreciation Rights:
(1) Share Appreciation Rights shall entitle the participant,
upon exercise of all or any part of the Share Appreciation Rights, to
surrender to the Company unexercised that portion of the underlying
Option relating to the same number of Shares as is covered by the
Share Appreciation Rights (or the portion of the Share Appreciation
Rights so exercised) and to receive in exchange from the Company an
amount (paid as provided in Section 9(b)(5)) equal to the excess of
(x) the Fair Market Value, on the date of exercise, of the Shares
covered by the surrendered portion of the underlying Option over (y)
the exercise price of the Shares covered by the surrendered portion of
the underlying Option. The Committee may limit the amount that the
participant will be entitled to receive upon surrender of a Share
Appreciation Right.
(2) Upon the exercise of the Share Appreciation Right and
surrender of the related portion of the underlying Option, the Option,
to the extent surrendered, will not thereafter be exercisable. The
underlying Option may provide that such Share Appreciation Rights will
be payable solely in cash.
(3) In addition to any further conditions upon exercise that may
be imposed by the Committee, the Share Appreciation Rights shall be
exercisable only to the extent that the related Option is exercisable,
except that in no event will a Share Appreciation Right held by a
Section 16 Participant be exercisable within the first six months
after it is awarded even though the related Option is or becomes
exercisable, and each Share Appreciation Right will expire no later
than the date on
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which the related Option expires. A Share Appreciation Right may only
be exercised at a time when the Fair Market Value of the Shares
covered by the Share Appreciation Right exceeds the exercise price of
the Shares covered by the underlying Option.
(4) Share Appreciation Rights may be exercised by the
participant's giving written notice of the exercise to the Company,
stating the number of Share Appreciation Rights he has elected to
exercise and surrendering the portion of the underlying Option
relating to the same number of Shares as the number of Share
Appreciation Rights exercised.
(5) The manner in which the Company's obligation arising upon
the exercise of the Share Appreciation Right will be paid will be
determined by the Committee and shall be set forth in the
participant's Option Agreement. The Committee may provide for payment
in Shares or cash, or a fixed combination of Shares or cash, or the
Committee may reserve the right to determine the manner of payment at
the time the Share Appreciation Right is exercised. Shares issued upon
the exercise of a Share Appreciation Right will be valued at their
Fair Market Value on the date of exercise.
SECTION 10. OTHER SHARE-BASED AWARDS.
(a) Grant. Other Awards of Shares and other Awards that are valued,
in whole or in part, by reference to, or are otherwise based on, Shares,
including, without limitation, performance shares, convertible preferred
shares, convertible debentures, exchangeable securities and Share Awards or
options valued by reference to Book Value or subsidiary performance, may be
granted alone, in addition to or in tandem with other Awards granted under
the Plan or cash awards made outside of the Plan.
At the time the Shares or Other Share-Based Award is granted, the
Committee shall determine the individuals to whom and the time or times at
which such Shares or Other Share-Based Awards shall be awarded, the number
of Shares to be used in computing an Award or which are to be awarded
pursuant to such Awards, the consideration, if any, to be paid for such
Shares or Other Share-Based Awards, and all other terms and conditions of
the Awards in addition to those set forth in Section 10(b).
The provisions of Other Share-Based Awards need not be the same with
respect to each participant.
(b) Terms and Conditions. Other Share-Based Awards shall be subject
to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as the
Committee shall deem desirable.
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<PAGE> 15
(1) Subject to the provisions of this Plan and the Award
agreement referred to in Section 10(b)(5) below, Shares awarded or
subject to Awards made under this Section 10 may not be sold,
assigned, transferred, pledged or otherwise encumbered prior to the
date on which the Shares are issued, or, if later, the date on which
any applicable restriction, performance, holding or deferral period or
requirement is satisfied or lapses. All Shares or Other Share-Based
Awards granted under this Section 10 shall be subject to a minimum
holding period (including any applicable restriction, performance or
deferral period) of six months and one day ("Minimum Holding Period").
(2) Subject to the provisions of this Plan and the Award
agreement and unless otherwise determined by the Committee at the time
of grant, the recipient of an Other Share-Based Award shall be
entitled to receive, currently or on a deferred basis, interest or
dividends or interest or dividend equivalents with respect to the
number of Shares covered by the Award, as determined at the time of
the Award by the Committee, in its sole discretion, and the Committee
may provide that such amounts (if any) shall be deemed to have been
reinvested in additional Shares or otherwise reinvested.
(3) Subject to the Minimum Holding Period, any Other Share-Based
Award and any Shares covered by any such Award shall vest or be
forfeited to the extent, at the times and subject to the conditions,
if any, provided in the Award agreement, as determined by the
Committee, in its sole discretion.
(4) In the event of the participant's Disability or death, or in
cases of special circumstances, the Committee may, in its sole
discretion, waive, in whole or in part, any or all of the remaining
limitations imposed hereunder or under any related Award agreement
with respect to any part of or all of any Award under this Section 10,
provided that the Minimum Holding Period requirement may not be
waived, except in case of a participant's death.
(5) Each Award shall be confirmed by, and subject to the terms
of, an agreement or other instrument evidencing the Award in the form
approved from time to time by the Committee, the Company and the
participant.
(6) Shares (including securities convertible into Shares) issued
on a bonus basis under this Section 10 shall be issued for no cash
consideration. Shares (including securities convertible into Shares)
purchased pursuant to a purchase right awarded under this Section 10
shall bear a price of at least 85% of the Fair Market Value of the
Shares on the date of grant. The purchase price of such Shares, and of
any Other Share-Based Award granted hereunder, or the formula by which
such price is to be determined, shall be fixed by the Committee at the
time of grant.
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<PAGE> 16
(7) In the event that any "derivative security," as defined in
Rule 16a- 1(c) (or any successor thereof) promulgated by the
Securities and Exchange Commission under Section 16 of the Exchange
Act, is awarded pursuant to this Section 10 to any Section 16
participant, such derivative security shall not be transferrable other
than by will or by the laws of descent and distribution.
SECTION 11. CHANGE IN CONTROL PROVISION.
(a) Impact of Event. At any time during the 365 days commencing with
the date of either (1) a "Change in Control" as defined in Section 11(b) or
(2) a "Potential Change in Control" as defined in Section 11(c), a majority
of the "Continuing Directors" as defined in Section 11(e) (or one of the
two Continuing Directors if only two Continuing Directors are then serving
on the Board of Directors or the sole Continuing Director if only one
Continuing Director is then serving on the Board of Directors) may cause
the following provisions to take effect as stated and as of the date set
forth in a Written Action (the "Written Action") adopted to that effect
(that date, the "Accelerated Vesting Date") and if there are no Continuing
Directors, the following provisions will automatically take effect:
(1) Any Stock Options awarded under the Plan not previously
exercisable and vested shall become fully exercisable and vested;
(2) Any Share Appreciation Rights shall become immediately
exercisable;
(3) The restrictions applicable to any Restricted Shares,
Deferred Shares Awards, Share Purchase Rights Awards and Other Share
Based Awards shall lapse and such shares and awards shall be deemed
fully vested; and
(4) The value of all outstanding Awards, in each case to the
extent vested, shall, unless otherwise determined by the Committee in
its sole discretion at or after grant but prior to any Change in
Control or Potential Change in Control, be paid to the participant in
cash in exchange for the surrender of those Awards on the basis of the
"Change in Control Price" as defined in Section 11(d) as of the
Accelerated Vesting Date;
but the provisions of Sections 11(a)(1) through (3) shall not apply with
respect to Awards granted to any Section 16 Participant which have been
held by such participant for less than six months and one day as of the
Accelerated Vesting Date.
(b) Definition of Change in Control. For purposes of Section 11(a), a
"Change in Control" means the occurrence of any of the following: (i) the
Board or shareholders of the Company approve a consolidation or merger that
results in the shareholders of the Company immediately prior to the
transaction giving rise to the consolidation or merger owning less than 50%
of the total combined voting power of all classes of stock entitled to
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<PAGE> 17
vote of the surviving entity immediately after the consummation of the
transaction giving rise to the merger or consolidation; (ii) the Board or
shareholders of the Company approve the sale of substantially all of the
assets of the Company or the liquidation or dissolution of the Company;
(iii) any person or other entity (other than the Company or a Subsidiary or
any Company employee benefit plan (including any trustee of any such plan
acting in its capacity as trustee)) purchases any Shares (or securities
convertible into Shares) pursuant to a tender or exchange offer without the
prior consent of the Board of Directors, or becomes the beneficial owner of
securities of the Company representing 25% or more of the voting power of
the Company's outstanding securities; or (iv) during any two-year period,
individuals who at the beginning of such period constitute the entire Board
of Directors cease to constitute a majority of the Board of Directors,
unless the election or the nomination for election of each new director is
approved by at least two-thirds of the directors then still in office who
were directors at the beginning of that period.
(c) Definition of Potential Change in Control. For purposes of
Section 11(a), a "Potential Change in Control" means the happening of any
one of the following:
(1) The approval by the shareholders of the Company of an
agreement by the Company, the consummation of which would result in a
Change in Control of the Company as defined in Section 11(b); or
(2) The acquisition of beneficial ownership, directly or
indirectly, by any entity, person or group (other than the Company or
a Subsidiary or any Company employee benefit plan (including any
trustee of any such plan acting in its capacity as trustee)) of
securities of the Company representing 33% or more of the combined
voting power of the Company's outstanding securities and the adoption
by the Board of a resolution to the effect that a Potential Change in
Control of the Company has occurred for purposes of this Plan.
(d) Change in Control Price. For purposes of this Section 11,
"Change in Control Price" means the greater of: (a) the highest price per
share paid in any transaction reported on the Nasdaq National Market (or,
if the Shares are not then traded on the Nasdaq National Market, the
highest price paid as reported for any national exchange on which the
Shares are then traded) or paid or offered in any bona fide transaction
related to a Change in Control or Potential Change in Control of the
Company, at any time during the 60-day period immediately preceding the
occurrence of the Change in Control (or, when applicable, the occurrence of
the Potential Change in Control event), and (b) the highest price per share
paid in any transaction reported on the Nasdaq National Market (or, if the
Shares are not then traded on the Nasdaq National Market, the highest price
paid as reported for any national exchange on which the Shares are then
traded), at any time during the 60-day period immediately preceding the
date on which the Continuing Directors execute a Written Action relating to
that Change in Control or Potential Change in Control, in each case as
determined by the Committee.
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<PAGE> 18
(e) Definition of Continuing Director. For purposes of this Section
11, a "Continuing Director" means an individual who was a member of the
Board of Directors immediately prior to the date of a Change in Control or
a Potential Change in Control and is a member of the Board of Directors at
the time a Written Action relating to that Change in Control or Potential
Change in Control is taken.
SECTION 12. AMENDMENTS AND TERMINATION.
The Board may at any time, in its sole discretion, amend, alter or
discontinue the Plan, but no such amendment, alteration or discontinuation shall
be made which would impair the rights of a participant under an Award
theretofore granted, without the participant's consent. The Company shall submit
to the shareholders of the Company for their approval any amendments to the Plan
which are required by Section 162(m) of the Code to be approved by the
shareholders.
The Committee may at any time, in its sole discretion, amend the terms
of any Award, but no such amendment shall be made which would impair the rights
of a participant under an Award theretofore granted, without the participant's
consent; nor shall any such amendment be made which would make the applicable
exemptions provided by Rule 16b-3 under the Exchange Act unavailable to any
Section 16 participant holding the Award without the participant's consent.
Subject to the above provisions, the Board shall have all necessary
authority to amend the Plan to make into account changes in applicable
securities and tax laws and accounting rules, as well as other developments.
SECTION 13. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant by the Company, nothing contained herein shall give any such
participant any rights that are greater than those of a general creditor of the
Company.
SECTION 14. GENERAL PROVISIONS.
(a) The Committee may require each Participant acquiring Shares
pursuant to an Award under the Plan to represent to and agree with the
Company in writing that the participant is acquiring the Shares without a
view to distribution thereof. The certificates for such shares may include
any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
All Shares or other securities delivered under the Plan shall be
subject to such stop-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange
upon which the Shares are then listed, and any applicable federal or state
securities
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<PAGE> 19
laws, and the Committee may cause a legend or legends to be put on any
certificates for such shares to make appropriate reference to such
restrictions.
(b) Nothing contained in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such arrangements
may be either generally applicable or applicable only in specific cases.
(c) Neither the adoption of the Plan, nor its operation, nor any
document describing, implementing or referring to the Plan, or any part
thereof, shall confer upon any participant under the Plan any right to
continue in the employ, or as a director, of the Company or any Subsidiary
or Affiliate, or shall in any way affect the right and power of the Company
or any Subsidiary or Affiliate to terminate the employment, or service as a
director, of any participant under the Plan at any time with or without
assigning a reason therefor, to the same extent as the Company or any
Subsidiary or Affiliate might have done if the Plan had not been adopted.
(d) For purposes of this Plan, a transfer of a participant between
the Company and its Subsidiaries and Affiliates shall not be deemed a
termination of employment.
(e) No later than the date as of which an amount first becomes
includable in the gross income of the participant for federal income tax
purposes with respect to any award under the Plan, the Participant shall
pay to the Company, or make arrangements satisfactory to the Committee
regarding the payment, of, any federal, state or local taxes or other items
of any kind required by law to be withheld with respect to such amount.
Subject to the following sentence, unless otherwise determined by the
Committee, withholding obligations may be settled with Shares, including
unrestricted Shares previously owned by the participant or Shares that are
part of the Award that gives rise to the withholding requirement.
Notwithstanding the foregoing, any election by a Section 16 participant to
settle such tax withholding obligation with Shares that is part of such
Award shall be subject to approval by the Committee, in its sole
discretion. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company and its
Subsidiaries and Affiliates shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due
to the participant.
(f) The actual or deemed reinvestment of dividends or dividend
equivalents in additional Restricted Shares (or in Deferred Shares or other
types of Awards) at the time of any dividend payment shall only be
permissible if sufficient Shares are available under Section 3 for such
reinvestment (taking into account then outstanding Stock Options, Share
Purchase Rights and other Plan Awards).
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<PAGE> 20
(g) The Plan, all Awards made and actions taken thereunder and any
agreements relating thereto shall be governed by and construed in
accordance with the laws of the State of Ohio.
(h) All agreements entered into with participants pursuant to the
Plan shall be subject to the Plan.
(i) The provisions of Awards need not be the same with respect to
each participant.
SECTION 15. SHAREHOLDER APPROVAL; EFFECTIVE DATE OF PLAN.
The Plan was adopted by the Board on _______________, 1997, and is
subject to approval by the holders of the Company's outstanding Shares, in
accordance with applicable law. The Plan will become effective on the date of
such approval.
SECTION 16. TERM OF PLAN.
No Award shall be granted pursuant to the Plan on or after
_______________, 2007, but Awards granted prior to such date may extend beyond
that date.
FTG3604:36914:96001:FTG-29A.AGT
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<PAGE> 1
EXHIBIT 10.20
AGREEMENT FOR AIRPORT SECURITY SERVICES
THIS AGREEMENT is entered into as of October 1, 1996, by and between
International Total Services, Inc., an Ohio corporation with its principal
offices at Crown Centre, 5005 Rockside Road, Cleveland, Ohio 44131
("Contractor"), and Delta Air Lines, Inc., a Delaware corporation with its
principal office at Hartsfield Atlanta International Airport, Atlanta, Georgia,
30320 ("Delta").
WITNESSETH:
-----------
WHEREAS, Delta desires to obtain supervised uniformed and/or
plainclothes security personnel for the purpose of performing electronic
screening of persons and the search of personal articles passing through
security checkpoint(s) for certain premises and facilities; and
WHEREAS, Contractor is in the business of supplying security personnel
and is willing to provide such services for Delta;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:
1. TERM. This Agreement shall be effective as of October 1, 1996, and
shall continue in effect until canceled by Delta upon not less than thirty (30)
days' prior written notice, or by Contractor upon not less than sixty (60) days'
prior written notice.
2. SERVICES AND STANDARDS.
2.1 During the term of this Agreement, Contractor shall
furnish security services to DELTA, as that term is generally understood in the
air transportation industry and as more particularly set forth in Section 2.5
below (such services are sometimes referred to herein as the "work" or the
"services"), at William P. Hobby Airport located in Houston, Texas (the
"Airport"), in a designated location(s) at the Airport, and Delta retains
Contractor to furnish such services and shall pay Contractor therefor as
hereinafter provided. Contractor shall furnish ALL personnel required to furnish
the services in accordance with this Agreement and, if specified on EXHIBIT A
attached hereto, shall also provide any material, equipment and supplies
specified in Exhibit A, such costs to be included in the fees set forth in
Section 3.
2.2 The services provided under this Agreement shall be of the
first class and shall be performed in a timely and professional manner at all
times, with any supplies and equipment provided by Contractor to be of good
quality.
2.3 All personnel utilized by Contractor shall be properly
attired in uniforms acceptable to Delta and shall be able to perform the
contracted services competently.
2.4 Upon written direction from Delta, Contractor shall
perform security services for any person, firm or corporation for which Delta
performs passenger and/or baggage handling services. In such case, such services
shall be at no additional cost to Delta unless Contractor both incurs additional
costs and such costs have been appropriately authorized by Delta.
2.5 Contractor's services shall include but not be limited to:
(a) Furnishing Delta with a sufficient number of
Contractor's employees ("Security Personnel") to perform electronic screening
of persons and the search of personal articles passing through security
checkpoints at designated locations at the Airport in accordance with Federal
Aviation Regulations Part 108 (C.F.R. part 108), providing seven (7) days per
week coverage on all shifts as required by Delta at the Airport.
<PAGE> 2
(b) Furnishing uniformed Security Personnel at the
Airport qualified to serve as Checkpoint Security Supervisors in the specific
number and for the specific hours of duty as agreed upon by the parties hereto
from time to time. Each Checkpoint Security Supervisor shall perform duties as
set forth in Delta's Air Carrier Standard Security Program, as approved from
time to time by the Federal Aviation Administration (the "FAA").
2.6 All services shall be furnished by Contractor as an
independent contractor. All personnel utilized by Contractor in the furnishing
of such services shall be employees of Contractor and under no circumstances
shall be deemed employees of Delta. Contractor shall be fully responsible for
all acts and omissions of such personnel. Contractor shall bear sole
responsibility for payment of compensation to its personnel. Contractor shall
withhold (if applicable), pay and report, for all personnel assigned to Delta's
work, federal, state and local income tax withholding, social security taxes,
employment head taxes, and unemployment insurance applicable to such personnel
as employees of Contractor. Contractor shall bear sole ability for any health or
disability insurance, retirement benefits, or welfare, pension or response other
benefits (if any) to which such personnel may be entitled. Contractor agrees to
defend, indemnify, and hold harmless Delta, Delta's officers, directors,
employees and agents, and the administrators of Delta's benefit plans, from and
against any claims, liabilities, or expenses relating to such compensation, tax,
insurance, or benefit matters.
2.7 All services performed hereunder shall be performed in a
manner which ensures health and safety. Contractor shall comply with all laws,
rules, regulations and procedures relating to health and safety. Without
limiting the foregoing general statements of Contractor's obligations,
Contractor shall ensure that its employees wear all personal protective
equipment necessary to protect such employees from potential hazards, including,
without limitation, all personal protective equipment required by applicable
laws, rules, regulations and procedures.
2.8 Contractor shall ensure that all personnel utilized in the
performance of the services required hereunder receive all operational and
safety training necessary for the safe and competent performance of such
services, including, without limitation, any training required by applicable
laws, rules, regulations and procedures. Contractor must maintain documentation
of such training for the longer of three (3) years or the period of time
specified by applicable laws, rules, regulation and procedures. Delta shall have
the right, but not the duty, to conduct audits of such training records as it
deems prudent to ensure compliance with this requirement.
2.9 At all times during which Contractor's employees are
required to be performing the services required under this Agreement, Contractor
agrees to maintain a competent work supervisor (or other employee with
responsibility for overseeing the performance of the services), located in the
general area of the Delta facilities at which the services are to be performed,
and keep Delta's Director/Station Manager (or the Director/Station Manager's
designee in charge) continuously advised of the location(s) and telephone
number(s) where such work supervisor (or other employee with responsibility for
overseeing the performance of the services) may be contacted to be advised of
emergencies, worker absences, accidents involving workers or substandard
performance of work. The availability of such work supervisor or other employee
shall in no way obligate Delta to communicate any such information to
Contractor.
2.10 Contractor shall comply with all applicable laws, rules,
regulations and procedures which govern the services provided for in this
Agreement. Contractor shall obtain all licenses and permits which may be
required by any governmental authority for the performance of the contracted
services and shall pay all fees and charges therefor. The foregoing obligations
are in addition to those provided in Section 6 of this Agreement.
3. FEES.
3.1 Contractor shall bill Delta on the first day of each
month an amount calculated in accordance with EXHIBIT A hereto for services
provided during the preceding month. Delta shall remit payment
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<PAGE> 3
within thirty (30) days following receipt of said bill. The monthly bill should
be sent by Contractor to the following address:
Director/Station Manager - HOU Station
Delta Air Lines, Inc.
Houston Hobby Airport
7800 Airport Boulevard
Houston, Texas 77061
3.2 INVOICES. If services are performed for more than one air
carrier at an Airport, Contractor shall bill Delta for its prorated share of the
services performed as provided in EXHIBIT A. In no event shall Delta be
responsible for any other air carrier's prorated share of Contractor's fees for
the services performed hereunder.
4. ACCOUNTING RECORDS. With respect to all invoices under this
Agreement, Contractor shall keep full and detailed records and books of account
on the basis of its currently established accounting methods in effect as of the
effective date of this Agreement. Delta, or its nominee, shall at all times
during regular business hours have the right to audit and have access to the
books of account, receipts and records pertaining to invoices hereunder by
Contractor. Delta shall also be afforded access to all of the Contractor's other
records, books, correspondence, instructions, memoranda and similar data
relating to this Agreement and any of the work or services provided hereunder.
Contractor shall preserve such documents and other records to which Delta has
access rights under this Section 4 without additional compensation therefor for
a period of three (3) years or such longer period as may be required by law,
after termination or expiration of this Agreement. If as a result of any such
audit or otherwise it is determined that Delta has paid any excess charges for
the work, Delta shall be entitled to immediate refunds for any such excess
charges paid by Delta.
5. TERMINATION OF AGREEMENT AND REDUCTION IN WORK.
5.1 Contractor may stop the work or otherwise terminate this
Agreement if Delta shall fail to make payment of undisputed amounts when due, in
accordance with Section 3, after ten (10) days written notice by Contractor to
Delta of such failure of payment.
5.2 Delta reserves the right to reduce the scope of work to be
performed hereunder upon not less than fifteen (15) days written notice to
Contractor. Any reduction in scope shall be accompanied by an appropriate
decrease in the fee specified in Section 3 and in EXHIBIT A hereof.
5.3 If the Contractor files for bankruptcy, has an involuntary
petition filed against it which is not dismissed within thirty (30) days,
dissolves, is insolvent, fails to promptly pay for materials or services for
which it has received payment from Delta, creates or permits the creation of any
lien on any property or premises of Delta, makes an assignment or arrangement
for the benefit of its creditors, refuses or neglects to perform the work
properly and diligently (including failure to perform as a result of strike,
walkout, or labor dispute affecting Contractor or others), is in default under
any other agreement between the parties or fails to perform any of the
provisions of this Agreement or any other agreement between the parties, Delta
may, at its option, by written notice to Contractor, declare Contractor in
default, terminate Contractor's right to proceed with all or a part of the work,
and take control or possession thereof and of materials, vehicles, equipment,
supplies, tools and facilities and finish such terminated work by such means as
it sees fit; provided, however, with respect to any refusal or neglect by the
Contractor to perform the work properly and diligently, or failure to perform
under other provisions of this Agreement, the Contractor shall have ten (10)
days from receipt of written notice of such default from Delta to cure the
default. Upon termination pursuant to this provision or Section 1, Contractor
shall thereupon assign to Delta any contracts for goods or services, if any,
selected by Delta to be so assigned.
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<PAGE> 4
5.4 If Delta terminates this Agreement, Delta shall pay the
unpaid balance of Contractor's charges as stated in Section 3 for the period up
to and including the date of termination. Delta can deduct from the amount due
hereunder any amount that Delta may be required to pay to a third party due to
the nonpayment by Contractor of any amount and any damages, costs or expenses
Delta may incur or suffer in the event said termination is made pursuant to
Section 5.3. Contractor shall, as a condition of receiving the payments referred
to in this Section 5, execute and deliver to Delta any and all instruments that
may be required to transfer property to Delta, or otherwise required for the
orderly termination of this Agreement.
5.5 Delta reserves the right to retain Contractor's
subcontractors, if any, and all or any part of Contractor's employees executing
the work may, at Delta's option, become employees of Delta or another contractor
selected by Delta. Upon termination or expiration of the Agreement, Delta shall
take possession of all materials, vehicles, equipment, supplies, tools and
facilities owned by Delta.
5.6 In the event that Delta's flight operations at the Airport
are halted or substantially decreased for any reason, this Agreement (and
payment for services hereunder) may be suspended for the duration of such halted
or decreased operations, on twenty-four (24) hours' notice by Delta to
Contractor.
6. SECURITY CONSIDERATIONS. Contractor agrees that in the performance
of this Agreement it is of paramount importance to maintain the security and
safety of passengers, the general public and all personnel employed at the
Airport and to safeguard the security and integrity of all personal, public and
corporate property. In this regard, Contractor agrees, in accordance with
applicable laws, to take those actions necessary to accomplish this purpose,
including but not limited to the actions outlined in this Section 6.
6.1 BACKGROUND CHECKS.
6.1.1 Contractor warrants and agrees that it has
performed and will continue to perform employment and access investigations in
accordance with Delta's Air Carrier Standard Security Program as approved by the
Federal Aviation Administration (the "FAA"), as in effect from time to time,
including, without limitation, the requirements of 49 U.S.C. ss. 44936 and the
FAA's regulations promulgated pursuant thereto at 14 C.F.R. Parts 107 or 108, of
all persons hired by Contractor who have unescorted access to any area on an
airport controlled for security reasons. Such employment and access
investigations shall include, without limitation, employment histories and
verifications, verifications of identity and, in certain cases, criminal history
record checks as more particularly required in said regulations.
6.1.2 Contractor shall also perform background
checks, to the extent allowable by applicable law, which will include, but not
be limited to, a five year criminal history check for all persons Contractor has
hired or will hire. Further, for all persons Contractor has hired or will hire
who may operate a motor vehicle on the Airport Operating Area (the "AOA"),
Contractor will also conduct a five year check of the person's state motor
vehicle record.
6.1.3 Employment and access investigation,
background checks and motor vehicle checks shall be completed for all persons
prior to Contractor allowing such persons unescorted access to any airport area
controlled for security reasons or allowing such persons to operate motor
vehicles on the AOA.
6.2 DRUG TESTING. Contractor warrants and agrees that, on or
before the effective date of this Agreement, and to the extent required by
application of laws, regulations and orders, it will establish and thereafter
maintain a drug testing program for those personnel, if so employed by the
Contractor, who perform sensitive safety related and security related functions
as defined by the FAA's Anti-Drug Program for Personnel Engaged in Specified
Aviation Activities (the "FAA's Anti-Drug Program"). Contractor agrees that such
program will comply with all requirements set forth by the FAA. To the extent
permitted by law, if Contractor employs personnel who are not covered by the
FAA's Anti-Drug Program but who will have unescorted access to any airport area
controlled for security reasons, such personnel shall be subject to
preemployment drug
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<PAGE> 5
testing by Contractor for the same substances and in accordance with the same
procedures as required by the FAA's Anti-Drug Program.
6.3 ADDITIONAL REQUIREMENTS. Contractor also agrees to
undertake whatever other measures are necessary to comply with security, drug
and alcohol testing, record-keeping, and other requirements appropriate to the
areas to which Contractor has access or to the work performed by Contractor
under this Agreement that are imposed from time to time by public agencies such
as the FAA, the United States Postal Service, the United States Customs Service,
and the operator of the Airport (the "Airport Operator") or by Delta.
6.4 AUDIT OF EMPLOYMENT RECORDS. Contractor shall keep at the
Airport full and detailed records demonstrating its compliance with this Section
6 as to each employee and shall maintain and preserve such records without
additional compensation therefor for a period of three (3) years after
termination or expiration of this Agreement. Delta shall have the fight, but not
the duty, to conduct such audits of Contractor's employment records as it deems
prudent to ensure Contractor's compliance with this Section 6. Delta may
terminate this Agreement immediately if it finds any evidence which indicates
that Contractor has not complied with the obligations imposed by this Section 6.
6.5 SECURITY OF PROPERTY. Maintaining the security of the
property of Delta and of its employees, agents, customers and invitees is an
essential aspect of Contractor's performance under this Agreement. To the extent
allowable by applicable law, Contractor shall conduct random searches of its
employees' lunch boxes, bags, cases, containers and other items in which such
property could be concealed. In the event that Delta is not satisfied with the
effectiveness of Contractor's program of random searches, Delta may require
Contractor to increase the frequency of such searches. Contractor shall
emphasize to its employees the importance of ensuring the security of the
property of Delta and of Delta's employees, agents, customers and invitees and
shall, in accordance with applicable law, properly notify its employees of the
existence and extent of the random search program prior to instituting such
program.
7. INSURANCE.
7.1 At all times during the term of this Agreement,
Contractor, with respect to the operations and services contemplated in this
Agreement, agrees to carry and maintain at its own cost and expense
Comprehensive General Liability Insurance for an amount of not less than
$20,000,000 combined single limit on an occurrence basis for bodily injury and
property damage. This insurance shall include contractual liability and shall be
in such form as reasonably required by Delta. The insurance shall name Delta as
an additional insured to the extent of Contractor's indemnity obligations
hereunder and shall contain a standard cross-liability endorsement.
7.2 Contractor agrees to maintain Workers' Compensation
Insurance for statutory limits and Employer's Liability Insurance in the amount
of $1,000,000 to cover its employees. Contractor agrees to be solely and fully
responsible for the payment of all Workers' Compensation benefits for its
employees.
7.3 Contractor shall obtain the insurance required by this
Agreement from a financially sound insurance company of recognized
responsibility and shall furnish Delta with a certificate of insurance
evidencing such coverage prior to commencing its services under this Agreement.
Such insurance policies shall be considered primary, without contribution from
any insurance carried by Delta. All insurance policies shall provide that the
insurance shall not be invalidated by any action or inaction of Contractor, that
Contractor agrees to waive all rights of subrogation against Delta and that the
insurance shall continue in full force and effect for at least thirty (30) days
after Delta receives written notice of cancellation, termination or material
alteration.
8. INDEMNIFICATION. To the fullest extent permitted by law, Contractor
shall release, indemnify, defend and hold harmless Delta and its directors,
officers, employees and agents (collectively, the
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"Indemnified Parties" and individually, an "Indemnified Party") from and against
any and all claims, damages, losses, fines, civil penalties, liabilities,
judgments, costs and expenses of any kind or nature whatsoever, (including, but
not limited to, interest, court costs and attorneys' fees), which in any way
arise out of or result from any act(s) or omission(s) by Contractor (or anyone
directly or indirectly employed by Contractor or anyone for whose acts
Contractor may be liable) in the performance or nonperformance of services or
other obligations under this Agreement or in the use or occupancy of any
facilities or equipment provided by Delta, including, but not limited to, injury
to or death of any person, damage to or destruction of any property, real or
personal (including, but not limited to, property owned, leased or under the
control of Delta), and liability or obligations under or with respect to any
violation of federal, state and local laws, regulations, rules, codes and
ordinances (including, but not limited to, those concerning environmental
protection). This Section shall apply regardless of whether or not the damage,
loss or injury complained of arises out of or relates to the negligence (whether
active, passive or otherwise) of, or was caused in part by, an Indemnified
Party. However, nothing contained in this Section shall be construed as a
release or indemnity by Contractor of an Indemnified Party from or against any
loss, liability or claim to the extent arising from the gross negligence or
willful misconduct of that Indemnified Party. This Section shall not be
construed to negate, abridge or otherwise reduce any other right to indemnity
which would otherwise exist in favor of any Indemnified Party, or any obligation
of Contractor, its officers, directors, employees, agents or contractors to
indemnify an Indemnified Party. Contractor's obligations under this Section
shall not be limited in any way by any limitation on the amount or type of
damages, compensation or benefits paid or payable by Contractor under Workers'
Compensation Acts, disability benefits acts or other employee benefit laws or
regulations. The indemnification obligations of this Section shall survive
termination or expiration of this Agreement.
9. NOTICES. Any notices, requests or other communications
required or permitted to be given hereunder shall be in writing and shall be
delivered by hand, by overnight courier, or by facsimile transmission ("fax"),
or mailed by United States registered or certified mail, return receipt
requested, postage prepaid, and addressed to the appropriate party at its
address or to its fax number, as appropriate, as set forth below:
Contractor:
INTERNATIONAL TOTAL SERVICES, INC.
Crown Centre
5005 Rockside Road
Cleveland, Ohio 44131
Attention: Mr. Robert McKinley
Fax No.: (216) 642-9235
Delta:
DELTA AIR LINES, INC.
1010 Delta Boulevard
Atlanta, Georgia 30320
Attention: ACS Business Partners - Dept. 108
Fax No.: (404) 773-1147
Any such notice, request, or other communication shall be considered given on
the date of hand or courier delivery if delivered by hand or overnight courier,
on the date of receipt if delivered by fax, or on the date of deposit in the
United States mail as provided above. Rejection or other refusal to accept or
inability to deliver because of changed address or fax number of which no notice
was given shall not affect the validity or the effectiveness of the notice,
request or other communication. By giving at least ten (10) days' prior written
notice thereof, either party may from time to time and at any time change its
mailing address or fax number hereunder.
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10. SERVICES FOR HANDICAPPED. Consistent with the Air Carrier Access
Act of 1986 and 14 C.F.R. 382, Contractor shall not discriminate on the basis of
handicap in performing services under this Agreement. In any matter relating to
the Contractor's provision of services under this Agreement to handicapped
individuals, Contractor's employees shall comply with any directives of Delta's
Complaints Resolution Officials (CROS) which are issued under 14 C.F.R. 382.65.
11. CONSENT. The Airport Operator's consent to this Agreement may be
necessary. In the event such consent is required and is denied, this Agreement
shall terminate and Contractor shall immediately vacate and surrender the
Airport.
12. FORCE MAJEURE. In the event that Delta's flight operations at the
Airport are halted or substantially decreased by reason of strike, labor
dispute, picketing, action or interference of governmental authorities, riots,
terrorist attack, act of God or other cause reasonably beyond the control of
Delta, this Agreement (and payment for services hereunder) may be suspended for
the duration of such halted or decreased operations, on twenty-four (24) hours'
notice addressed by Delta to Contractor.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia, excluding its laws regarding
conflict or choice of law, and Contractor voluntarily submits itself to the
jurisdiction of the state and federal courts situated in Fulton County, Georgia,
for any dispute arising hereunder.
14. SUBCONTRACTS, ASSIGNMENT. Contractor shall not subcontract out or
delegate the services to be provided hereunder without the prior written consent
of Delta. All subcontracts must be approved in writing by Delta prior to
execution and shall conform to any applicable requirements of this Agreement.
This Agreement shall not be assigned, in whole or in part, by either party
without the prior written consent of the other party. Subject to the foregoing,
this Agreement shall be binding upon and inure to the benefit of the parties,
their respective successors and assigns.
15. ENTIRE AGREEMENT. This Agreement, including all Exhibits hereto
(which exhibits are incorporated herein by reference), constitutes the complete
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior negotiations, agreements, representations and
understandings, if any, between the parties concerning same, whether written or
oral.
16. MODIFICATIONS AND AMENDMENTS. This Agreement shall nol be modified
or amended in any respect except by written instrument duly executed by or on
behalf of each of the parties to this Agreement.
17. NO WAIVER. No provision of this Agreement shall be deemed to have
been waived by Delta unless such waiver is in writing and signed by Delta, nor
shall any custom or practice which may evolve between the parties in the
administration of the terms hereof be construed to waive or lessen the fight of
Delta to insist upon the performance by Contractor in strict accordance with the
terms hereof
18. REMEDIES CUMULATIVE. Each right and remedy of Delta provided for in
this Agreement, or now or hereafter existing at law, in equity or by statute or
otherwise, shall be cumulative and concurrent, and the exercise or beginning of
the exercise of any one or more of such rights or remedies shall not preclude
the exercise of that right or remedy in the future or the exercise of any other
right or remedy at any time.
19. SEVERABILITY. If any provision of this Agreement shall be
determined to be illegal, invalid or unenforceable, the remainder of this
Agreement shall not be affected thereby and shall remain valid and enforceable
to the fullest extent permitted by law.
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<PAGE> 8
20. NONDISCRIMINATION. The provisions of SCHEDULE I, attached hereto,
are incorporated herein for all purposes.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date and year first
written above.
INTERNATIONAL TOTAL SERVICES, INC. DELTA AIR LINES, INC.
By____________________________ By____________________________
Printed Printed
Name__________________________ Name__________________________
Title_________________________ Title_________________________
Date__________________________ Date__________________________
-8-
<PAGE> 9
SCHEDULE I
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STANDARD GOVERNMENT CONTRACT PROVISIONS
EQUAL OPPORTUNITY (Applicable to contracts where total payments to Contractor
will exceed $10,000)
1. The Contractor will not discriminate against any employee or applicant
because of race, color, religion, sex or national origin. The
Contractor will take affirmative action to ensure that applicants are
employed, and that employees are treated during employment, without
regard to their race, color, religion, sex, or national origin. Such
action shall include, but not be limited to the following: employment,
upgrading, demotion, or transfer; recruitment or recruitment
advertising; layoff or termination; rates of pay or other forms of
compensation; and selection for training, including apprenticeship.
2. The Contractor agrees to comply with all provisions of Executive Order
1 1246 of September 24, 1965, as amended, and all implementing rules,
regulations, and orders, which are hereby incorporated into this
Agreement by reference as fully as if set forth verbatim herein.
AFFIRMATIVE ACTION FOR HANDICAPPED WORKERS (Applicable to all contracts where
total payments to Contractor will exceed $2,500)
1. The Contractor will not discriminate against any employee or applicant
because of physical or mental handicap, in regard to any position for
which the employee or applicant is qualified. The Contractor agrees to
take affirmative action to employ, advance in employment and otherwise
treat qualified handicapped individuals without discrimination based
upon their physical or mental handicap in all employment practices,
such as employment, upgrading, demotion or transfer, recruitment,
advertising, layoff or termination, rates of pay or other forms of
compensation, and selection for training (including apprenticeship).
2. Contractor agrees to comply with Section 503 of the Rehabilitation Act
of 1973, as amended, Executive Order No. 11758 of January 15, 1994, and
all implementing rules, regulations and orders, which are hereby
incorporated into this Agreement by reference as fully as if set forth
verbatim herein.
AFFIRMATIVE ACTION FOR DISABLED VETERANS AND VETERANS OF THE VIETNAM ERA
(Applicable to all contracts where total payment to Contractor will exceed
$10,000)
1. The Contractor will not discriminate against any employee or applicant
because that employee or applicant is a disabled veteran or veteran of
the Vietnam era, in regard to any position for which the employee or
applicant is qualified. The Contractor agrees to take affirmative
action to employ, advance in employment, and otherwise treat qualified
disabled veterans and veterans of the Vietnam era without
discrimination based on their disability or veterans status in all
employment practices, such as employment, upgrading, demotion or
transfer, recommitment, advertising, layoff or termination, rates of
pay or other forms of compensation, and selection for training
(including apprenticeship).
2. Contractor agrees to comply with THE Vietnam Era Veterans Readjustment
Assistance Act of 1972, as amended, and all implementing rules,
regulations and orders, which are hereby incorporated into this
Agreement by reference as fully as if set forth verbatim herein.
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<PAGE> 10
CERTIFICATE OF NONSEGREGATED FACILITIES I
In accordance with 41 CFR 60-1.8, Contractor agrees that by
its execution OF this Agreement, it does not and shall not maintain any
facilities it provides for its employees in a segregated manner, or permit its
employees to perform their services IN any location under its control where
segregated facilities are maintained; and that the Contractor will obtain a
similar certificate prior to the award of any nonexempt subcontract.
Page 2 of 2
<PAGE> 1
EXHIBIT 10.21
AGREEMENT FOR SKYCAP SERVICES
THIS AGREEMENT entered into as of October 1, 1996, by and
between International Total Services, Inc., an Ohio corporation with its
principal offices at Crown Centre, 5005 Rockside Road, Cleveland, Ohio 44131
("Contractor"), and Delta Air Lines, Inc., a Delaware corporation with its
principal office at Hartsfield Atlanta International Airport, Atlanta, Georgia,
30320 ("Delta").
WITNESSETH:
-----------
WHEREAS, Delta desires to obtain skycap services at the
airport referenced herein for itself and others; and
WHEREAS, Contractor is in the business of supplying such
services and is willing to provide the same for Delta;
NOW, THEREFORE, in consideration of the mutual promises and
covenants hereinafter set forth, the parties hereto agree as follows:
1. TERM. This Agreement shall be effective as of October 1, 1996, and
shall continue in effect until canceled by Delta upon not less than thirty (30)
days' prior written notice, or by Contractor upon not less than sixty (60) days'
prior written notice.
2. SERVICES AND STANDARDS
2.1 During the term of this Agreement, Contractor shall furnish skycap
services to Delta, as that term is generally understood in the air
transportation industry and as more particularly provided in paragraph 2.5 below
(such services are sometimes referred to herein as the "work" or the
"services"), at William P. Hobby Airport located in Houston, Texas (the
"Airport") at Delta's curbside and, if applicable, any interior check-in
locations, baggage carousels, and, if applicable, at all Delta gates at the
Airport, and Delta retains Contractor to furnish such services and shall pay
Contractor its charges therefor as hereinafter provided. Contractor shall
furnish ALL personnel required to furnish the services in accordance with this
Agreement and, if specified on Exhibit A attached hereto shall also provide
certain material, equipment and supplies, as specified in Exhibit A, such costs
to be included in the fees set forth in Section 3.
2.2 The services provided under this Agreement shall be of the
first class and shall be performed in a timely and professional manner at all
times, with any supplies and equipment provided by Contractor to be of good
quality.
2.3 All personnel utilized by Contractor shall be
<PAGE> 2
properly attired in uniforms acceptable to Delta and shall be able to perform
the contracted services competently.
2.4 Upon written direction from Delta, Contractor shall
perform skycap services for any person, firm or corporation for which Delta
performs passenger and/or baggage handling services. In such case, such services
shall be at no additional cost to Delta unless Contractor both incurs additional
costs and such costs have been appropriately authorized by Delta.
2.5 Contractor's services shall include but not be
limited to providing Delta with a sufficient number of employees
to:
(a) Provide handling and tagging of bags from
passengers at curbside, and between curbside and the ticket counter, and, if
applicable gates, either inbound or outbound customers.
(b) Provide monitoring of the local baggage
claim areas (carousels) and assist customers with their baggage in this area.
(c) If applicable, provide wheelchair and other
special assistance to Delta's customers, between all gates and ticket counters,
baggage facilities, connecting flights, parking lot or garage, or as otherwise
specified by Delta.
2.6 All services shall be furnished by Contractor as an
independent contractor. All personnel utilized by Contractor in the furnishing
of such services shall be employees of Contractor and under no circumstances
shall be deemed employees of Delta. Contractor shall be fully responsible for
all acts and omissions of such personnel. Contractor shall bear sole
responsibility for payment of compensation to its personnel. Contractor shall
withhold (if applicable), pay and report, for all personnel assigned to Delta's
work, federal, state and local income tax withholding, social security taxes,
employment head taxes, and unemployment insurance applicable to such personnel
as employees of Contractor. Contractor shall bear sole responsibility for any
health or disability insurance, retirement benefits, or welfare, pension or
other benefits (if any) to which such personnel may be entitled. Contractor
agrees to defend, indemnify, and hold harmless Delta, Delta's officers,
directors, employees and agents, and the administrators of Delta's benefit
plans, from and against any claims, liabilities, or expenses relating to such
compensation, tax, insurance, or benefit matters.
2.7 All services performed hereunder shall be performed
in a manner which ensures health and safety. Contractor shall
comply with all laws, rules, regulations and procedures relating to
health and safety. Without limiting the foregoing general
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<PAGE> 3
statements of Contractor's obligations, Contractor shall insure that its
employees wear all personal protective equipment necessary to protect such
employees from potential hazards, including, without limitation, all personal
protective equipment required by applicable laws, rules, regulations and
procedures.
2.8 Contractor shall ensure that all personnel utilized in the
performance of the services required hereunder receive all operational and
safety training necessary for the safe and competent performance of such
services, including, without limitation, any training required by applicable
laws, rules, regulations and procedures. Contractor must maintain documentation
of such training for the longer of three (3) years or the period of time
specified by applicable laws, rules, regulation and procedures. Delta shall have
the right, but not the duty, to conduct audits of such training records as it
deems prudent to ensure compliance with this requirement.
2.9 At all times during which Contractor's employees are
required to be performing the services required under this Agreement, Contractor
agrees to maintain a competent work supervisor (or other employee with
responsibilities for overseeing performance of the services), located in the
general area of the Delta facilities at which the services are to be performed,
and keep Delta's Director/Station Manager (or the Director/Station Manager's
designee in charge) continuously advised of the location(s) and telephone
number(s) where such work supervisor (or other employee with responsibility for
overseeing performance of the services) may be contacted to be advised of
emergencies, worker absences, accidents involving workers or substandard
performance of work. The availability of such work supervisor or other employee
shall in no way obligate Delta to communicate any such information to
Contractor.
2.10 Contractor shall comply with all applicable laws, rules
and regulations which govern the services provided for in this Agreement.
Contractor shall obtain all licenses and permits which may be required by any
governmental authority for the performance of the contracted services and shall
pay all fees and charges therefor. The foregoing obligations are in addition to
those provided in Section 6.
3. FEES.
3.1 Contractor shall bill Delta on the first day of each month
an amount calculated in accordance with Exhibit A hereto for services provided
during the preceding month. Delta shall remit payment within thirty (30) days
following receipt of said bill. The monthly bills should be sent by Contractor
to the following address:
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Director/Station Manager - HOU Station
Delta Air Lines, Inc.
Houston Hobby Airport
7800 Airport Boulevard
Houston, Texas 77205
3.2 Invoices. If services are performed for more than one air
carrier at an Airport, Contractor shall bill Delta for its prorated share of the
services performed as provided in Exhibit A. In no event shall Delta be
responsible for any other air carrier's prorated share of Contractor's fees for
the services performed hereunder.
4. ACCOUNTING RECORDS - With respect to all invoices under this
Agreement, Contractor shall keep full and detailed records and books of account
on the basis of its currently established accounting methods in effect as of the
effective date of this Agreement. Delta, or its nominee, shall at all times
during regular business hours have the right to audit and have access to the
books of account, receipts and records pertaining to invoices hereunder by
Contractor. Delta shall also be afforded access to all the Contractor's other
records, books, correspondence, instructions, memoranda and similar data
relating to this Agreement and any of the work or services provided hereunder.
Contractor shall preserve such documents and other records to which Delta has
access rights under this Section 4 without additional compensation therefor a
period of three (3) years, or such longer period as may be required by law,
after termination or expiration of this Agreement. If as a result of any such
audit or otherwise it is determined that Delta has paid any excess charges for
the work, Delta shall be entitled to immediate refunds for any such excess
charges paid by Delta.
5. TERMINATION OF AGREEMENT AND REDUCTION IN WORK.
5.1 Contractor may stop the work or otherwise terminate this
Agreement if Delta shall fail to make payment of undisputed amounts when due, in
accordance with Section 3, after ten (10) days written notice by Contractor to
Delta of such failure of payment.
5.2 Delta reserves the right to reduce the scope of work to be
performed hereunder upon not less than fifteen (15) days written notice to
Contractor. Any reduction in scope shall be accompanied by an appropriate
decrease in the fee specified in Section 3 and in EXHIBIT A hereof.
5.3 If the Contractor files for bankruptcy, has an involuntary
petition filed against it which is not dismissed within thirty (30) days,
dissolves, is insolvent, fails to promptly pay for materials or services for
which it has received payment from Delta, creates or permits the creation of any
lien on any property or premises of Delta, makes an assignment or arrangement
for the
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<PAGE> 5
benefit of its creditors, refuses or neglects to perform the work properly and
diligently (including failure to perform as a result of strike, walkout, or
labor dispute affecting Contractor or others), is in default under any other
agreement between the parties or fails to perform any of the provisions of this
Agreement or any other agreement between the parties, Delta may, at its option,
by written notice to Contractor, declare Contractor in default, terminate
Contractor's right to proceed with all or a part of the work, and take control
or possession thereof and of materials, vehicles, equipment, supplies, tools and
facilities and finish such terminated work by such means as it sees fit;
provided, however, with respect to any refusal or neglect by the Contractor to
perform the work properly and diligently, or failure to perform under other
provisions of this Agreement, the Contractor shall have ten (10) days from
receipt of written notice of such default from Delta to cure the default. Upon
termination pursuant to this provision or Section 1, Contractor shall thereupon
assign to Delta any contracts for goods or services, if any, selected by Delta
to be so assigned.
5.4 If Delta terminates this Agreement, Delta shall pay the
unpaid balance of Contractor's charges as stated in Section 3 for the period up
to and including the date of termination. Delta can deduct from the amount due
hereunder any amount that Delta may be required to pay to a third party due to
the nonpayment by Contractor of any amount and any damages, costs or expenses
Delta may incur or suffer in the event said termination is made pursuant to
Section 5.3. Contractor shall, as a condition of receiving the payments referred
to in this Section 5, execute and deliver to Delta any and all instruments that
may be required to transfer property to Delta, or otherwise required for the
orderly termination of this Agreement.
5.5 Delta reserves the right to retain Contractor's
subcontractors, if any, and all or any part of Contractor's employees executing
the work may, at Delta's option, become employees of Delta or another contractor
selected by Delta. Upon termination or expiration of the Agreement, Delta shall
take possession of all materials, vehicles, equipment, supplies, tools and
facilities owned by Delta.
5.6 In the event that Delta's flight operations at the Airport
are halted or substantially decreased for any reason, this Agreement (and
payment for services hereunder) may be suspended for the duration of such halted
or decreased operations, on twenty-four (24) hours' notice by Delta to
Contractor.
6. SECURITY CONSIDERATIONS. Contractor agrees that in the
performance of this Agreement it is of paramount importance to
maintain the security and safety of passengers, the general public
and all personnel employed at the Airport and to safeguard the
security and integrity of all personal, public and corporate
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<PAGE> 6
property. In this regard, Contractor agrees, in accordance with applicable laws,
to take those actions necessary to accomplish this purpose, including but not
limited to the actions outlined in this Section 6.
6.1 BACKGROUND CHECKS
6.1.1 Contractor warrants and agrees that it has
performed and will continue to perform employment and access investigations in
accordance with Delta's Air Carrier Standard Security Program as approved by the
Federal Aviation Administration (the "FAA"), as in effect from time to time,
including, without limitation, the requirements of 49 U.S.C. ss. 44936 and the
FAA's regulations promulgated pursuant thereto at 14 C.F.R. Parts 107 or 108, of
all persons hired by Contractor who have unescorted access to any area on an
airport controlled for security reasons. Such employment and access
investigations shall include, without limitation, employment histories and
verifications, verifications of identify and, in certain cases, criminal history
record checks as more particularly required in said regulations.
6.1.2 Contractor shall also perform background
checks, to the extent allowable by applicable law, which will include, but not
be limited to, a five year criminal history check for all persons Contractor has
hired or will hire. Further, for all persons Contractor has hired or will hire
who may operate a motor vehicle on the Airport Operating Area (the "AOA"),
Contractor will also conduct a five year check of the person's state motor
vehicle record.
6.1.3 Employment and access investigations,
background checks and motor vehicle checks shall be completed for all persons
prior to Contractor allowing such persons unescorted access to any airport area
controlled for security reasons or allowing such persons to operate motor
vehicles on the AOA.
6.2 Drug Testing. Contractor warrants and agrees that, on or
before the effective date of this Agreement, and to the extent required by
applicable laws, regulations and orders, it will establish and thereafter
maintain a drug testing program for those personnel, if so employed by the
Contractor, who perform sensitive safety related and security related functions
as defined by the FAA's Anti-Drug Program for Personnel Engaged in Specified
Aviation Activities (the "FAA's Anti-Drug Program"). Contractor agrees that such
program will comply with all requirements set forth by the FAA. To the extent
permitted by law, if Contractor employs personnel who are not covered by the
FAA's Anti-Drug Program but who will have unescorted access to any airport area
controlled for security reasons, such personnel shall be subject to
preemployment drug testing by Contractor for the same substances and in
accordance with the same procedures as required by the FAA's Anti-Drug Program.
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6.3 Additional Requirements. Contractor also agrees to
undertake whatever other measures are necessary to comply with security, drug
and alcohol testing, record-keeping, and other requirements appropriate to the
areas to which Contractor has access or to the work performed by Contractor
under this Agreement that are imposed from time to time by public agencies such
as the FAA, the United States Postal Service, the United States Customs Service,
and the operator of the Airport (the "Airport Operator") or by Delta.
6.4 Audit of Employment Records. Contractor shall keep at the
Airport full and detailed records demonstrating its compliance with this Section
6 as to each employee and shall maintain and preserve such records without
additional compensation therefor for a period of three (3) years after
termination or expiration of this Agreement. Delta shall have the right, but not
the duty, to conduct such audits of Contractor's employment records as it deems
prudent to ensure Contractor's compliance with this Section 6. Delta may
terminate this Agreement immediately if it finds any evidence which indicates
that Contractor has not complied with the obligations imposed by this Section 6.
6.5 Security of Property. Maintaining the security of the
property of Delta and of its employees, agents, customers and invitees is an
essential aspect of Contractor's performance under this Agreement. To the extent
allowable by applicable law, Contractor shall conduct random searches of its
employees' lunch boxes, bags, cases, containers and other items in which such
property could be concealed. In the event that Delta is not satisfied with the
effectiveness of Contractor's program of random searches, Delta may require
Contractor to increase the frequency of such searches. Contractor shall
emphasize to its employees the importance of ensuring the security of the
property of Delta and of Delta's employees, agents, customers and invitees and
shall in accordance with applicable law, properly notify its employees of the
existence and extent of the random search program prior to instituting such
program.
7. INSURANCE.
7.1 At all times during the term of this Agreement,
Contractor, with respect to the operations and services contemplated in this
Agreement, agrees to carry and maintain at its own cost and expense
Comprehensive General Liability Insurance for an amount of not less than
$5,000,000 combined single limit on an occurrence basis for bodily injury and
property damage. This insurance shall include contractual liability and shall be
in such form as reasonably required by Delta. The insurance shall name Delta as
an additional insured to the extent of Contractor's indemnity obligations
hereunder and shall contain a standard cross-liability endorsement.
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7.2 Contractor agrees to maintain Workers' Compensation
Insurance for statutory limits and Employer's Liability Insurance in the amount
of $1,000,000 to cover its employees. Contractor agrees to be solely and fully
responsible for the payment of all Workers' Compensation benefits for its
employees.
7.3 Contractor shall obtain the insurance required by this
Agreement from a financially sound insurance company of recognized
responsibility and shall furnish Delta with a certificate of insurance
evidencing such coverage prior to commencing its services under this Agreement.
Such insurance policies shall be considered primary, without contribution from
any insurance carried by Delta. All insurance policies shall provide that the
insurance shall not be invalidated by any action or inaction of Contractor, that
Contractor agrees to waive all rights of subrogation against Delta and that the
insurance shall continue in full force and effect for at least thirty (30) days
after Delta receives written notice of cancellation, termination or material
alteration.
8. INDEMNIFICATION. To the fullest extent permitted by law, Contractor
shall release, indemnify, defend and hold harmless Delta, and its directors,
officers, employees and agents (collectively, the "Indemnified Parties" and
individually, an "Indemnified Party") from and against any and all claims,
damages, losses, fines, civil penalties, liabilities, judgments, costs and
expenses of any kind or nature whatsoever, including, but not limited to,
interest, court costs and attorneys' fees, which in any way arise out of or
result from any act(s) or omission(s) by Contractor (or anyone directly or
indirectly employed by Contractor or anyone for whose acts Contractor may be
liable) in the performance or nonperformance of services or other obligations
under this Agreement or in the use or occupancy of any facilities or equipment
provided by Delta, including, but not limited to, injury to or death of any
person, damage to or destruction of any property, real or personal (including,
but not limited to, property owned, leased or under the control of Delta), and
liability or obligations under or with respect to any violation of federal,
state and local laws, regulations, rules, codes and ordinances (including, but
not limited to, those concerning environmental protection). This Section shall
apply regardless of whether or not the damage, loss or injury complained of
arises out of or relates to the negligence (whether active, passive or
otherwise) of, or was caused in part by, an Indemnified Party. However, nothing
contained in this Section shall be construed as a release or indemnity by
Contractor of an Indemnified Party from or against any loss, liability or claim
to the extent arising from the gross negligence or willful misconduct of that
Indemnified Party. This Section shall not be construed to negate, abridge or
otherwise reduce any other right to indemnity which would otherwise exist in
favor of any Indemnified Party, or any obligation of Contractor, its officers,
directors, employees, agents or contractors to
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indemnify an Indemnified Party. Contractor's obligations under this Section
shall not be limited in any way by any limitation on the amount or type of
damages, compensation or benefits paid or payable by Contractor under Workers'
Compensation Acts, disability benefits acts or other employee benefit laws or
regulations. The indemnification obligations of this Section shall survive
termination or expiration of this Agreement.
9. NOTICES. Any notices, requests or other communications required or
permitted to be given hereunder shall be in writing and shall be delivered by
hand, by overnight courier, or by facsimile transmission ("fax"), or mailed by
United States registered or certified mail, return receipt requested, postage
prepaid, and addressed to the appropriate party at its address or to its fax
number, as appropriate, as set forth below:
Contractor: INTERNATIONAL TOTAL SERVICES, INC.
Crown Centre
5005 Rockside Road
Cleveland, Ohio 44131
Attention: Mr. Robert McKinley
Fax No.: (216)642-9235
Delta: DELTA AIR LINES, INC.
1010 Delta Boulevard
Atlanta, Georgia 30320
Attention: ACS Business Partners - Dept. 108
Fax No.: (404)773-1147
Any such notice, request, or other communication shall be considered given on
the date of hand or courier delivery if delivered by hand or overnight courier,
on the date of receipt if delivered by fax, or on the date of deposit in the
United States mail as provided above. Rejection or other refusal to accept or
inability to deliver because of changed address or fax number of which no notice
was given shall not affect the validity or the effectiveness of the notice,
request or other communication. By giving at least ten (10) days' prior written
notice thereof, either party may from time to time and at any time change its
mailing address or fax number hereunder.
10. SERVICES FOR HANDICAPPED. Consistent with the Air Carrier Access
Act of 1986 and 14 C.F.R. 382, Contractor shall not discriminate on the basis of
handicap in performing services under this Agreement. In any matter relating to
the Contractor's provision of services under this Agreement to handicapped
individuals, Contractor's employees shall comply with any directives of Delta's
Complaints Resolution Officials (CROS) which are issued under 14 C.F.R. 382.65.
11. CONSENT. The Airport Operator's consent to this
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Agreement may be necessary. In the event such consent is required and is denied,
this Agreement shall terminate and Contractor shall immediately vacate and
surrender the Airport.
12. FORCE MAJEURE. In the event that Delta's flight operations at the
Airport are halted or substantially decreased by reason of strike, labor
dispute, picketing, action or interference of governmental authorities, riots,
terrorist attack, act of God or other cause reasonably beyond the control of
Delta, this Agreement (and payment for services hereunder) may be suspended for
the duration of such halted or decreased operations, on twenty-four (24) hours'
notice addressed by Delta to Contractor.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia, excluding its laws regarding
conflict or choice of law and Contractor voluntarily submits itself to the
jurisdiction of the state and federal courts situated in Fulton County, Georgia,
for any dispute arising hereunder.
14. SUBCONTRACTS, ASSIGNMENT. Contractor shall not subcontract out or
delegate the services to be provided hereunder without the prior written consent
of Delta. All subcontracts must be approved in writing by Delta prior to
execution and shall conform to any applicable requirements of this Agreement.
This Agreement shall not be assigned, in whole or in part, by either party
without the prior written consent of the other party. Subject to the foregoing,
this Agreement shall be binding upon and inure to the benefit of the parties,
their respective successors and assigns.
15. ENTIRE AGREEMENT. This Agreement, including all Exhibits hereto
(which exhibits are incorporated herein by reference), constitutes the complete
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior negotiations, agreements, representations and
understandings, if any, between the parties concerning the same, whether written
or oral.
16. MODIFICATIONS AND AMENDMENTS. This Agreement shall not be modified
or amended in any respect except by written instrument duly executed by or on
behalf of each of the parties to this Agreement.
17. NO WAIVER. No provision of this Agreement shall be deemed to have
been waived by Delta unless such waiver is in writing and signed by Delta, nor
shall any custom or practice which may evolve between the parties in the
administration of the terms hereof be construed to waive or lessen the right of
Delta to insist upon the performance by Contractor in strict accordance with the
terms hereof
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18. REMEDIES CUMULATIVE. Each fight and remedy of Delta provided for in
this Agreement, or now or hereafter existing at law, in equity or by statute or
otherwise, shall be cumulative and concurrent, and the exercise or beginning of
the exercise of any one or more of such rights or remedies shall not preclude
the exercise of that right or remedy in the future or the exercise of any other
right or remedy at any time.
19. SEVERABILITY. If any provision of this Agreement shall be
determined to be illegal, invalid or unenforceable, the remainder of this
Agreement shall not be affected thereby and shall remain valid and enforceable
to the fullest extent permitted by law.
20. NONDISCRIMINATION. The provisions of Schedule 1, attached hereto,
are incorporated herein for all purposes.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their duly authorized representatives as of the date and year
first written above.
INTERNATIONAL TOTAL SERVICES, INC. DELTA AIR LINES, INC.
By _____________________________ By ______________________
Printed Printed
Name ___________________________ Name _____________________
Title __________________________ Title _____________________
Date ___________________________ Date ______________________
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<PAGE> 1
EXHIBIT 10.22
GROUND SERVICES AGREEMENT
-------------------------
THIS AGREEMENT is entered into as of December 1, 1996, by and
between International Total Services, an Ohio corporation with its principal
offices at Crown Centre, 5005 Rockside Road, Cleveland, Ohio 44131
("Contractor"), and Delta Air Lines, Inc., a Delaware corporation with its
principal offices at Hartsfield Atlanta International Airport, Atlanta, Georgia
30320 ("Delta").
WITNESSETH:
WHEREAS, Delta desires to obtain ground services at
certain times and places; and
WHEREAS, Contractor is in the business of supplying such
ground services and is willing to provide the same for Delta on the terms and
conditions set forth below;
NOW, THEREFORE, in consideration of the mutual promises and
covenants hereinafter set forth, the parties agree as follows:
1. TERM. This Agreement shall be effective as of December 1, 1996, and
shall continue in effect until canceled by Delta giving not less than thirty
(30) days' prior written notice to Contractor or Contractor giving not less than
sixty (60) days' prior written notice to Delta. The commencement date for
services under this Agreement shall be December 1, 1996 (the "Commencement
Date").
2. SERVICES AND STANDARDS.
2.1 From and after the Commencement Date, Contractor shall
furnish to Delta at Delta's facilities located at Cleveland Hopkins
International Airport in Cleveland, Ohio (the "Airport") the ground services
described in Exhibit A attached hereto and incorporated herein by reference
(such services are sometimes referred to herein as the "work"). Such services
shall be performed in accordance with the specifications and other requirements
referenced or set forth in EXHIBIT A. As provided in Section 5 hereof, it is
understood that certain additional services may be required and shall be
provided under this Agreement, even though not specifically listed in EXHIBIT A.
2.2 The services described in EXHIBIT A will be made available
without further request for arrivals and departures scheduled to be made at the
Airport by aircraft of Delta or other carriers ground handled by Delta from time
to time. Delta operates certain flights under the name "Delta Express." Such
operations are Delta operations for all purposes under this Agreement. Delta
will coordinate with Contractor all proposed schedule changes or additions at
least fifteen (15) days in advance of the effective
<PAGE> 2
date thereof, and Contractor will advise Delta as to Contractor's ability to
accommodate such changes within five (5) days thereafter.
2.3 The services provided under this Agreement shall be
performed in a timely and professional manner at all times and shall be
performed in full compliance with Delta's Ground Operations Manual ("GOM") as
such manual may be in effect from time to time. All personnel utilized by
Contractor shall be properly attired in accordance with the uniform
specifications set forth in EXHIBIT B hereto and shall be able to perform the
contracted services competently.
2.4 Contractor's employees who operate motorized vehicles in
the performance of the work must possess a valid state driver's license for the
state in which the services performed and a valid Delta Mobile Equipment
Operator's License.
2.5 All services shall be furnished by Contractor as an
independent contractor. All personnel utilized by Contractor in the furnishing
of such services shall be employees of Contractor and under no circumstances
shall be deemed employees of Delta. Contractor shall be fully responsible for
all acts and omissions of such personnel. Contractor shall bear sole
responsibility for payment of compensation to its personnel. Contractor shall
withhold (if applicable), pay and report, for all personnel assigned to Delta's
work, federal, state and local income tax withholding, social security taxes,
employment head taxes, and unemployment insurance applicable to such personnel
as employees of Contractor. Contractor shall bear sole responsibility for any
health or disability insurance, retirement benefits, or welfare, pension or
other benefits (if any) to which such personnel may be entitled. Contractor
agrees to defend, indemnify, and hold harmless Delta, Delta's officers,
directors, employees and agents, and the administrators of Delta's benefit
plans, from and against any claims, liabilities, or expenses relating to such
compensation, tax, insurance, or benefit matters.
2.6 Contractor agrees to use its best efforts to follow any
instructions provided by Delta's Station Manager/Director or his designee
regarding the standards, procedures, and practices to be followed in furnishing
services pursuant to this Agreement. In the absence of such instructions,
services will be furnished in accordance with the accepted standards, practices,
and procedures normally followed in the industry in connection with such
operations. Delta's Station Manager/Director or his designee shall be authorized
to request services on behalf of Delta. Provided, however, for purposes of this
Section 2.6, if the services to be provided under this Agreement include cargo
or mail handling services, then Contractor shall coordinate with both Delta's
Station Manager/Director and Delta's Cargo Regional Manager or Cargo Manager for
the Airport or their respective designees for all
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matters addressed by this Section 2.6 with respect to such cargo and mail
handling services.
2.7 All services performed hereunder shall be performed in a
manner which ensures health and safety. Contractor shall comply with all laws,
rules, regulations and procedures relating to health and safety. Without
limiting the foregoing general statements of Contractor's obligations,
Contractor shall ensure that its employees wear all personal protective
equipment necessary to protect such employees from potential hazards, including,
without limitation. all personal protective equipment required by applicable
laws, rules, regulations and procedures.
2.8 Contractor shall ensure that all personnel utilized in the
performance of tile services required hereunder receive all operational and
safety training necessary for the safe and competent performance of such
services, including, without limitation, any specialized training provided or
required by Delta and any training required by applicable laws, rules,
regulations and procedures. Contractor shall designate an employee to be the
Contractor's Training Coordinator responsible for the training of new employees,
dissemination of new procedures and revisions to Delta's cargo manual and
tariffs, and participation in Delta's "Train the Trainer" activities. All
training must be documented in the Delta Automated Training Manual System
(ATMS). Separate supporting documentation Must be maintained by Contractor for
the longer of three (3) years or the period of time specified by applicable
laws, rules, regulations and procedures. Delta shall have the right, but not the
duty, to conduct audits of such training records as it deems prudent to ensure
compliance with this requirement.
2.9 At Delta's request and upon the terms set forth herein,
Contractor shall provide the services specified herein, as Delta's contractor,
for other air carriers ground handled by Delta from time to time. Except as
provided in Section 5.3 hereof, such services shall be at no additional cost to
Delta. Contractor shall perform the same services for the ground handled
carrier's aircraft as are performed for Delta aircraft hereunder and such
services shall be subject to the same standards and requirements, unless
otherwise instructed by Delta.
2.10 At all times during which Contractor's employees are
required to be performing the services required under this Agreement, Contractor
agrees to maintain a competent work supervisor (or other employee with
responsibility for overseeing the performance of the services) located at the
Delta facilities at which the services are to be performed, and to keep Delta's
Station Manager/Director (or the Station Manager/Director's designated agent in
charge) continuously advised of the locations) and telephone number(s) at which
such work supervisor (or other
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employee with responsibility for overseeing the performance of the services) may
be contacted to be advised of emergencies, worker absences, accidents involving
workers. or substandard performance of work. The availability of such work
supervisor or other employee shall in no way obligate Delta to communicate any
such information to Contractor.
2.11 Contractor shall comply with all applicable laws, rules,
regulations and procedures which govern the services provided for In this
Agreement. Contractor shall obtain all licenses and permits which may be
required by any governmental authority for the performance of the contracted
services and shall pay all fees and charges therefor. The foregoing obligations
are in addition to those provided in Section 13 of this Agreement.
3. COST OF THE WORK AND GUARANTEED MAXIMUM COST.
3.1 From and after the Commencement Date, Delta will reimburse
Contractor for the cost of the work as defined in Section 6 and as limited in
Section 7, in addition to Contractor's Management Fee stipulated in Section 4.
3.2 The maximum cost to Delta of the aggregate of Contractor's
Management Fee and the cost of the work for each one-year period front December
1 to November 30 is guaranteed by Contractor not to exceed the sum identified in
EXHIBIT C as the "Guaranteed Maximum Cost."
3.3 Adjustments, if any, to the Guaranteed Maximum Cost as a
result of changes in the scope of the work shall be handled in accordance with
Section 5 hereof.
4. CONTRACTOR'S FEE.
4.1 Delta will pay Contractor in current funds, as payment for
its services and personnel, a fee calculated in accordance with the fee schedule
contained in EXHIBIT C and identified in such exhibit as the "Management Fee."
4.2 Adjustments, if any, to Contractor's Management Fee as a
result of changes in the scope of the work shall be handled in accordance with
Section 5.5 hereof.
5. CHANGES IN THE WORK/WORK FOR OTHER CARRIERS.
5.1 SCOPE OF WORK. Contractor is to provide a dedicated work
force to provide the services specified herein as Delta's contractor for all
arrivals and departures scheduled to be made at the Airport by aircraft of Delta
or of other carriers ground handled by Delta from time. The Guaranteed Maximum
Cost set forth in EXHIBIT C was determined in part based on information provided
by Delta to Contractor with respect to the average number of
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flights per week for which Contractor's services are required
hereunder.
5.2 CHANGES. Changes in the scope of the work may become
necessary in order to address changes that were not anticipated at the time the
annual forecast of operating cost ("Forecast of Operating Cost") and Guaranteed
Maximum Cost were established and that were not included in such Forecast of
Operating Cost and Guaranteed Maximum Cost. It is possible that these changes in
the scope of the work could result in increases or decreases in the cost of the
work to Contractor. The following are examples of potential changes in the scope
of the work that might result in an increase in the cost of the work:
5.2.1 A material increase in the average number
of flights per week for which services are required hereunder;
5.2.2 Additional man-hours required as the result of
late or irregular flight operations;
5.2.3 Additional man-hours and/or travel expenses
due to a substantial change in Delta's training requirements or the training
requirements imposed by applicable laws, rules, regulations and procedures;
5.2.4 Unanticipated seasonal changes resulting in
substantial increases in the number of flights handled or otherwise
substantially increasing Contractor's workload under this Agreement;
5.2.5 Additional requirements with respect to the
maintenance of and upkeep of equipment and facilities at the Airport requested
by the Delta Station Manger/Director (e.g., extra painting of ground equipment).
5.3 COMPENSATION FOR INCREASES IN COSTS DUE TO CHANGES IN THE WORK.
Contractor shall be reimbursed for such out-of-scope work and the cost shall not
be counted against the original Guaranteed Maximum Cost only if the requirements
set forth in this Section 5.3 are satisfied. In the event that a change in the
scope of the work is made by Delta and, as the direct result of such change,
Contractor would be required to provide man-hours in excess of the manhours used
by Delta and Contractor in establishing the Forecast of Operating Cost in
EXHIBIT C or incur expenses not covered by the line items set forth in EXHIBIT
C, then, if Contractor desires to receive compensation therefor, Contractor
shall, prior to rendering such services or incurring such additional expenses,
submit to the Delta Station Manager/Director the approved Delta form for
Authorization of Additional Charges for Out-of-Scope Work. If Delta's Station
Manager/Director then agrees in writing that such work is out-of-scope work and
that such work would require man-hours in excess of the man-hours used by Delta
and Contractor in
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establishing the Forecast of Operating Cost or would require Contractor to incur
expenses not covered by the line items Exhibit C, then, at Delta's sole option,
either (i) the Guaranteed Maximum Cost shall be increased by an amount equal to
the sum of the actual increase in Contractor's costs resulting from the change
in the scope of the work plus the increase, if any, in the Contractor's
Management Fee pursuant to Section 5.5 hereof, and the cost of the additional
work shall be billed to Delta in the same fashion as the original scope of work,
or (ii) the additional work shall be billed by Contractor as a separate line
item on the monthly invoice at the hourly rate set forth in EXHIBIT C hereto and
shall not be considered part of the cost of the work or be counted against the
Guaranteed Maximum Cost. Unless the Delta form for Authorization of Additional
Charges for Out-of-Scope Work is submitted by Contractor and approved in advance
in writing by Delta's Station Manager/Director, Delta shall not be responsible
for any extra compensation claimed by Contractor on account of such services or
expenses.
5.4 DECREASES IN COSTS DUE TO CHANGES IN THE WORK. In the
event that the change in the work would decrease the cost of the work, Delta
shall be billed only for the actual decreased cost of the work and, at Delta's
option, the Guaranteed Maximum Cost for the work shall be reduced by the sum of
the decrease in the actual cost of the work and the reduction, if any, in the
Contractor's Management Fee pursuant to Section 5.5 hereof.
5.5 ADJUSTMENTS TO CONTRACTOR'S MANAGEMENT FEE. In the event that Delta
elects to make an adjustment to the Guaranteed Maximum Cost pursuant to Section
5.3(i) or 5.4 hereof as the result of a change in the scope of the work, then
Contractor's Management Fee shall be reviewed for adjustment if the change in
the scope of the work results in an Increase or decrease of 10% or more of the
amount specified in EXHIBIT C as the annual Forecast of Operating Cost. If the
Contractor's Management Fee is so adjusted, then the Guaranteed Maximum Cost
will be adjusted accordingly to reflect the revised Management Fee.
5.6 CREDITS FOR WORK PERFORMED FOR OTHER CARRIERS. Should
Contractor desire to provide services at the Airport to carriers other than
Delta with manpower from the work force prove dedicated to Delta, Contractor
shall reimburse Delta on the monthly invoice for work hours associated with such
services based on the hourly rate set forth in EXHIBIT C hereto. Such
reimbursement shall be identified as a separate line item credit on the monthly
invoice and will not affect the Guaranteed Mesa-new-n Cost. Contractor is
authorized to utilize manpower fried-n the work force dedicated to Delta only if
such manpower is not needed to furnish services to Delta or carriers ground
handled by Delta and only if agreed to in advance by Delta's Station
Manager/Director. Delta's facilities shall not be used by Contractor for any
purpose other than the performance of the work hereunder for Delta and carriers
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ground handled by Delta.
6. COSTS TO BE REIMBURSED.
6.1 The term "cost of the work" shall mean costs necessarily
and reasonably incurred in the proper performance of the work and paid by
Contractor. Such costs shall be at rates not higher than those prevailing in the
locality of the work except with prior written consent of Delta, and shall
include the following items:
6.1.1 Wages paid for labor in the direct employ
of Contractor in the performance of the work on site. Bonuses or other
incentives shall be reimbursable only if approved in writing in advance by
Delta.
6.1.2 Cost of contributions, assessments or taxes
required to be paid to any governmental authority for such items as unemployment
compensation and social security, insofar as such cost is based on wages,
salaries or other remuneration paid to employees of Contractor and included in
the cost of the work under Section 6.1.1. Such costs shall be limited to those
required by applicable federal, state or local laws and regulations.
6.1.3 Cost of performing background checks and drug
screening tests in order to comply with Section 13 hereof.
6.1.4 The amortization, calculated as set forth
in this Section 6.1.4, of the cost of all vehicles, vacuums, carpet extractors
and radios, if any, purchased by Contractor and used exclusively in the
performance of the work. The purchase price of vehicles shall be amortized over
five years, without interest. The purchase price of vacuums, extractors and
radios shall be amortized over four years, without interest. Upon full
amortization, title to such equipment or vehicles shall pass to Delta and no
charges shall be imposed for use of the equipment or vehicles. The cost of the
maintenance of, and repairs to, such vehicles and equipment necessary to
maintain such vehicles and equipment in an operable condition shall also be a
reimbursable cost. Reimbursable maintenance and repairs shall not include an
overhaul or restoration Of Such equipment or vehicles.
6.1.5 Rental charges of all necessary equipment used at the
site of tile work, to the extent Such equipment is used exclusively in the
performance of the work. Such rental charges shall be at rates consistent with
those prevailing in the area for periods of time when such equipment is required
and used in the performance of the work. The cost of the work shall also include
minor repairs and replacements to Such equipment and costs incurred for removal,
transportation and delivery of such equipment. Contractor shall, as may be
periodically required by Delta, evaluate the anticipated total rental charge of
each item of
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equipment and should the anticipated total rental charges for the expected
duration of tile work equal 75% or more of tile purchase price of the equipment,
Delta shall be notified of such facts and i-nay direct Contractor to purchase
the equipment (in which case, title to such property shall pass to Delta upon
payment of such costs). The phrase "minor repairs and replacements" above is
limited to repairs and parts replacements to maintain the item of equipment in
an operable condition and does not include major repair/overhaul to restore
equipment to a nearly new condition.
6.1.6 The proportionate cost attributable to the
work for premiums for all bonds and insurance which Contractor is required by
this Agreement to purchase and maintain.
6.1.7 Sales, use or similar taxes, related to the
work and for which Contractor is liable, imposed by any applicable governmental
authority. The proportionate cost attributable to the work for any city business
licenses required for the performance of the work shall also be a reimbursable
cost.
6.1.8 The cost of uniforms to the extent Contractor
is unable, after reasonable efforts, to obtain reimbursement from its personnel
for such costs and only if and to the extent that a line item for such cost has
been included in the Forecast of Operating Cost in EXHIBIT C.
6.1.9 Minor expenses such as telegrams, long
distance telephone calls, telephone service at the site (if applicable), express
age, office supplies, postage and similar petty cash items reasonably and
necessarily incurred in connection with the work.
6.1.10 Purchased computer software and hardware,
office copiers and facsimile machines necessary to perform the work and used
exclusively in the work. Any such equipment to be purchased under this Agreement
must be previously approved in writing by Delta and the title to such equipment
shall transfer to Delta on Delta's reimbursing the Contractor or the cost of
such equipment.
6.1.11 To the extent provided in this Section
6.1.11, the cost of initial training (i.e., prior to the Commencement Date) for
the Contractor's initial staff dedicated to performance of the work for Delta at
the Airport. Delta shall reimburse Contractor for the actual salary costs
incurred by Contractor for such staff during training hours, including the
associated statutory overhead, and such costs shall not be applied to the
Guaranteed Maximum Cost. Any other costs related to training shall not be
reimbursable unless included as a separate positive line item dollar amount on
EXHIBIT C. If so included on EXHIBIT C, such line item costs shall be reimbursed
at actual cost and shall be applied to the Guaranteed Maximum Cost. In the event
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that Such initial training is conducted in a city other than the city in which
the Airport is located, Delta shall provide air transportation to such location
on Delta, hotel accommodations at Delta's negotiated corporate rates, and shall
reimburse actual meal expenses (subject to a maximum of Delta's published per
diem meal allowance then in effect for ground employees). No cash reimbursement
for air transportation shall he provided. With respect to costs incurred prior
to the Commencement Date for Contractor's home office employees and other
necessary overhead expenses, Contractor shall be paid a pro rata portion of the
Contractor's Management Fee for the period commencing on the effective date of
this Agreement, as set forth in Section 1 hereof (the "Effective Date"), and
ending upon the Commencement Date. This fee shall be determined by dividing the
annual Contractor's Management Fee set forth in EXHIBIT C by 365 and multiplying
such daily amount by the number of days between the Effective Date and
the Commencement Date. All training and services performed or undertaken in
connection with this Agreement prior to the Commencement Date shall be subject
to the terms and provisions of this Agreement, including, without limitation,
the indemnification provisions of Section 17. Training costs incurred after the
Commencement Date, other than for recurrent training and training of new
employees, shall not be reimbursable.
6.1.12 The cost of fuel consumed by the vehicles
utilized by Contractor in the performance of the work, so long as such vehicles
are licensed only for use on the Airport Operating Area at the Airport (the
"AOA") and are used exclusively in the performance of the work.
6.1.13 Other costs incurred in the performance of
the work if and to the extent specifically included as a positive line item
dollar amount in the Forecast of Operating Cost set forth in EXHIBIT C hereto or
approved in advance in writing by Delta in accordance with Section 5 hereof.
6.2 Notwithstanding the inclusion of the specific cost items
contained in this Section 6 and notwithstanding any other provision of this
Agreement, no such item shall be included as part of the cost of the work unless
substantiated to the reasonable satisfaction of Delta and unless the Forecast of
Operating Cost set forth in EXHIBIT C hereto expressly includes a positive line
item dollar amount for such type of cost.
6.3 Further, notwithstanding the inclusion of the specific
cost items contained in this Section 6, said items shall not be included as part
of the cost of the work to the extent that the cost of such items, together with
Contractor's fee, exceeds the Guaranteed Maximum Cost referenced in Section 3
and set forth in EXHIBIT C hereto.
7. COSTS NOT TO BE REIMBURSED.
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7.1 Notwithstanding any other provision of this Agreement, the terM
"cost of the work" shall not include any of the following items (unless the item
is expressly included as a positive line item dollar amount in the Forecast of
Operating Cost in EXHIBIT C hereto):
7.1.1 Salaries or other compensation of Contractor's
personnel at Contractor's principal office. branch offices and field offices
(other than the on-site office at the Airport).
7.1.2 Expenses of Contractor's principal office,
branch offices and field offices (other than the on-site office at the Airport).
7.1.3 Any part of Contractor's capital expenses
or interest on Contractor's capital employed in the work, unless expressly
permitted in Section 6.1.4.
7.1.4 Advertising (unless directed specifically
to recruitment of employees for the Delta work at the Airport) and public
relations expenses.
7.1.5 Fees of consultants.
7.1.6 Home office accounting department costs.
7.1.7 Contributions and donations.
7.1.8 Federal, state and local taxes measured by
net income, assets or net worth.
7.1.9 Overhead or general expenses of any kind,
except for any that are both not excluded by other provisions in this Section 7
and are expressly included in any of the specified items listed in Sections
6.1.1 through 6.1.13.
7.1.10 Cost of fuel for Contractor's supervisory
vehicle, if any, licensed to operate off the AOA.
7.1.11 Costs due to the fault or negligence (in
either case, including, but not limited to, waste or in is management) of
Contractor, anyone directly or indirectly employed by Contractor or for whose
acts Contractor may be liable, including, but not limited to, costs of or
related to defective or non-conforming work, or disposal of material or
equipment wrongly supplied.
7.1.12 Costs incurred in connection with or in
anticipation of any claim against Delta under this Agreement, whether or not
such claim becomes the subject of a judicial or other formal proceeding.
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7.1.13 Costs of civil penalties or fines levied
by any federal, state or local authority, including costs to defend such
actions, due to tile acts or omissions of Contractor, its officers, directors,
employees, agents or subcontractors.
7.1.14 Costs in excess of the Guaranteed Maximum
Cost, as referenced in Section 3 and set forth in EXHIBIT C hereto.
7.1.15 The cost of any item not specifically and
expressly included in the items described in Section 6.
8. DISCOUNTS, REBATES AND REFUNDS. All cash discounts shall accrue to
Delta. All trade discounts, rebates and refunds and all returns from sale of
surplus materials and equipment shall accrue to Delta and Contractor shall make
provisions so that they will be obtained.
9. ACCOUNTING RECORDS. Contractor shall keep full and detailed records
and books of account on the basis of its currently established accounting
methods in effect as of the effective date of this Agreement, showing the actual
direct cost reimbursable to Contractor under the provisions of this Agreement.
Delta, or its nominee, shall at all times during regular business hours have the
right to audit and have access to the books of account, receipts and records
pertaining to the reimbursable cost of performance hereunder by Contractor.
Delta shall also be afforded access to all the Contractor's other records, books
correspondence, instructions, memoranda and similar data relating to this
Agreement an@ any of the work. Contractor shall preserve such documents and
other records to which Delta has access rights under this Section 9 without
additional compensation therefor for a period of three (3) years, or such longer
period as may be required by law, after termination or expiration of this
Agreement. If as a result of any such audit or otherwise it is determined that
Delta has paid any excess charges for the work, Delta shall be entitled to
immediate refunds for any such excess charges paid by Delta.
10. APPLICATIONS FOR PAYMENT.
10.1 INVOICES; BILLING, ADDRESS. Each month during the term of
this Agreement, as soon as actual expenses are determined for the preceding
month, an invoice shall be submitted to Delta by Contractor. Such invoice shall
reflect the total cost of the work incurred by Contractor during the preceding
month and the monthly management fee, subject to the Guaranteed Maximum Cost
referenced in Section 3.2 and set forth in EXHIBIT C of this Agreement. Such
invoice shall be accompanied by all documentation necessary to support the
entire month's payment has been made and for which reimbursement is sought. The
invoice should be sent to:
Station Manager - Cleveland Station
Delta Air Lines, Inc.
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<PAGE> 12
Cleveland Hopkins International Airport
Cleveland, Ohio 44135
10.2 PRORATION. If the Commencement Date is a date other than
tile first day of a month or this Agreement ends on a date other than the last
day of a month, then the monthly amounts on the Forecast of Operating Cost and
the monthly management fee amounts shall be prorated for such first or last
month.
10.3 QUALITY ASSURANCE. Contractor agrees to comply with
Delta's quality assurance procedures and performance standards applicable to the
work. Delta shall provide Contractor with a copy of such procedures and
standards and any revisions made thereto from time to time. Contractor further
agrees to accept the appropriate reduction in payment where the quality of
service provided does not meet the prescribed Delta performance standards. All
reductions imposed by Delta shall be included as a credit to Delta on the first
monthly invoice presented by Contractor to Delta after imposition of the
reduction by Delta.
11. PAYMENTS TO CONTRACTOR
11.1 Delta will review Contractor's statements of moneys due,
in accordance with Section 10, and the undisputed amount shall be payable within
thirty (30) days of receipt of invoice. Delta shall have the option not to pay
any amount if Delta shall dispute its reasonableness or necessity. Delta and
Contractor shall make a good faith effort to resolve such dispute prior to the
next payment date. Delta's review of any of the Contractor's statements, failure
to dispute any amount claimed to be due or payment of any amount shall not waive
any rights Delta has under this Agreement or otherwise, including, without
limitation, the right to recover any amounts subsequently determined not to have
been payable to the Contractor and the right to terminate this Agreement.
11.2 The final payment due under this Agreement shall be paid
by Delta to Contractor within forty-five (45) days after the later of (i)
expiration or termination of this Agreement, (ii) receipt of Contractor's final
invoice, and (iii) completion of proper accounting for all Delta property.
12. TERMINATION OF AGREEMENT AND REDUCTION IN WORK.
12.1 Contractor may stop the work or otherwise terminate this
Agreement if Delta shall fail to make payment of undisputed amounts when due, in
accordance with Section 11, after ten (10) days written notice of such failure
of payment.
12.2 Delta reserves the right to reduce the scope of work
to be performed by not less than fifteen (15) days written notice
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<PAGE> 13
to Contractor. Reductions in compensation as a result of reductions in scope
shall be handled in accordance with Section 5 hereof.
12.3 As provided in Section 1, either party shall have the
right to terminate this Agreement, without cause, for convenience, upon not less
than thirty (30) days' prior written notice by Delta to the Contractor and not
less than sixty (60) days' prior written notice by the Contractor to Delta.
12.4 If the Contractor files for bankruptcy, has an
involuntary petition filed against it which is not dismissed within thirty (30)
days, dissolves, is insolvent, fails to promptly pay for materials or services
for which it has received payment from Delta, creates or permits the creation of
any lien on any property or premises of Delta, makes an assignment or
arrangement for the benefit of its creditors, refuses or neglects to perform the
work properly and diligently (including failure to perform as a result of
strike, walkout, or labor dispute affecting Contractor or others), is in default
under any other agreement between the parties, or fails to perform any of the
provisions of this Agreement, Delta may, at its option, by written notice to
Contractor, declare Contractor in default, terminate Contractor's right to
proceed with all or a part of the work, and take control or possession thereof
and of materials, vehicles, equipment, supplies, tools and facilities and finish
such terminated work by such means as it sees fit; provided, however, with
respect to any refusal or neglect by the Contractor to perform the work properly
and diligently, or failure to perform under other provisions of this Agreement,
the Contractor shall have ten (10) days from receipt of written notice of such
default from Delta to cure the default. Upon termination pursuant to this
provision or Section 12.3, Contractor shall thereupon assign to Delta any
contracts for goods or services in support of the work, if any, selected by
Delta to be so assigned.
12.5 If Delta terminates this Agreement, Delta shall reimburse
Contractor for any unpaid cost of the work which has been incurred by Contractor
and is due it under Section 3, and in addition shall pay the unpaid balance of
Contractor's Management Fee for the period up to and including the date of
termination subject in each case to the Guaranteed Maximum Cost. Delta can
deduct from the amount due hereunder any amount that Delta may be required to
pay to a third party due to the nonpayment by Contractor of any amount and any
damages, costs or expenses Delta may incur or suffer in the event said
termination is made pursuant to Section 12.4. Contractor shall, as a condition
of receiving the payments referred to in this Section 12, execute and deliver to
Delta any and all instruments that may be required to transfer property to
Delta, or otherwise required for the orderly termination of this Agreement. If
the Agreement is terminated, for any reason, or expires on any date other than
the last day of the
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<PAGE> 14
then current forecast year as to which the Guaranteed Maximum Cost is applicable
(as set forth in EXHIBIT C), the Contractor's Management Fee and the Guaranteed
Maximum Cost for the then current forecast year shall be prorated.
12.6 Delta reserves the right to retain Contractor's
subcontractors, if any, and all or any part of Contractor's employees executing
the work may, at Delta's option, become employees of Delta or another contractor
selected by Delta. Upon termination or expiration of the Agreement, Delta shall
take possession of all materials, vehicles, equipment, supplies, tools and
facilities owned by Delta or for which Contractor shall have been reimbursed by
Delta (except for such items as to which Delta shall have accepted a credit for
salvage value). Delta shall have no obligation to purchase any item from
Contractor, even if Contractor has not been reimbursed for the costs or the
costs have not been fully amortized, unless Delta expressly agreed in writing to
do so with respect to the particular item prior to the acquisition of such item
by Contractor.
13. SECURITY CONSIDERATIONS. Contractor agrees that in the performance
of this Agreement it is of paramount importance to maintain the security and
safety of passengers, the general public and all personnel employed at the
Airport and to safeguard the security and integrity of all personal, public and
corporate property. In this regard, Contractor agrees, in accordance with
applicable laws, to take those actions necessary to accomplish this purpose,
including but not limited to the actions outlined in this Section 13.
13.1 BACKGROUND CHECKS.
13.1.1 Contractor warrants and agrees that it has
performed and will continue to perform employment and access investigations in
accordance with Delta's Air Carrier Standard Security Program as approved by the
Federal Aviation Administration (the "FAA") as in effect from time to time,
including, without limitation, the requirements of 49 U.S.C. ss. 44936 and the
FAA's regulations promulgated pursuant thereto at 14 C.F.R. Parts 107 or 108, of
all persons hired by Contractor who have unescorted access to any airport area
controlled for security reasons. Such employment and access investigations shall
include without limitation employment histories and verifications, verifications
of identity, and, in certain cases, criminal history record checks as more
particularly required in said regulations.
13.1.2 Contractor shall also perform background
checks, to the extent allowable by applicable law, which will include, but not
be limited to, a five year criminal history check for all persons Contractor has
hired or will hire. Further, for all persons Contractor has hired or will hire
who may operate a motor vehicle on the AOA, Contractor will also conduct a five
year
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<PAGE> 15
check of the person's state motor vehicle record.
13.1.3 Employment and access investigations,
background checks and motor vehicle checks shall be completed for all persons
prior to Contractor allowing such persons unescorted access to any airport area
controlled for security reasons or allowing such persons to operate motor
vehicles on the AOA.
13.2 DRUG AND ALCOHOL TESTING. Contractor warrants and agrees
that, on or before the effective date of this Agreement and to the extent
required by applicable laws, regulations and orders, it will establish and
thereafter maintain a drug and alcohol testing program for those personnel, if
so employed by the Contractor, who perform sensitive safety related and security
related functions as defined by the FAA's Anti-Drug Program for Personnel
Engaged in Specified Aviation Activities (the "FAA's Anti-Drug Program").
Contractor agrees that such program will comply with all requirements set forth
by the FAA. To the extent permitted by law, if Contractor employs personnel who
are not covered by the FAA's Anti-Drug Program but who will have unescorted
access to any airport area controlled for security reasons, such personnel shall
be subject to pre-employment drug testing by Contractor for the same substances
and in accordance with the same procedures as required by the FAA's Anti-Drug
Program.
13.3 ADDITIONAL REQUIREMENTS. Contractor also agrees to
undertake whatever other measures are necessary to comply with security, drug
and alcohol testing, record-keeping, and other requirements appropriate to the
areas to which Contractor has access or to the work performed by Contractor
under this Agreement that are imposed from time to time by public agencies such
as the FAA, the United States Postal Service, the United States Customs Service,
and the Airport Operator (as defined in Section 15) or by Delta. In particular,
but without limiting the generality of the foregoing, if Contractor's services
hereunder include transportation, sortation, loading, unloading of the U.S.
Mail, Contractor shall, to the fullest extent permitted by applicable law,
comply with the requirements set forth in SCHEDULE II attached hereto and made a
part hereof.
13.4 AUDIT OF EMPLOYMENT RECORDS. Contractor shall keep at the
Airport full and detailed records demonstrating its compliance with this Section
13 as to each employee and shall maintain and preserve such records without
additional compensation therefor for a period of three (3) years after
termination or expiration of this Agreement. Delta shall have the right, but not
the duty, to conduct such audits of Contractor's employment records as it deems
prudent to ensure Contractor's compliance with this Section 13. Delta may
terminate this Agreement immediately if it finds any evidence which indicates
that Contractor has not complied with the obligations imposed by this Section
13.
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<PAGE> 16
13.5 SECURITY OF PROPERTY. Maintaining the security of the
property of Delta and of its employees, agents, customers and invitees is an
essential aspect of Contractor's performance under this Agreement. To the extent
allowable by applicable law, Contractor shall conduct random searches of its
employees' lunch boxes, bags, cases, containers and other items in which such
property could be concealed. In the event that Delta is not satisfied with the
effectiveness of Contractor's program of random searches, Delta may require
Contractor to increase the frequency of such searches. Contractor shall
emphasize to its employees the importance of ensuring the security of the
property of Delta and of Delta's employees, agents, customers and invitees and
shall, in accordance with applicable law, properly notify its employees of the
existence and extent of the random search program prior to instituting such
program.
14. PROPRIETARY INFORMATION. In the course of performing services under
this Agreement, it is possible that Contractor may obtain access to confidential
and proprietary information of Delta, such as passenger or customer lists and
pricing information. Contractor agrees that if it acquires any such information
in the course of performing services under this Agreement, it shall maintain
such information in confidence, shall not use such information for any purpose
other than performing Contractor's obligations under this Agreement and shall
not disclose such information to a third party during the term of this Agreement
and for three (3) years after the termination or expiration of this Agreement,
unless Contractor has obtained the prior written consent of Delta. Contractor
may make disclosure pursuant to requirements of a governmental agency or
disclosure required by operation of law, provided that Contractor shall give
Delta reasonable advance notice to contest such requirement of disclosure.
15. ON-SITE OPERATIONS AND OFFICE SPACE. Delta shall provide Contractor
with on-site office and operations space at the Airport (referred to in this
Section 15 as the "Premises") solely for use by Contractor in the performance of
this Agreement. The size and location of the Premises shall be determined by
Delta, in its sole discretion, and may be changed if deemed necessary or
desirable by Delta, in its sole discretion. This grant of the right to use the
Premises in connection with this Agreement is in all respects subject and
subordinate to the terms and conditions of any and all leases, permits or other
agreements between the operator of the Airport (the "Airport Operator") and
Delta and any and all leases, permits or other agreements between any other
entity and Delta with regard to the Premises, as amended or supplemented (such
leases, permits and other agreements, as amended or supplemented, are
hereinafter referred to as the "Master Agreements"). Contractor shall not commit
or permit to be committed any act or omission that shall violate any term or
condition of the Master Agreements and shall make no alterations, additions or
improvements to the Premises. Upon the expiration or earlier termination of this
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<PAGE> 17
Agreement, Contractor shall return the Premises to Delta in their original
condition, subject only to ordinary wear and tear. The Premises are to be used
solely for the purpose of providing office space and operations space for the
performance of this Agreement for Delta and shall be used for no other purpose
whatsoever. Delta shall provide at the Premises services; provided, however,
that Delta shall have no liability or responsibility, and Contractor hereby
waives any claims against Delta, for any interruption or cessation of any such
services, unless such interruption or cessation is caused by the gross
negligence or willful misconduct of Delta.
16. INSURANCE.
16.1 At all times during the term of this Agreement,
Contractor, with respect to the operations and services contemplated in this
Agreement, agrees to carry and maintain at its own cost and expense
Comprehensive General Liability Insurance for an amount of not less than
$15,000,000 combined single limit on an occurrence basis for bodily injury and
property damage. This insurance shall include contractual liability and shall be
in such form as reasonably required by Delta. The insurance shall name Delta and
the Airport Operator as additional insureds to the extent of Contractor's
indemnity obligations hereunder and shall contain a standard cross-liability
endorsement.
16.2 Contractor agrees to maintain Workers' Compensation
Insurance for statutory limits and Employers' Liability Insurance in the amount
of $1,000,000 to cover its employees. Contractor agrees to be solely and fully
responsible for the payment of all Workers' Compensation benefits for its
employees.
16.3 Contractor agrees to maintain Automobile Liability
Insurance with minimum limits for Bodily Injury and Property Damage equal to
$5,000,000 Combined Single Limit for each occurrence covering all liability
arising out of any vehicle operated by Contractor and used in the performance of
the express or implied terms of this Agreement. The policy shall name Delta and
the Airport Operator as additional insureds to the extent of Contractor's
indemnity obligations hereunder and shall contain a standard cross-liability
endorsement.
16.4 Contractor shall obtain the Insurance required by this
Agreement from a financially sound insurance company of recognized
responsibility and shall furnish Delta with a certificate of insurance
evidencing such coverage prior to commencing its services under this certificate
of insurance evidencing such coverage Agreement. Such insurance policies shall
be considered primary, without contribution from any other Insurance which is
carried by Delta or the Airport Operator. All insurance policies shall provide
that the insurance shall not be
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invalidated by any action or inaction of Contractor, that Contractor agrees to
waive all rights of subrogation against Delta and the Airport Operator and that
the insurance shall continue in full force and effect for at least thirty (30)
days after Delta and the Airport Operator receive written notice of
cancellation, termination or material alteration.
17. INDEMNIFICATION.
To the fullest extent permitted by law, Contractor shall
release, indemnify, defend and hold harmless Delta and the Airport Operator, and
their respective directors, officers, employees and agents (collectively, the
"Indemnified Parties" and individually, an "Indemnified Party") from and against
any and all claims, damages, losses, fines, civil penalties, liabilities,
judgments, costs and expenses of any kind or nature whatsoever (including but
not limited to interest, court costs and attorney's fees), which in any way
arise out of or result from any act(s) or omission(s) by Contractor (or anyone
directly or indirectly employed by Contractor or anyone for whose acts
Contractor may be liable) in the performance or nonperformance of services or
other obligations under this Agreement or in the use or Occupancy of any
facilities or equipment provided by Delta, including but not limited to injury
to or death of any person, damage to or destruction of any property, real or
personal (including but not limited to property owned, leased or under the
control of Delta), and liability or obligations under or with respect to any
violation of federal, state and local laws, regulations, rules, codes and
ordinances (including but not limited to those concerning environmental
protection). This Section shall apply regardless of whether or not the damage,
loss or injury complained of arises out of or relates to the negligence (whether
active, passive or otherwise) of, or was caused in part by, an Indemnified
Party. However, nothing contained in this Section shall be construed as a
release or indemnity by Contractor of an Indemnified Party from or against any
loss, liability or claim to the extent arising from the gross negligence or
willful misconduct of that Indemnified Party. This Section shall not be
construed to negate, abridge or otherwise reduce any other right to indemnity
which would otherwise exist in favor of any Indemnified Party, or any other
obligation of Contractor, its officers, directors, employees, agents or
contractors to indemnify an Indemnified Party. Contractor's obligations under
this Section shall not be limited in any way by any limitation on the amount or
type of damages, compensation or benefits paid or payable by Contractor under
Workers' Compensation Acts, disability benefits acts or other employee benefit
laws or regulations. The indemnification obligations of this Section shall
survive termination or expiration of this Agreement.
18. NOTICES. Any notices, requests or other communications
required or permitted to be given hereunder shall be in writing and
shall be delivered by hand, by overnight courier, or by facsimile
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transmission ("fax"), or mailed by United States registered or certified mail,
return receipt requested, postage prepaid, and addressed to the appropriate
party at its address or to its fax number, as appropriate, as set forth below:
Contractor:
INTERNATIONAL TOTAL SERVICES, INC.
Crown Centre
5005 Rockside Road
Cleveland, Ohio 44131
Attention: Robert McKinley
Fax No.: (216)642-9235
Delta:
DELTA AIR LINES, INC.
1010 Delta Boulevard
Atlanta, Georgia 30320
Attention: ACS Business Partners, Department #108
Fax No.: (404)773-1147
Any such notice, request, or other communication shall be considered given on
the date of hand or courier delivery if delivered by hand or overnight courier,
on the date of receipt if delivered by fax, or on the date of deposit in the
United States mail as provided above. Rejection or other refusal to accept or
inability to deliver because of changed address or fax number of which no notice
was given shall not affect the validity or the effectiveness of the notice,
request or other communication. By giving at least ten (10) days' prior written
notice thereof, either party may from time to time and at any time change its
mailing address or fax number hereunder.
19. CONSENT. The Airport Operator's consent to this Agreement may be
necessary. In the event such consent is required and is denied, this Agreement
shall terminate and Contractor shall immediately vacate and surrender the
Premises.
20. FORCE MAJEURE. In the event that Delta's night operations at the
Airport are halted or substantially decreased by reason of strike, labor
dispute, picketing, action or interference of governmental authorities, riots,
terrorist attack, act of God or other cause reasonably beyond the control of
Delta, this Agreement (and payment for services hereunder) may be suspended for
the duration of such halted or decreased operations, on twenty-four (24) hours'
notice addressed by Delta to Contractor.
21. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia. excluding its laws regarding
conflict or choice of law, and Contractor voluntarily submits itself to the
jurisdiction of the
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state and federal courts situated in Fulton County, Georgia, for any dispute
arising hereunder.
22. SUBCONTRACTS ASSIGNMENT. Contractor shall not subcontract out or
delegate the services to be provided hereunder without the prior written consent
of Delta. All subcontracts must be approved in writing by Delta prior to
execution and shall conform to any applicable requirements of this Agreement.
This Agreement shall not be assigned, in whole or in part, by either party
without the prior written consent of the other party. Subject to the foregoing,
this Agreement shall be binding upon and inure to the benefit of the parties,
their respective successors and assigns.
23. ENTIRE AGREEMENT. This Agreement, including all Exhibits and
Schedules hereto (which Exhibits and Schedules are incorporated herein by
reference), constitutes the complete agreement of the parties with respect to
the subject matter hereof and supersedes all prior negotiations, agreements,
representations and understandings, if any, between the parties concerning the
same, whether written or oral.
24. MODIFICATIONS AND AMENDMENTS. This Agreement shall not be modified
or amended in any respect except by written instrument duly executed by or on
behalf of each of the parties to this Agreement.
25. NO WAIVER. No provision of this Agreement shall be deemed to have
been waived by Delta unless such waiver is in writing and signed by Delta, nor
shall any custom or practice which may evolve between the parties in the
administration of the terms hereof be construed to waive or lessen the right of
Delta to insist upon the performance by Contractor in strict accordance with the
terms hereof.
26. REMEDIES CUMULATIVE. Each right and remedy of Delta provided for in
this Agreement, or now or hereafter existing at law, in equity or by statute or
otherwise, shall be cumulative and concurrent, and the exercise or beginning of
the exercise of any one or more of such rights or remedies shall not preclude
the exercise of that right or remedy in the future or the exercise of any other
right or remedy at any time.
27. SEVERABILITY. If any provision or term of this Agreement shall be
determined to be illegal, invalid or unenforceable, the remainder of this
Agreement shall not be affected thereby and shall remain valid and enforceable
to the fullest extent permitted by law.
28. NONDISCRIMINATION. The provisions of SCHEDULE 1, attached
hereto, are incorporated herein for all purposes.
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IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their duly authorized representatives as of the date and year
first written above.
INTERNATIONAL TOTAL SERVICES, DELTA AIR LINES, INC.
INC.
By___________________________ By ___________________________
Title _______________________ Title _________________________
Date_________________________ Date___________________________
21
<PAGE> 1
Ex 10.23
PASSENGER SCREENING AND AIRPORT SECURITY AGREEMENT
--------------------------------------------------
THIS AGREEMENT made and entered into this 1st day of January 1, 1982 by
---- ---------------
and between U S Air, Inc., (hereinafter - referred to as "USAir"), a corporation
organized and existing under the laws of the State of Delaware and having its
Principal place of business at Washington National Airport, Washington, D. C.
20001, and International Total Services, Inc. (hereinafter referred to as
----------------------------------
CONTRACTOR), a corporation having its principal place of business at 125
---
Terminal Tower, Cleveland, Cleveland, Ohio 44113
- ------------------------------------------------
W I T N E S S E T H
-------------------
USAir desires to have CONTRACTOR furnish USAir with certain uniformed
security personnel (hereinafter referred to as "Security Personnel") for the
purpose of screening persons and articles carried by persons passing through
designated checkpoint(s) and/or Checkpoint Security Supervisor Services (as
defined in Article VIII and tire exhibits attached hereto) at the airports
enumerated on the Exhibits (hereinafter referred to singularly or collectively
as Airport);
WHEREAS, CONTRACTOR is fully qualified, registered and licensed to and
agrees to perform for USAir in a good and workmanlike manner the SERVICES
provided for herein at the AIRPORT, which are set forth in detail in Article
VIII and the Exhibits attached hereto and made a part hereof, all subject to and
in accordance with the terms and provisions hereof;
<PAGE> 2
NOW, THEREFORE, for and in consideration of the foregoing premises and
the mutual covenants and agreements herein contained, the parties hereto agree
as follows.
ARTICLE I - SECURITY PERSONNEL
- ------------------------------
CONTRACTOR shall furnish USAir with Security Personnel (as
directed by USAir's Customer Service Manager) to provide coverage for the
services required by Article VIII and as may be more fully set forth in Exhibits
A, B, C and D, attached hereto and made a part hereof, and with such special
equipment as mutually agreed upon by CONTRACTOR and USAir's Customer Service
Manager at the A_______________.
ARTICLE II - RATES
- ------------------
CONTRACTOR shall bill USAir monthly according to the rates forth in
Exhibits attached hereto and made a part hereof, for ____ services furnished
under this Agreement. These rates shall be effective for one year. Any
subsequent rate changes shall be effective for a period of twelve (12) months
after the effective thereof and thereafter may be increased only once in any
twelve (12) month period upon sixty (60) days advance written notice to USAir.
ARTICLE III - INVOICES
- ----------------------
The CONTRACTOR will furnish USAir with completed daily time sheets and
CONTRACTOR will invoice USAir at the end of each calendar month, but in no event
more than thirty (30) days after the end of any calendar month for that
respective month. Invoices will be mailed or delivered to such address as USAir
may direct,
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<PAGE> 3
and are payable within thirty (30) days address specified on the invoice.
ARTICLE IV - EMPLOYEES
- ----------------------
The employees of CONTRACTOR engaged in performing SERVICES hereunder
shall be considered employees of CONTRACTOR for all purposes and shall under no
circumstances be deemed to be employees of USAir. USAir shall have no
supervision or control over any such CONTRACTOR's employees and any complaint or
requested change in procedure shall be transmitted by USAir to CONTRACTOR which
shall in turn promptly give any necessary instructions to its own personnel.
The CONTRACTOR is responsible for the direct supervision of its
employees through its designated representative at each of the various
designated USAir facilities to which this Agreement relates and such
representatives shall in turn, report to and confer with the designated agents
of USAir at each such location with respect to the services.
CONTRACTOR agrees to assume full responsibility for any and all
liability to its employees on account or injury, disability, and death resulting
from, or sustained by said employees in the performance of the SERVICES
contemplated herein.
CONTRACTOR agrees that it will remove from service at USAir's request,
as soon as a qualified replacement is available (which replacement is available
(which shall not be later than twenty-four (24) hours) any security personnel
who (in USAir's opinion) are not performing the work assigned in the manner
required by this Agreement.
-3-
<PAGE> 4
CONTRACTOR agrees to accept full and exclusive liability for the
payment of any and all taxes, contributions, and other payments for unemployment
compensation and/or old age benefits, worker's compensation, employer's
liability, insurance or annuities now or hereafter imposed upon employers by the
Government of the United States or by individual states with respect to such
employees, measured by the wages, salaries, compensation, or other remuneration
paid to such employees, and CONTRACTOR shall make such payments and shall make
and file any and all reports and returns and do all other things necessary to
comply with the laws imposing such taxes, contributions, or other payments.
All Security Personnel utilized by CONTRACTOR under this Agreement
shall be competent to perform their assigned jobs, properly attired, shall be
bonded and shall perform their duties in a safe, courteous and workmanlike
manner. Any Security Personnel who are armed shall comply with any applicable
training and/or licensing requirements.
All security employees will be registered, licensed as required cleared
by the local airport authority and all such employees shall wear identification
cards, if any, issued by such airport authority.
ARTICLE V - INSURANCE
- ---------------------
At all times during the term of this Agreement, CONTRACTOR shall carry
and maintain in full force and effect the following:
(a) Worker's Compensation Insurance as required by applicable law
covering all Security Personnel engaged in the furnishing of
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<PAGE> 5
services under this Agreement including Employer's Liability Coverage in the
amount of not less than $100,000.
(b) Comprehensive General liability Coverage for bodily injury and
personal injury (which coverage shall include automobile, false arrest,
detention or imprisonment, malicious prosecution, libel, slander, defamation of
character, violation of right of privacy and hijacking) and property damage with
a combined Single limit of Liability of not less than $5,00,000.
CONTRACTOR shall furnish to USAir, upon the effective date of this
Agreement, insurance underwriter's certificates evidencing that CONTRACTOR is in
full compliance with all the above-described insurance requirements (including
the insuring of CONTRACTOR's contractual liability under Article VI thereof),
that USAir, its officers, agents and employees shall be named as additional
insureds thereunder, that CONTRACTOR's insurance is primary and USAir's
insurance is secondary, and that USAir shall be given thirty (30) days' prior
written notice of CONTRACTOR's desire to cancel or materially alter the policies
of insurance, or any parts thereof in a manner adverse to USAir, and that the
insurers waive rights of subrogation against USAir, its officers, employees, and
agents acknowledging CONTRACTOR's exclusive liabilities under this Agreement.
CONTRACTOR agrees that each and every one of its employees, agents, or
representatives shall be covered under a Blanket Fidelity Bond in an amount not
less than $5,000,000.00.
ARTICLE VI - INDEMNITY
- ----------------------
A. CONTRACTOR agrees and hereby undertakes to indemnify, defend and
save harmless USAir, its officers, employees and agents
-5-
<PAGE> 6
from and against any and all liability, damages, claims, penalties, thefts,
fines, losses, suits and actions of every nature and description (including, but
not limited to, any and all costs and expenses related thereto) brought or
alleged against USAir, its officers, employees and agents on account of
allegations of or actual false arrest, searches, libel, slander, theft or injury
to or death of any person or da-,age to or destruction of any property of any,
party, directly or indirectly, arising out of, or in any way related to or
resulting from the furnishing of services by CONTRACTOR pursuant to this
Agreement, excepting, however, such liability, damages, claims, penalties,
thefts, fines, losses, suits and actions (1) that are caused by the gross
negligence or willful misconduct on the part of USAir, its officers, employees
and agents, or (2) that occur subsequent to the completed preflight inspection
procedure performed by CONTRACTOR under the terms and conditions of this
Agreement and not caused by the negligent act or omission of CONTRACTOR, its
officer, employees or agents. USAir agrees that it will give to CONTRACTOR
prompt and timely notice of any claim made or suit instituted which in any way,
directly or indirectly, contingently or otherwise, affects or might affect
CONTRACTOR, and CONTRACTOR shall have the right to participate in the defense of
the same to tire extent of its own interest.
B. USAir agrees and hereby undertakes to indemnify, defend and save
harmless CONTRACTOR, its officers, employees and agents from and against any and
all liability, damages, claims, penalties, theft, fines, suits and actions of
every nature and description (including, but not limited to, any and all costs
and expenses
-6-
<PAGE> 7
related thereto) brought or alleged against CONTRACTOR, its officers, employees
and agents on account of allegations of or actual false arrest, searches, libel,
slander, theft or injury to or death of any person or damage to or destruction
of any property that occurs subsequent to the completed preflight inspection
procedures performed by the CONTRACTOR under the terms and conditions of this
Agreement and caused solely by the negligent act or omission of USAir, its
officers, employees and agents. CONTRACTOR agrees that it will give to USAir
prompt and timely notice of any claim, made or suit instituted which in any way,
directly, or indirectly, contingently or otherwise, affects or might affect
USAir and USAir shall have the right to participate in the defense of the same
to the extent of its own interest.
ARTICLE VII - STANDARDS OF SERVICES
- -----------------------------------
CONTRACTOR agrees to furnish USAir, the SERVICES contemplated hereunder
on an impartial basis, and to require its employees to render such SERVICES in a
courteous and efficient manner. The SERVICES Performed hereunder by CONTRACTOR
shall be provided to the sole satisfaction of USAir. CONTRACTOR shall be
responsible for the direct supervision of all Security Personnel designated
representatives who will be available at reasonable times to consult with
USAir's designated representative.
ARTICLE VIII - SERVICE
- ----------------------
All Security Personnel supplied by and SERVICES performed by CONTRACTOR
hereunder shall conform to the standards and requirements (including those
assigned to the air carrier thereunder) as specified for passenger and baggage
screening under
-7-
<PAGE> 8
Part 121 of the Federal Aviation Administration Regulations and/or those
specified for Checkpoint Security Supervisor services under Part 108 of the
Federal Aviation Administration Regulation and as such regulations may be
amended or revised from time to time.
Such SERVICES are further defined in Exhibits A, B, C and D attached
hereto and made a part hereof and as may be modified from time to time.
CONTRACTOR will decline to process any articles susceptible to being
checked as baggage in the aircraft baggage compartment, except in the case of
passengers checking in late or at the request of USAir, or other extreme
circumstances.
CONTRACTOR shall not be responsible for malfunction of metal detector
or other passenger or baggage screening devices provided by USAir, but will in
cases where such equipment is unusable, manually search all articles and persons
who pass through the security checkpoint.
Upon mutual agreement of USAir and the CONTRACTOR, CONTRACTOR may
perform additional security functions for pursuant to the terms of this
Agreement.
ARTICLE IX - TERM
- -----------------
This contract shall take effect on January, 1, 1982 and shall continue
thereafter until terminated in whole or in part by either party by giving thirty
(30) days' written notice to that effect to the other party, provided that such
termination shall not affect any rights or obligation which shall have accrued
to either party prior to the effective date of such termination. Notwithstanding
the above provision, USAir shall have the absolute right to cancel
-8-
<PAGE> 9
this Agreement upon giving CONTRACTOR five (5) days' written notice to that
effect should USAir determine that CONTRACTOR's SERVICES under this Agreement
have become unsatisfactory.
ARTICLE X - SUSPENSION AND ABATEMENT
- ------------------------------------
Notwithstanding anything to the contrary herein contained, it is
expressly agreed that either party hereto shall be relieved of its obligations
hereunder in the event and to the extent that performance hereof is delayed or
prevented by any cause reasonably beyond its control, including, without
limitation, acts of God, public enemies, war, insurrection, and acts or orders
of governmental authorities, or by fire, flood, explosion, riots, or strikes;
provided, however, that nothing herein contained shall require either party
hereto to accede to demands of labor unions or to demands of its employees which
it considers unreasonable.
In the event USAir's operations at the AIRPORT should be restricted,
substantially by acts or orders of governmental authorities, then either party
shall have the right, upon written notice to the other, to a suspension of this
Agreement and an abatement of a just proportion of the payments to become due
hereunder, from the time of such notice until such restrictions shall have been
remedied and normal operations restored.
ARTICLE XI - ASSIGNMENTS
- ------------------------
This Agreement shall not be assigned or otherwise transferred (by
operation of law or otherwise) by either party without the written consent of
the other party and, in the event that it shall be assigned, whether by
operation of law or otherwise without such
-9-
<PAGE> 10
written consent, this Agreement shall immediately cease, terminate and become
null and void.
ARTICLE XII - NOTICES
- ---------------------
Notices under this Agreement shall be effective when received by the
party to whom they are addressed and may be sent by United States certified
mail, postage prepaid, to USAir, Washington National Airport, Washington, D.C.
----------------------------------------------------
20001; Attention: Peter D. Brennan, Vice President - Properties & Facilities or
- -----------------
International Total Services, Inc., 2720 River Road, Des Plaines, Illinois
60018; Attention: John O'Neill, Vice President - Marketing.
ARTICLE XIII - ENTIRE AGREEMENT
- -------------------------------
This contract and its exhibits represent the entire Agreement between
the parties hereto and shall be modified, altered, amended, or cancelled (except
as provided for by Articles IX and X) only by mutual agreement evidenced by an
instrument in writing executed by both parties or their respective successors in
interest. This Agreement shall be construed and enforced under the laws of the
State of Delaware.
ARTICLE XIV - ALL INCLUSIVE COVERAGE
- ------------------------------------
USAir and CONTRACTOR recognize that services may be provided to USAir
at a specific airport in conjunction with services that CONTRACTOR may provide
to other airlines. Notwithstanding anything contained in any other agreement to
the contrary, CONTRACTOR agrees that services provided for USAir, its employees,
agents, passengers and invitees, shall be provided pursuant to the provisions of
this Agreement.
-10-
<PAGE> 11
ARTICLE XV - EQUALITY OF TREATMENT
- ----------------------------------
CONTRACTOR represents and warrants to USAir that the prices (to the
extent they relate to a particular Airport), terms, conditions and services
offered by CONTRACTOR to USAir hereunder are no less favorable than those the
CONTRACTOR offers to any other airline customer. In the event CONTRACTOR offers
to any other airline customer more favorable prices (with regard to a particular
airport) terms, conditions and services than those offered USAir, CONTRACTOR
shall forthwith offer those prices, terms, conditions and services to USAir.
ARTICLE XVI - TITLES
- --------------------
Article titles contained herein are inserted only as a matter of
convenience and for reference. Such titles in no way define, limit, or describe
the scope or extent of any provision of this Agreement.
-11-
<PAGE> 12
IN WITNESS WHEREOF, USAir and CONTRACTOR have caused this instrument to
be executed on the day and year first above written.
U S Air, Inc.
WITNESS:
By:
- ------------------------------ ------------------------------
Title:
---------------------------
International Total Services,
Inc.
WITNESS:
By:
- ------------------------------ ------------------------------
John W. O'Neill
Title: Vice President -
---------------------------
Operations
-12-
<PAGE> 13
EXHIBIT A 1/1/82
USAir/Security '76
------------------
Passenger and Baggage Screening
-------------------------------
CONTRACTOR shall provide SERVICES specified in the foregoing agreement, subject
to provisions of said agreement at the following locations:
<TABLE>
<CAPTION>
AIRLINE
CITY CONCOURSE CHECKPOINT
CODE AIRPORT NAME CITY/STATE DESCRIPTION ADMINISTRATOR
---- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
DCA Washington National Washington, D.C. USAir Concourse USAir
DEN Stapleton International Denver, Colorado Concourse B United
ORF Norfolk International Norfolk, VA USAir Concourse USAir
</TABLE>
-13-
<PAGE> 14
EXHIBIT B 1/1/82
USAir/Security '76
------------------
Passenger Screening and Airport Security Agreement
--------------------------------------------------
<TABLE>
<CAPTION>
Rates Per Hour
----------------------------------------------------------------------------------------------
City GUARD SUPERVISOR
Code Normal Holiday Overtime Normal Holiday Overtime
---- ------ ------- -------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
DCA $5.09 $7.63 $7.63 - - -
DEN $4.95 $7.43 $7.43 - - -
ORF $5.04 $7.56 $7.56 - - -
</TABLE>
Overtime hours shall be defined as that coverage which is requested by USAir
with less than 8 hours prior notice.
Holiday rates shall apply to the following dates:
-14-
<PAGE> 15
EXHIBIT D 1/8/82
USAir/Security '76
------------------
Checkpoint Security Supervisor Agreement
----------------------------------------
<TABLE>
<CAPTION>
City CSS Cost
Code Per Hour Overtime Holiday
---- -------- -------- -------
<S> <C> <C> <C>
DCA $7.50 $10.50 $10.50
</TABLE>
Overtime hours shall be defined as that coverage which is requested by USAir
with less than 8 hours prior notice.
Holiday rates shall apply to the following dates:
-15-
<PAGE> 16
EXHIBIT C 1/1/82
USAir/Security '76
------------------
Checkpoint Security Supervisor Agreement
----------------------------------------
CONTRACTOR shall provide SERVICES specified in the foregoing agreement, subject
to provisions of said agreement at the following locations:
<TABLE>
<CAPTION>
AIRLINE
CITY CONCOURSE CHECKPOINT SSP AIRPORT
CODE AIRPORT NAME CITY/STATE DESCRIPTION ADMINISTRATOR CATEGORY
---- ------------ ---------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C>
DCA Washington National Washington, D.C. USAir Concourse USAir I
</TABLE>
-16-
<PAGE> 1
Exhibit 10.24
AGREEMENT
BETWEEN
INTERNATIONAL TOTAL SERVICES, INC.
AND
CONTINENTAL AIRLINES, INC.
FOR PREBOARD SCREENING SERVICES
This AGREEMENT, made and entered into as of this ____ day of
_______________, 1990, by and between INTERNATIONAL TOTAL SERVICES, INC.,
(hereinafter called "ITS") and CONTINENTAL, AIRLINES, INC. (hereinafter called
"CONTINENTAL").
WHEREAS, Continental desires ITS to perform for it certain services
with respect to Continental's operation at the location(s) described within the
Exhibit(s) attached hereto (hereinafter called "Airport").
WHEREAS, ITS is willing to perform such services in the manner and
pursuant to the terms and conditions, hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
SECTION I - SERVICES
--------------------
1.1 INSPECTION SERVICES
- -----------------------
ITS understands that in order to detect any Passenger who may be
carrying any Dangerous Object onto an aircraft or into the Inspection Area,
Continental must be able to rely upon ITS and its Inspectors. Therefore, ITS
assures Continental of properly registered, well-qualified and well-trained
Inspectors.
ITS further understands that inasmuch as Continental places a high
priority on quality service to passengers, Inspection Services must be conducted
in an efficient and courteous manner. Continental understands, however, that
ITS's first and primary duty is to detect any Passenger who may be carrying any
Dangerous Object onto an aircraft or into the Inspection Area.
ITS's Inspection services shall at all times be conducted in
accordance with FAA Regulations, 14 CFR Parts 108 and 121.538, as amended.
ITS shall ensure that its Inspectors comply with the procedures
outlined by Federal Law.
Upon receipt of a notice from Continental that an Inspector has
engaged in improper conduct, has failed to perform Inspection Services
satisfactorily, or is in Continental's opinion unqualified to perform Inspection
Services, ITS agrees to prohibit within 24 hours of ITS's receipt of the
Continental's notice such Inspector from performing Inspection Services.
ITS's Inspection Services shall at all times be conducted in
accordance with the Air Carrier Standard Security Program, "ACSSP".
SECTION 2 - FEES
----------------
Fees for services shall be at the rates set forth on the respective
Exhibit(s) attached hereto describing such services and fees.
<PAGE> 2
2.1 OVERTIME - ADDITIONAL PERSONNEL
- --- -------------------------------
If overtime rates are applicable as shall be indicated in the
Exhibit(s) attached hereto, then, when ITS incurs overtime payroll expenses as a
result of delay in scheduled activity, and/or additional activity, in addition
to the other payments to be made by Continental to ITS hereunder, Continental
shall pay to ITS the premium portion of the overtime incurred by ITS in
performing such activity at the rates set forth in the applicable Exhibit(s)
attached hereto. No overtime work shall be undertaken unless authorized in
writing by Continental's authorized representative. All overtime will be for a
minimum period in accordance with ITS's personnel policy and labor contracts, of
which Continental will be advised prior to execution of this agreement.
Upon Continental's written request, ITS will, to the extent of its
capability, furnish additional personnel over and above the normal complement
used in performing services hereunder, if the same shall be necessary to perform
additional services to accommodate additional and/or unscheduled activity;
provided, however, the complement of such personnel shall be reasonable.
Continental shall give ITS not less than four (4) hours advance notice of its
request for additional personnel and Continental shall, in addition to the other
payments to be made by Continental to ITS hereunder, pay ITS for the services of
such additional personnel at the applicable rates therefore set forth in the
Exhibit(s) attached hereto.
SECTION 3 - PAYMENT
-------------------
For the performance of the services described in Section I above and
the Exhibit(s) attached hereto, Continental shall pay to ITS the rates and
charges described in the Exhibit(s) applicable thereto; ITS shall render
invoices for such services bi-weekly, in arrears, directly to Continental.
Payment of invoices is due thirty (30) days from receipt of the invoice by
Continental.
SECTION 4 - TAXES, LICENSES AND FEES
------------------------------------
ITS shall pay any and all taxes, licenses, fees and assessments, and
penalties thereon, if any (including, without limitation, any and all taxes,
assessments or charges based upon gross receipts and any and all fees required
to be paid under any applicable licenses, leases or agreements), in any manner
levied, assessed or imposed upon ITS by any governmental authority or agency
thereof having jurisdiction, including, without limitation, the airport
authority having jurisdiction over the Airport, as a result of or attributed to
the performance of any service, or the sale of any product, by ITS for or to
Continental under or pursuant to this Agreement. However, ITS reserves the right
to charge the costs of any airport fees back to Continental.
SECTION 5 - STANDARDS OF PERFORMANCE
------------------------------------
All services to be performed hereunder shall be performed in a careful
and workmanlike manner, and in performing such services, ITS shall comply with
such written specifications and procedures as may be furnished to ITS by
Continental or, in the absence thereof, in accordance with the standard
procedures of ITS. In furnishing services hereunder, ITS agrees to observe all
applicable requirements of the Federal Aviation. In furnishing services
hereunder, ITS agrees to observe all applicable requirements of the Federal
Aviation Administration (or any successor thereto and other governmental
authorities having jurisdiction. ITS shall provide suitable equipment and
adequate and competent supervision and personnel to furnish the services to be
performed hereunder unless specific differences are specified in the Exhibit(s)
attached hereto.
-2-
<PAGE> 3
SECTION 6 - NON-DISCRIMINATION
ITS is an Equal Opportunity Employer, and as such EEO clauses
contained at 41 CFR Section 60-1.4, 60-250.4 and 60-741.4, are incorporated and
made a part hereof by reference.
In the performance of its functions and activities, ITS shall not
discriminate on the basis of handicap, consistent with the Air Carrier Access
Act of 1986 and the regulations of the Department of Transportation set forth in
14 CFR Part 382.
SECTION 7 - WORKMAN'S COMPENSATION OR
-------------------------------------
EMPLOYER'S LIABILITY INSURANCE
------------------------------
The employees of ITS engaged in performing the services furnished
hereunder shall be the employees of ITS for all purposes, and shall under no
circumstances be deemed to be employees of Continental. Each party assumes full
responsibility for any and all liability to its own employees on account of
injury, or death resulting therefrom, sustained in the course of their
employment. Each party, with respect to its own employees, accepts full and
exclusive liability for the payment of Workman's Compensation or employer's
liability insurance-premiums with respect to such employees, and for the
payment of all taxes, contributions, or other payments for unemployment
compensation or old age benefits, pensions, or annuities now or hereafter
imposed upon employers by an government or agency thereof having jurisdiction in
respect of such employees measured by the wages, salaries, compensation or other
remuneration paid to such employees, and agrees to make such payments and to
make and file all reports and returns and to do everything necessary to comply
with the laws imposing such taxes, contributions or payments. ITS insurance
policies shall be endorsed to waive all rights of subrogation against
Continental and its insurers except when Continental is negligent and
intentionally causes injury to ITS's employees.
SECTION 8 - INDEMNITY
---------------------
ITS agrees to defend, indemnify and hold harmless Continental, its
parent, subsidiaries and assigns, officers, employees and agents from and
against any and all claims, losses, liabilities, counsel fees, costs and
expenditures incident thereto incurred by or asserted against Continental as a
result of damage to the property of Continental or others, or personal injuries
to or injuries resulting in death, of any person or persons including directors,
officers, employees and agents of Continental arising out of the negligent acts
or omissions of ITS, its directors, officers, employees or agents in its
performance of services hereunder.
Continental agrees to defend, indemnify and hold harmless ITS, its
officers, employees and agents from and against any and all claims, losses,
liabilities, counsel fees, costs and expenditures incident thereto incurred by
or asserted against ['I'S as a result of damage to the property of ITS or
others, or personal injuries to or injuries resulting in death, of any person or
persons including directors, officers, employees and agents of ITS arising out
of the negligence or willful misconduct of Continental, its directors, officers,
employees or agents in its performance of services hereunder.
The parties further agree that ITS's duty to indemnify will not extend
to cover claims arising from or in connection with the installation, design,
placement, maintenance and operation of equipment provided to ITS by CONTINENTAL
provided that such equipment is used by ITS in a proper and reasonable manner.
SECTION 9 - INSURANCE
---------------------
ITS shall at its own cost and expense procure and maintain in full
force and effect during the term of this Agreement policies of insurance of the
types and in the minimum amounts stated below with responsible insurance
companies acceptable to Continental, covering the operations of ITS pursuant to
the Agreement. It is
-3-
<PAGE> 4
further understood that all policies of insurance provided by ITS shall be
primary as remedy for claims resulting from this Agreement.
<TABLE>
<CAPTION>
TYPE OF INSURANCE MINIMUM COVERAGE
- ----------------- ----------------
<S> <C>
Comprehensive General Liability A total combined single
limit of primary and excess
coverage in the amount of Ten
Million ($10,000,000) Dollars for
each and every loss overall.
Automobile Liability A total combined single
(Both owned and Hired) limit of primary and excess
coverage in the amount of Ten
Million ($10,000,000) Dollars for
each and every loss overall.
Worker's Compensation Statutory limits
Employer's Liability $500,000
</TABLE>
ITS will provide Continental with Certificates of Insurance,
evidencing all of the above coverages, including all special requirements,
specifically noted, prior to commencement of the service under this Agreement
and further shall provide Continental with Certificates of Insurance evidencing
renewal, substitution or change of such insurance 30 days prior to such.
Certificates of Insurance shall be appropriately endorsed as follows:
a. to waive any rights of subrogation against Continental, its
directors, officers, its agents or employees and to their authorized
representatives, except for negligence and/or willful misconduct.
b. to provide, that, in respect of Continental, such insurance
shall not be invalidated by any action or inaction of Continental or other
person, other than Continental, and shall insure the interest of Continental
regardless of any breach or violation by ITS or any other person, other than
Continental, of any warranties, declarations or conditions contained in such
policies.
c. to provide that any cancellation, reduction, lapse or other,
adverse change in such policy shall not be effective as to Continental until the
expiration of thirty (30) days after written notice is sent by registered mail
to Continental of such action.
d. to provide that such insurance is primary without right of
contribution from Continental's insurance.
e. to provide that Continental is not obligated for the payment
of any premiums, deductibles, retention or self-insurance thereunder.
f. to provide that all of the provisions thereof except the
limits of liability under the policy, shall operate in the same limits of
liability under the policy covering each insured.
g. to provide that Continental is an additional insured under
the general liability and automobile liability policies except for gross
negligence or willful misconduct; and to provide contractual liability coverage
for assumed liability under the terms of this agreement.
-4-
<PAGE> 5
h. Continental shall have full, complete and immediate access
to all investigative processes and information regarding any incident giving
rise to actual or potential injury, loss or damage.
Simultaneously with the execution and delivery of this Agreement and
upon each policy renewal, ITS shall provide Continental with certificates of its
insurance evidencing the coverage and endorsements set forth above.
Continental shall be entitled to certified copies of any and all
insurance policies at its discretion. Certificates of insurance should be
furnished to Continental's Risk Management Department at the address listed in
Section 15 of this Agreement.
In the event that ITS fails to maintain in full force and effect any
of the insurance and endorsements described in this insurance section,
Continental shall have the right (but not the obligation) to terminate this
agreement immediately or to procure and maintain such insurance or any part
thereof at ITS' cost. The cost of such insurance shall be payable by ITS to
Continental upon demand by Continental. The procurement of such insurance or any
part thereof by the other party shall not discharge or excuse the defaulting
party's obligation to comply with the provisions of this insurance section.
SECTION 10 - GOVERNING LAW
--------------------------
THIS AGREEMENT IS MADE WITHIN, SHALL BE CONSTRUED IN ACCORDANCE WITH,
AND SHALL BE GOVERNED BY THE LAWS OF THE STATE IN WHICH SERVICES ARE PROVIDED.
SECTION II - ASSIGNMENT
-----------------------
This Agreement and the rights and obligations created hereunder shall
not be assignable or delegable by ITS hereto without the prior written consent
of Continental. However, Continental expressly reserves authority to assign its
rights and obligations hereunder to any of its subsidiaries or affiliates
without prior written consent from ITS.
SECTION 12 - RIGHT TO AUDIT
---------------------------
ITS shall at all times keep complete and accurate books, records and
accounts from which may be determined the basis for billing by it of screening
services rendered to Continental at each Airport. Such books, records and
accounts shall be open for inspection, examination, audit and copying by
Continental or its designated representatives at all reasonable times, during
the course of this agreement.
SECTION 13 - MODIFICATION
-------------------------
Continental and ITS agree that this Agreement may be modified only in
writing and signed by duly authorized representatives of each party.
SECTION 14 - EFFECTIVE DATE, TERMINATION
----------------------------------------
This Agreement shall become effective as of October 1, 1990 and shall
continue in full force and effect until terminated by either party upon thirty
(30) days advance written notice.
-5-
<PAGE> 6
However, if there is enacted any law, regulation, ruling, or any other
such mandate of any Government authority having jurisdiction over the subject
matter which alters the hours of service, rates of a pay, working conditions or
costs of performing the service provided hereunder, Continental agrees that the
rates will be subject to renegotiation upon thirty (30) days advanced written
notice, and that the above maximum increase will not apply. In the event the
parties are unable to agree on such rates and charges, this agreement then may
be terminated on thirty (30) days written notice.
Notwithstanding the foregoing, in the event Continental fails to make
payments as set forth in Section 3 of this Agreement and the Exhibit(s) attached
hereto, ITS shall serve written notice upon Continental calling attention to the
particular failure to make timely payment. Continental shall be given thirty
(30) days from the time of receiving such notice to make such payment. If
payment is not made, ITS may cancel this Agreement immediately upon written
notice. In the event ITS breaches any term of this agreement, Continental shall
serve upon ITS a written notice calling attention to the particular breach
complained of, and demanding the correction thereof. In the event ITS fails to
correct such breach within twenty-four (24) hours from the time of receiving
such written notice, Continental may cancel this Agreement immediately upon
written notice to ITS and all rights of ITS shall then terminate.
SECTION 15 - NOTICES
--------------------
Notices given hereunder shall be in writing and shall be deemed to
have been given and delivered when deposited in the United States mail,
certified, registered or express, with postage prepaid and addressed, if to ITS,
at:
INTERNATIONAL TOTAL SERVICES, INC.
626 Terminal Tower
Cleveland, Ohio 44113
Attn: Legal Department
and if to CONTINENTAL, at:
CONTINENTAL AIRLINES, INC.
P.0. Box 4806
Houston, Texas 77210-4607
Attn. Vice President, Properties and
Purchasing
SECTION 16 - ENTIRE AGREEMENT
-----------------------------
This agreement and the exhibits attached hereto constitute the entire
agreement between Continental and ITS, and supersedes all prior contracts,
proposals or communications, either oral or written between the parties at the
locations identified more fully in the Exhibit (s) attached hereto.
SECTION 17 - DOT/FAA ANTI-DRUG TESTING PROGRAM
----------------------------------------------
As a condition of providing "safety sensitive" or security related
services, each party hereto shall comply with all applicable Federal Laws, Rules
and Regulations issued pursuant thereto, including without limitation, and to
the extent applicable to this Agreement, the provisions contained within 49 CFR
Part 40 and 14 CFR Parts 121, 135, 145 et al, which provisions are incorporated
herein by reference as if set forth in full.
-6-
<PAGE> 7
By execution of this Agreement, each party represents and warrants
Compliance with the aforementioned regulations and will furnish proof thereof
upon demand.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the day
and year first written above.
<TABLE>
<CAPTION>
<S> <C>
CONTINENTAL AIRLINES, INC. INTERNATIONAL TOTAL SERVICES, INC.
By:________________________ By:_________________________
Name:______________________ Name:_______________________
Title:_____________________ Title:______________________
</TABLE>
-7-
<PAGE> 8
AMENDMENT TO AGREEMENT
----------------------
THIS AMENDMENT, made and entered into as of the 1st day of January,
1995, by and between International Total Services, Inc. (hereinafter referred
to as Handler) and Continental Airlines, Inc. (hereinafter referred to as
"Carrier").
W I T N E S S E T H:
WHEREAS, Handler and Carrier are parties to a certain agreement made
as of November 11, 1990, (hereinafter referred to as the "Agreement") pursuant
to which Handler provides certain services for Carrier at the location(s)
described within the Exhibit(s) here to (hereinafter called Airports); and
WHEREAS, the parties desire to amend the Agreement in certain
respects;
NOW, THEREFORE, Handler and Carrier hereby agree as follows:
To add the following section eighteen (18) to the agreement.
SECTION 18 - PENALTIES
----------------------
Handler will pay for FAA fines up to $10,000 maximum per incident when
Handler is responsible for the actions at the security checkpoint, provided that
Handler is given information about the incident and has the opportunity to
assist Carrier in the defense of the claim.
This Amendment shall be effective as of January 1, 1995.
Except as herein amended, the Agreement shall remain unchanged and in
full force and affect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment by
their duly authorized representatives as of the day and year first written
above.
CONTINENTAL AIRLINES, INC. INTERNATIONAL TOTAL SERVICES, INC.
By:________________________ By:_________________________
Name:______________________ Name:_______________________
Title:_____________________ Title:______________________
-8-
<PAGE> 9
SCHEDULE B
RATES APPLICABLE TO FAILED AUDITS
IAH - JUNE 1, 1992
<TABLE>
<CAPTION>
EVENT NARROW BODY WIDE BODY SUPER BODY
- ----- ----------- --------- ----------
<S> <C> <C> <C>
MEC $ N/A $ N/A $ N/A
RON Clean $ 105.24 $ 236.79 $ 394.65
Turn/Through Clean $ 26.37 $ 52.74 $ 79.11
International Turn $ N/A $ 157.86 $ 236.79
Up Graded Turn $ 39.47 $ 157.86 $ 236.79
Carpet:
a) Aisle: $ 11.98 $ 23.95 $ 35.94
b) Complete: $ 23.95 $ 49.70 $ 71.85
</TABLE>
-9-
<PAGE> 10
June 20, 1995
Jody Maidlow
Contract Sales Specialist
Continental Airlines, Inc.
P.O. Box 4607
Houston, TX 77210-4607
Re: Amendment to Agreement - SYS
Dear Ms. Maidlow:
Enclosed please find two (2) fully executed copies of the
above-referenced Amendment for your files.
If you should have any questions, please do not hesitate to call.
Very truly yours,
Scott E. Brewer, Esq.
General Counsel
<PAGE> 11
June 9, 1995
Mr. Scott Brewer
ITS
Crown Centre
5005 Rockside Road
Cleveland, Ohio 44131
RE: Amendment to Agreement - SYS
Dear Mr. Brewer:
Enclosed please find three (3) original copies of the above referenced
Agreement between Continental Airlines and I T S. Please review these documents
and, if all is in order, have them executed on behalf of I T S, keep one copy
for your file and return two (2) fully executed originals to my attention.
If you should have any questions or concerns regarding these documents, please
do not hesitate to contact me at (713) 834-2227.
Sincerely,
Continental Airlines, Inc.
Jody Maidlow
Contract Sales Specialist
Contract Sales and Service
enclosure
cc: contract file
-11-
<PAGE> 1
EXHIBIT 10.25
CORE AGREEMENT FOR SKYCAP AND WHEELCHAIR SERVICES
This AGREEMENT, made and entered into as of this 1st day of
October, 1990, by and between INTERNATIONAL TOTAL SERVICES, INC, (hereinafter
referred to as "ITS") and CONTINENTAL AIRLINES, INC. (hereinafter referred to as
"Continental").
WHEREAS, Continental desires ITS to perform for it certain
services with respect to Continental's operation at the locations) described
within the Exhibit(s) attached hereto (hereinafter called 'Airport' ).
WHEREAS, ITS is willing to perform such services in the manner
and pursuant to the terms and conditions, hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
SECTION 1 - SERVICES
--------------------
1.0 Skycap Services
ITS shall meet and greet outbound passengers at terminal
entrance, determine service needs and check baggage, escort passenger and
baggage to check-in position. When possible, direct passengers directly to gate
and place checked bags on proper conveyor belt for delivery to bag room.
ITS shall monitor baggage claim area to insure proper
distribution and appearance of baggage on claim carousels. ITS shall meet and
greet arriving passengers in claim areas to offer assistance in obtaining
baggage and desired transportation. ITS shall direct passengers with
lost/damaged claims to the Baggage Services Offices.
ITS shall take large baggage, pets, and other checked articles
too large to be sent to conveyor belt, directly to baggage room upon request of
ticket counter personnel or when deemed appropriate by M in the best interest of
the passenger.
ITS shall assist disabled and/or elderly passengers of
ContinentaL including boarding aircraft, deplaning, restroom visits, restaurant
access, claiming of baggage, and other assistance desired by Continental or as
determined by ITS while passengers are in airport terminals.
Personnel of M who are employed to assist passengers shall
wear uniforms generally acceptable to Continental and shall at all times be well
groomed, friendly and have empathy towards the passengers. AU work shifts must
be adequately supervised.
Continental shall provide all necessary tags, courtesy boxes,
and bags. M shall be responsible for the inventory of all equipment Costs for
all preventive maintenance and repairs of Continental owned equipment shall be
the responsibility of Continental.
SECTION 2 - FEES
----------------
Fees for services shall be at the rates set forth on the
respective Exhibit(s) attached hereto describing such services and fees.
<PAGE> 2
2.1 OVERTIME - ADDITIONAL PERSONNEL
If overtime rates are applicable as shall be indicated in the
Exhibit(s) attached hereto, then, when ITS incurs overtime payroll expenses as a
result of delays in scheduled activity, and/or additional activity, in addition
to the other payments to be made by Continental to ITS hereunder, Continental
shall pay to ITS the premium portion of the overtime incurred by ITS in
performing such activity at the rates set forth in the applicable Exhibit(s)
attached hereto. No overtime work shall be undertaken unless authorized in
writing by Continental's authorized representative. All overtime will be for a
minimum period in accordance with ITS's personnel policy and labor contracts, of
which Continental will be advised prior to execution of this agreement.
Upon Continental's written request, ITS will, to the extent of
its capability, furnish additional personnel over and above the normal
complement used in performing services hereunder, if the same shall be necessary
to perform additional services to accommodate additional and/or unscheduled
activity-, provided, however, the complement of such personnel shall be
reasonable. Continental shall give ITS not less than four (4) hours advance
notice of its request for additional personnel and Continental shall, in
addition to the other payments to be made by Continental to ITS hereunder, pay
ITS for the services of such additional personnel at the applicable rates
therefore set forth in the Exhibit(s) attached hereto.
SECTION 3 - PAYMENT
-------------------
For the performance of the services described in Section I
above and the Exhibit(s) attached hereto, Continental shall pay to ITS the rates
and charges described in the Exhibit(s) applicable thereto; ITS shall render
invoices for such services bi-weekly, in arrears, directly to Continental.
Payment of invoices is due thirty (30) days from receipt of the invoice by
Continental.
SECTION 4 - TAXES, LICENSES AND FEES
------------------------------------
ITS shall pay any and all taxes, licenses, fees and
assessments, and penalties thereon, if any (including, without limitation, any
and all taxes, assessments or charges based upon gross receipts and any and all
fees required to be paid under any applicable licenses, leases or agreements),
in any manner levied, assessed or imposed upon M by any governmental authority
or agency thereof having jurisdiction, including, without limitation, the
airport authority having jurisdiction over the Airport, as a result of or
attributed to the performance of any service, or the sale of any product, by M
for or to Continental under or pursuant to this Agreement However, ITS reserves
the right to charge the costs of any airport fees back to Continental.
SECTION 5 - STANDARDS OF PERFORMANCE
------------------------------------
All services to be performed hereunder shall be performed in a
careful and workmanlike manner, and in performing such services, M shall comply
with such written specifications and procedures as may be furnished to M by
Continental or, in the absence thereof in accordance with the standard
procedures of ITS. In furnishing services hereunder, ITS agrees to observe all
applicable requirements of the Federal Aviation Administration (or any successor
thereof and other governmental authorities having jurisdiction. ITS shall
provide suitable equipment and adequate and competent supervision and personnel
to furnish the services to be performed hereunder unless specific differences
are specified in the Exhibit(s) attached hereto.
SECTION 6 - NON-DISCRIMINATION
------------------------------
ITS is an Equal Opportunity Employer, and as such EEO clauses
contained at 41 CFR Section 60-1.4, 60-250.4 and 60-741.4, are incorporated and
made a part hereof by reference.
-2-
<PAGE> 3
In the performance of its functions and activities, ITS shall
not discriminate on the basis of handicap, consistent with the Air Carrier
Access Act of 1986 and the regulations of the Department of Transportation set
forth in 14 CFR Part 382.
SECTION 7 - WORKMAN'S COMPENSATION OR EMPLOYER'S LIABILITY INSURANCE
--------------------------------------------------------------------
The employees of ITS engaged in performing the services
furnished hereunder shall be the employees of ITS for all purposes, and shall
under no circumstances be deemed to be employees of Continental. Each party
assumes full responsibility for any and all liability to its own employees on
account of injury, or death resulting therefrom, sustained in the course of
their employment. Each party, with respect to its own employees, accepts full
and exclusive liability for the payment of Workman's Compensation or employer's
liability insurance premiums with respect to such employees, and for the payment
of all taxes, contributions, or other payments for unemployment compensation or
old age benefits, pensions, or annuities now or hereafter imposed upon employers
by an government or agency thereof having jurisdiction in respect of such
employees measured by the wages, salaries, compensation or other remuneration
paid to such employees, and agrees to make such payments and to make and file
all reports and returns and to do everything necessary to comply with the laws
imposing such taxes, contributions or payments. ITS insurance policies shall be
endorsed to waive all rights of subrogation against Continental and its insurers
except when Continental is negligent and intentionally causes injury to ITS's
employees.
SECTION 8 - INDEMNITY
---------------------
ITS agrees to defend, indemnify and hold harmless Continental,
its parent, subsidiaries, and assigns, its officers, employees and agents from
and against any and all claims, losses, liabilities, counsel fees, costs and
expenditures incident thereto incurred by or asserted against Continental as a
result of damage to the property of Continental or others, or personal injuries
to or injuries resulting in death, of any person or persons including directors,
officers, employees and agents of Continental arising out of the negligent acts
or omissions of ITS, its directors, officers, employees or agents in its
performance of services hereunder.
Continental agrees to defend, indemnify and hold harmless ITS,
its officers, employees and agents from and against any and all claims, losses,
liabilities, counsel fees, costs and expenditures incident thereto incurred by
or asserted against ITS as a result of damage to the property of ITS or others,
or personal injuries to or injuries resulting in death, of any person or persons
including directors, officers, employees and agents of ITS arising out of the
negligence or willful misconduct of Continental, its directors. officers.
employees or agents in its performance of services hereunder.
The parties further agree that ITS's duty to indemnify will
not extend to cover claims arising from or in connection with the installation,
design, placement, maintenance and operation of equipment provided to ITS by
Continental, provided that such equipment is used by ITS in a proper and
reasonable manner.
SECTION 9 - INSURANCE
---------------------
ITS shall at its own cost and expense procure and maintain in
full force and effect during the term of this Agreement policies of insurance of
the types and in the minimum amounts stated below with responsible insurance
companies acceptable to Continental, covering the operations of ITS pursuant to
the Agreement. It is further understood that all policies of insurance provided
by ITS shall be primary as remedy for claims resulting from this Agreement.
TYPE OF INSURANCE MINIMUM COVERAGE
----------------- ----------------
Comprehensive General Liability A total combined single limit of
primary and excess coverage in
the amount of Ten Million
($10,000,000) Dollars for each
and every loss overall.
-3-
<PAGE> 4
Automobile Liability A total combined single limit of
(Both owned and Hired) primary and excess coverage in
the amount of Ten Million
($10,000,000) Dollars for each
and every loss overall.
Worker's Compensation Statutory limits $500,000
Employer's Liability
ITS will provide Continental with Certificates of Insurance,
evidencing all of the above coverages, including all special requirements,
specifically noted, prior to commencement of the service under this Agreement
and further shall provide Continental with Certificates of Insurance evidencing
renewal, substitution or change of such insurance 30 days prior to such.
Certificates of Insurance shall be appropriately endorsed as follows:
a. to waive any rights of subrogation against Continental, its
directors, officers, its agents or employees and to their authorized
representatives, except for negligence and/or willful misconduct.
b. to provide, that, in respect of Continental, such insurance
shall not be invalidated by any action or inaction of Continental or other
person, other than Continental, and shall insure the interest of Continental
regardless of any breach or violation by M or any other person, other than
Continental of any warranties, declarations or conditions contained in such
policies.
c. to provide that any cancellation, reduction, lapse or
other, adverse change in such policy shall not be effective as to Continental
until the expiration of thirty (30) days after written notice is sent by
registered mail to Continental of such action.
d. to provide that such insurance is primary without right of
contribution from Continental's insurance.
e. to provide that Continental is not obligated for the
payment of any premiums, deductibles, retention or self-insurance thereunder.
f. to provide that all of the provisions thereof except the
limits of liability under the policy, shall operate in the same limits of
liability under the policy covering each insured.
g. to provide that Continental is an additional insured under
the general liability and automobile liability policies except for gross
negligence or willful misconduct; and to provide contractual liability coverage
for assumed liability under the terms of this agreement.
h. Continental shall have full, complete and immediate access
to all investigative processes and information regarding any incident giving
rise to actual or potential injury, loss or damage.
Simultaneously with the execution and delivery of this
Agreement and upon each policy renewal, ITS shall provide Continental with
certificates of its insurance evidencing the coverage and endorsements set forth
above.
Continental shall be entitled to certified copies of any and
all insurance policies at its discretion. Certificates of insurance should be
furnished to Continental's Risk Management Department at the address listed in
Section 15 of this Agreement.
In the event that ITS fails to maintain in full force and
effect any of the insurance and endorsements described in this insurance
section, Continental shall have the right (but not the obligation) to terminate
this agreement immediately or to procure and maintain such insurance or any part
thereof at ITS' cost. The cost of such insurance shall be payable by ITS to
Continental upon demand by Continental. 'Me procurement of such insurance or any
part
-4-
<PAGE> 5
thereof by the other party shall not discharge or excuse the defaulting party's
obligation to comply with the provisions of this insurance section.
SECTION 10 - GOVERNING LAW
--------------------------
THIS AGREEMENT IS MADE WITHIN, SHALL BE CONSTRUED IN
ACCORDANCE WITH, AND SHALL BE GOVERNED BY THE STATE IN WHICH SERVICES ARE
PERFORMED.
SECTION 11 - ASSIGNMENT
-----------------------
This Agreement and the rights and obligations created
hereunder shall not be assignable or delegable by ITS hereto without the prior
written consent of Continental. However, Continental may assign its rights and
obligations to any affiliated company without the prior written consent of ITS.
SECTION 12 - RIGHT TO AUDIT
---------------------------
ITS shall at all times keep complete and accurate books,
records and accounts from which may be determined the basis for billing by it of
screening services rendered to Continental at each Airport. Such books, records
and accounts shall be open for inspection, examination, audit and copying by
Continental or its designated representatives at all reasonable times, during
the course of this agreement.
SECTION 13 - MODIFICATION
-------------------------
Continental and ITS agree that this Agreement may be modified
only in writing and signed by duly authorized representatives of each party.
SECTION 14 - EFFECTIVE DATE, TERMINATION
----------------------------------------
This Agreement shall become effective as of October 1, 1990
and shall continue in full force and effect until terminated by either party
upon thirty (30) days advance notice.
However, if there is enacted any law, regulation, ruling, or
any other such mandate of any Government authority having jurisdiction over the
subject matter which alters the hours of service, rates of a pay, working
conditions or costs of performing the service provided hereunder, Continental
agrees that the rates will be subject to renegotiation upon thirty (30) days
advanced written notice, and that the above maximum increase will not apply. In
the event the parties are unable to agree on such rates and charges, this
agreement then may be terminated on thirty (30) days written notice.
Notwithstanding the foregoing, in the event Continental fails
to make payments as set forth in Section 3 of this Agreement and the Exhibit(s)
attached hereto, ITS shall serve written notice upon Continental calling
attention to the particular failure to make timely payment. Continental shall be
given thirty (30) days from the time of receiving such notice to make such
payment If payment is not made, ITS may cancel this Agreement immediately upon
written notice. In the event ITS breaches any term of this agreement,
Continental shall serve upon ITS a written notice calling attention to the
particular breach complained of, and demanding the correction thereof. In the
event ITS fails to correct such breach within twenty-four (24) hours from the
time of receiving such written notice, Continental may cancel this Agreement
immediately upon written notice to ITS and all rights of ITS shall then
terminate.
-5-
<PAGE> 6
SECTION 15 - NOTICES
--------------------
Notices given hereunder shall be in writing and shall be
deemed to have been given and delivered when deposited in the United States
mail, certified, registered or express, with postage prepaid and addressed,
if to ITS, at: INTERNATIONAL TOTAL SERVICES, INC.
626 Terminal Tower
Cleveland, Ohio 44113
Attn: Legal Department
and if to CONTINENTAL, at: CONTINENTAL AIRLINES, INC.
P.O. Box 4806
Houston, Texas 77210-4607
Attn: Staff Vice President, Contract Sales & Service
SECTION 16 - ENTIRE AGREEMENT
-----------------------------
This agreement and the exhibits attached hereto constitute the
entire agreement between Continental and ITS, and supersedes all prior
contracts, proposals or communications, either oral or written between the
parties at the locations identified more fully in the Exhibit (s) attached
hereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first written above.
CONTINENTAL AIRLINES, INC. INTERNATIONAL TOTAL SERVICES, INC.
By:___________________________ By:___________________________________
Name:_________________________ Name:_________________________________
Title:________________________ Title:________________________________
-6-
<PAGE> 7
AMENDMENT TO AGREEMENT
----------------------
THIS AMENDMENT, made and entered into as of the 1st day of
January, 1995, by and between International Total Services, Inc., (hereinafter
referred to as Handler) and Continental Airlines, Inc. (hereinafter referred to
as "Carrier").
W I T N E S S E T H:
WHEREAS, Handler and Carrier are parties to a certain
agreement made as of October 1, 1990, (hereinafter referred to as the
"Agreement") pursuant to which Handler provides certain services for carrier at
the location(s) described within the Exhibits here to (hereinafter called
Airports); and
WHEREAS, the parties desire to amend the Agreement in certain
respects;
NOW, THEREFORE, Handler and Carrier hereby agree to add the
following Section Seventeen (17) to the Agreement.
SECTION 17 - PENALTIES
----------------------
When Handler is presented with evidence that a skycap
was responsible for a Carrier passenger baggage mishandling,
Handler will pay $25.00 per incident. This is per passenger,
not per bag.
This Amendment shall be effective as of January 1, 1995.
Except as herein amended, the Agreement shall remain unchanged
and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment by their duly authorized representatives as of the day and year first
written above.
CONTINENTAL AIRLINES, INC. INTERNATIONAL TOTAL SERVICES, INC.
By:_____________________________ By:_____________________________________
Name:___________________________ Name:___________________________________
Title:__________________________ Title:__________________________________
<PAGE> 1
Exhibit 10.26
AGREEMENT FOR SKYCAP AND BAGGAGE HANDLING SERVICES AT
OMAHA EPPLEY MUNICIPAL AIRPORT
OMAHA, NEBRASKA
This Agreement is entered into this ____ day of __________, 199__,
between UNITED AIRLINES (henceforth referred to as "UNITED") and International
Total Services, Inc. (henceforth referred to as "ITS") an Ohio Corporation, for
skycap services at Omaha Eppley Municipal Airport (hereinafter referred to as
"AIRPORT").
RECITALS
--------
WHEREAS, UNITED desires ITS to provide Skycap Services at the Airport,
as hereinafter defined in Section 1; and
WHEREAS, ITS is able and willing to provide Skycap Services at
the Airport;
THEREFORE, UNITED and ITS agree as follows:
SECTION 1
---------
SKYCAP SERVICES
---------------
1. ITS shall meet and greet outbound passengers at terminal entrance,
determine service needs and check baggage, escort passenger and baggage to
check-in position, and when possible, direct passengers directly to gate and
place checked bags on proper conveyor belt for delivery to bag room.
2. ITS shall monitor baggage claim area to insure proper distribution
and appearance of baggage on claim carousels. ITS shall meet and greet arriving
passengers in claim areas to offer assistance in obtaining baggage and desired
transportation ITS shall direct passengers with lost/damaged claims to the
baggage Services Offices of UNITED.
3. ITS shall take large baggage, pets and other checked articles too
large to be sent to conveyor belt, directly to baggage room upon request of
ticket counter personnel or when deemed appropriate by ITS in the best interest
of the passenger.
4. ITS shall assist disabled and/or elderly passengers of UNITED,
including boarding aircraft, deplaning, restroom visits, restaurant access,
claiming of baggage, an other assistance desired by UNITED or as determined by
ITS while passengers are in airport terminals. Such personnel shall be
appropriately trained by ITS to carry out such passenger assistance.
5. Personnel of ITS who are employed to assist passengers shall wear
uniforms generally acceptable to UNITED and shall at all times be well groomed,
friendly and have empathy towards the passengers. All work shifts shall be
adequately supervised.
6. UNITED shall provide all necessary tags, courtesy boxes, and bags.
ITS shall be responsible for the inventory of all
<PAGE> 2
equipment. Costs [or all preventive maintenance and repairs of
UNITED owned equipment shall be the responsibility of UNITED.
SECTION 2
---------
PRICES
------
1. ITS shall submit to UNITED, an invoice for Skycap Services provided
during the preceding bi-weekly period at the Airport, not later than two (2)
days after the end of the bi-weekly period. 1
2. Prices for said service are set forth in, Exhibit A, attached hereto
and made a part hereof. Such prices shall be guaranteed for a period of one
year, and such guarantee shall not in any way detract from or diminish either
party's rights under SECTION 3 herein below.
3. Upon the receipt of ITS's invoice, UNITED shall verify that Skycap
Services have been performed pursuant to this Agreement. Upon verification,
UNITED shall tender its payment of the invoice within thirty (30) days of the
invoice date.
4. If multiple carriers are provided service under this agreement, ITS
will bill UNITED for UNITED's prorated share of the services performed under
this Agreement at the rates specified in Exhibit A and in accordance with the
proration formula set forth, UNITED shall be obligated to pay only its prorate
share of any such collective services.
5. UNITED agrees to pay ITS on demand for all cost of collection,
including any reasonable attorney's fees incurred in connection with the
collection of any amounts payable to UNITED to ITS under any of the provisions
of the contract, through an attorney or collection agency, whether collected by
suit or otherwise.
SECTION 3
---------
EFFECTIVE DATE AND TERM
-----------------------
1. This Agreement shall become effective as of and shall continue in
full force and effect for a term of one (1) year or until terminated by either
party upon thirty (30) days advance written notice.
2. Notwithstanding the prices set forth in Exhibit A, if there is
enacted any law, regulation, ruling, or any other such mandate of any Government
authority having jurisdiction over the subject matter which alters the hours of
service, rates of pay, working conditions or costs of performing the service
provided hereunder, UNITED agrees that the rates will be subject to
renegotiation upon thirty (30) days advanced written notice to UNITED to take
into account these increased costs. In the event the parties are unable to agree
on such rates and charges, this agreement then may be terminated on thirty (30)
days written notice.
-2-
<PAGE> 3
SECTION 4
---------
INDEMNIFICATION
---------------
1. Except as provided in Section 4.2, below, ITS hereby releases and
agrees to defend, indemnify and hold UNITED, its directors, officers, agents and
employees (hereinafter collectively "UNITED") harmless from and against any and
all claims, suits, liabilities, damages, losses and judgments, including
reasonable expenses and attorney's fees incident thereto (including but not
limited to attorney's fees and court costs incurred in enforcing UNITED's right
to indemnity hereunder) (hereinafter collectively "Claims") which may be
suffered by, accrued against, charged to or recoverable from UNITED, for or on
account of damage to, loss of, or destruction of the property of UNITED or third
persons, or for or on account of any injury or death of any person (except an
employee of UNITED covered by worker's compensation insurance) and which arise
from or in connection with any act of ITS or its directors, officers, agents or
employees in the performance by ITS of Skycap Services. Where a claim is
asserted against both ITS and UNITED, either jointly or severally, for acts
alleged to have arisen from or in connection with Skycap Services, both ITS and
UNITED shall submit the claim to their respective insurer and any coverage
disputes shall be resolved between carriers through arbitration. Notwithstanding
any language herein to the contrary, the primary obligation to defend claims
involving allegations pertaining to Skycap Services shall be that of ITS.
2. The parties agree that ITS duty to indemnity as set forth in
Paragraph 4.1 above will apply to all claims with the exception of the
following:
A. Claims arising from or in connection with any
act or omission occasioned solely by the negligence or intentional misconduct
of UNITED.
B. Claims arising from or in connection with the
installation, design, placement, maintenance and operation of equipment provided
to ITS by UNITED in the provision of Skycap Services, provided that such
equipment is used by ITS in a proper and reasonable manner.
3. Nothing in this agreement shall preclude a separate action by UNITED
or ITS, their respective officers, employees or agents, one against the other
for claims, losses, damages or liabilities caused by or arising out of the
negligence of the other party, including, but not limited to, workers
compensation subrogation actions.
SECTION 5
---------
COMPLIANCE WITH LEGAL REQUIREMENTS
----------------------------------
1. ITS shall comply with all applicable Federal, State, and Local laws
and executive orders and regulations issued pursuant thereto, including without
limitation, and to the extent applicable to this Agreement, the provisions
contained within Section 202 of Executive Order 11246 (41 C.F.R Section 60.1.4),
Section 4.2 of the Vietnam Era Veterans Readjustment Act (41 C.F.R. 60-250.4),
Section
-3-
<PAGE> 4
503 of the Rehabilitation Act (41 C.F.R. Section 60-741.4), which provisions are
incorporated herein by reference as if set forth in full.
2. In the performance of its functions and activities for UNITED
hereunder, ITS shall not discriminate on the basis of handicap, consistent with
the Air Carrier Access Act of 1986 and the regulations of the Department of
Transportation set forth in 14 CFR Part 382. Said Act and Regulations, and any
law, order or regulatory provision issued in supplement of replacement thereof,
are hereby incorporated by reference and made a part hereof to the extent
applicable as if fully set forth herein. ITS further agrees to comply with the
directive issued by UNITED's Complaints Resolution Officials (CROs) under 14 CFR
Pan 382, and any amendment, supplement or replacement thereof. The foregoing
obligations of ITS are material terms of this Agreement.
3. ITS shall ensure that it has conducted adequate background
investigations of all of its employees hired after November 1, 1985 who have
unescorted access to any area of the airport controlled for security reasons.
4. ITS represents and warrants that it is in compliance with Section
XIX (Emergency Change Number 24) of the Air Carriers Standard Security Program
issued November 29, 1985 by the Federal Aviation Administration. ITS shall
indemnify and hold harmless UNITED, it directors, officers, agents, and
employees from and against any and all cost and expenses (including attorneys'
fees) incurred by UNITED due to any investigation commenced, or penalties or
fines imposed, by the Federal Aviation Administration or any other government
agency having jurisdiction with respect to Section XIX of the Air Carriers
Standard Security Program.
5. UNITED shall have the right, but not the duty, to conduct such
audits of ITS's employment records as it deems prudent to ensure ITS's
compliance with paragraphs 1, 2, 3, and 4 hereinabove. UNITED may terminate this
Agreement if it finds any evidence which indicates that ITS has not complied
with the obligations imposed by paragraphs 1, 2, 3, and 4.
SECTION 6 - TAXES, LICENSES AND FEES
------------------------------------
ITS shall pay any and all taxes, licenses, fees and assessments, and
penalties thereon, if any (including, without limitation, any and all taxes,
assessments or charges based upon gross receipts and any and all fees required
to be paid under any applicable licenses, leases or agreements), in any manner
levied, assessed or imposed upon ITS by any governmental authority or agency
thereof having jurisdiction, including, without limitation the airport authority
having jurisdiction over the Airport, as a result of or attributed to the
performance of any service, or the sale of any product, by ITS for or to UNITED
under or pursuant to this Agreement.
-4-
<PAGE> 5
SECTION 7
---------
INSURANCE
---------
1. ITS shall at its own expense procure and maintain in full force and
effect during the term of this Agreement insurance coverage with insurance
carriers acceptable to UNITED, duly qualified in the State where the airport is
located and covering ITS's obligations under this Agreement including the
Indemnity provisions of Section 4.
In the event UNITED should desire, at any time during the term of this
Agreement, that changes be made in the minimum amounts and/or the types of
coverage of such insurance, ITS agrees to accede to any such reasonable request;
however, ITS reserves the right to increase the costs to UNITED accordingly.
2. At a minimum, ITS shall have in force during the term of this
Agreement insurance of the following types and in the following minimum amounts:
TYPE OF INSURANCE MINIMUM COVERAGE
- ----------------- ----------------
Comprehensive General Liability A total combined single limit
(Specifically including of primary and excess coverage
Personal Injury/Bodily in the amount of Twenty-Five
Injury/Property Million ($25,000,000) Dollars
Damage/Contractual Liability) for each and every loss.
Worker's Compensation and To Statutory limits
Employer's Liability
Minimum Coverage A total combined single limit of primary and
excess coverage in the amount of Twenty-Five Million ($25,000,000)
Dollars for each and every loss.
To Statutory limits
3. Such policies of liability insurance shall be endorsed (i) to
provide that said insurance shall be primary insurance and to acknowledge that
any other insurance policy or policies of UNITED shall be secondary or excess
insurance not withstanding any provision in such policies regarding other
insurance, (ii) to name UNITED, its directors, officers, agents and employees as
an additional insured, (iii) to provide that all provisions of such insurance,
except for the limits of liability, shall operate in the same manner as if there
were a separate policy issued to each insured, (iv) to specifically cover the
indemnity and hold harmless obligations of ITS to UNITED hereunder, and (v) to
contain a provision requiring the insurers to provide UNITED with a written
notice of any cancellation or adverse material change in such insurance and
providing that the same shall not be effective as to the benefit and/or interest
of UNITED for thirty (30) days after written notice of such cancellation or
adverse material change is received by UNITED.
-5-
<PAGE> 6
4. ITS or its insurers shall furnish certificates evidencing the
insurance coverage required thereunder to UNITED at the following address:
---------------------
---------------------
---------------------
SECTION 8
---------
EXCUSABLE NON-PERFORMANCE
-------------------------
1. ITS shall provide UNITED with sixty (60) days advance notice, or in
the alternative, notice as soon as practicable, of any planned or threatened
shutdown or slowdown in its provision of Skycap Services at the Airport. In the
event of such a shutdown or slowdown, ITS agrees that UNITED may enter into
Agreements for the provision of Skycap Services at the Airport the duration of
such shutdown or slowdown. ITS further understands that UNITED may at any time
during such shutdown or slowdown terminate this Agreement at the Airport in
accordance with the provisions of Section 3.
2. ITS agrees that in the event UNITED's operation at the Airport is
decreased or halted by reason of events beyond UNITED's reasonable control, then
this Agreement at the Airport shall be suspended upon notice of suspension from
UNITED; and that UNITED shall not be liable for such suspension; and, that
UNITED shall not be liable to ITS for Skycap Services at that Airport until such
suspension is removed by UNITED. In the event the suspension lasts for more than
one hundred and twenty (120) days, ITS may terminate this Agreement at the
Airport upon ten (10) days advance notice to UNITED. In either case, ITS will be
paid in full for services rendered prior to the event giving rise to UNITED's
excusable nonperformance.
3. ITS shall not be liable to UNITED for failure or delay in the
performance of Skycap Services at an Airport if the failure or delay arises from
a cause beyond ITS's reasonable control.
SECTION 9
---------
RIGHT TO AUDIT
--------------
ITS shall at all times keep complete and accurate books, records and
accounts from which may be determined the basis for billing by it of Skycap
Services rendered to UNITED at the Airport and for one (1) year after any
termination of this contract. Such books, records and accounts shall be open for
inspection, examination, audit and copying by UNITED or its designated
representatives at all reasonable times, during the course of this contract and
for one (1) year after any termination of this contract. UNITED shall provide
ITS with a complete copy of all audit results within fifteen (15) days of each
audit conducted by UNITED or its authorized representatives.
-6-
<PAGE> 7
SECTION 10
----------
INDEPENDENT CONTRACTOR
----------------------
The relationship between UNITED and ITS shall be that of Independent
Contractors and in no event shall persons employed by either party be held to be
or construed to be employees of the other.
SECTION 11
----------
LEGALITY OF PROVISIONS
----------------------
If any provision of this Agreement is held to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall no' in any way be affected or impaired thereby.
SECTION 12
----------
NO WAIVER
---------
The failure of UNITED or ITS to subscribe or to require performance by
the other of any provision of this Agreement shall in no way affect that party's
right thereafter to enforce such provision nor shall the waiver by UNITED or ITS
of any breach of any provision of this Agreement be taken or held to be a waiver
of any further breach of the same provision or any other provision.
SECTION 13
----------
CHOICE OF LAW
-------------
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Nebraska.
SECTION 14
----------
ENTIRETY OF AGREEMENT
---------------------
UNITED and ITS agree that this Agreement embodies all prior
discussions, whether oral or written, and to the extent such prior discussions
have not been incorporated herein, they are without effect.
SECTION 15
----------
ASSIGNMENT
----------
This Agreement shall not be assignable to any other entity or person
without the express written consent of the other party.
SECTION 16
----------
MODIFICATION
------------
UNITED and ITS agree that this Agreement may be modified only in
writing and signed by duly authorized representatives of each party.
-7-
<PAGE> 8
SECTION 17
----------
NOTICE
------
Notices given hereunder shall be in writing and shall be deemed to have
been given and delivered when deposited in the United States mail, certified,
registered or express, with postage prepaid and addressed, if to ITS, at:
TO ITS: INTERNATIONAL TOTAL SERVICES, INC
5005 Rockside Road, Suite 1200
Cleveland, Ohio 44131
ATTN: Legal Department
TO UNITED: ________________________
________________________
________________________
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers "hereunto duly authorized as of the day
and year first written above.
UNITED AIRLINES INTERNATIONAL TOTAL SERVICES,
INC.
BY:__________________________ BY:___________________________
TITLE:_______________________ TITLE: PRESIDENT AND CEO
-----------------
DATE:________________________ DATE:_________________________
-8-
<PAGE> 1
EXHIBIT 10.27
AGREEMENT BETWEEN
INTERNATIONAL TOTAL SERVICES,INC.
AND
UNITED AIRLINES
FOR PREBOARD SCREENING SERVICES
OMAHA EPPLEY MUNICIPAL AIRPORT
This AGREEMENT, made and entered into as of this ______ day of
____________________, 1994, by and between INTERNATIONAL TOTAL SERVICES, INC.,
(hereinafter called "ITS") and UNITED AIRLINES (hereinafter called "UNITED" ).
WHEREAS, UNITED desires ITS to perform for it certain services
with respect to UNITED'S operation at the location(s) described within the
Exhibit(s) attached hereto (hereinafter called "Airport" ).
WHEREAS, ITS is willing to perform such services in the manner
and pursuant to the terms and conditions, hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
SECTION I - SERVICES
--------------------
1.1 INSPECTION SERVICES
ITS understands that in order to detect any Passenger who may be
carrying any Dangerous Object onto an aircraft or into the Inspection Area,
UNITED must be able to rely upon ITS and its Inspectors. Therefore, ITS assures
UNITED of properly registered, well-qualified and well-trained Inspectors.
ITS further understands that inasmuch as UNITED places a high priority
on quality service to Passengers, Inspection Services must be conducted in an
efficient and courteous manner. UNITED understands, however, that ITS'S first
and primary duty is to detect any Passenger who may be carrying any Dangerous
Object onto an aircraft or into the Inspection Area.
ITS'S Inspection services shall at all times be conducted in accordance
with FAA Regulations, 14 CFR Parts 108 and 121.538, as amended.
ITS shall ensure that its Inspectors comply with the procedures
outlined by Federal Law.
Upon receipt of a notice from UNITED that an Inspector has engaged in
improper conduct, has failed to perform Inspection Services satisfactorily, or
is in UNITED's opinion unqualified to perform Inspection Services,
<PAGE> 2
ITS agrees to prohibit within 24 hours of ITS's receipt of the UNITED's
notice such Inspector from performing Inspection Services.
ITS's Inspection Services shall at all times be conducted in
accordance with the Air Carrier Standard Security Program, "ACSSP".
SECTION 2 - FEES
----------------
Fees for services shall be at the rates set forth on the
respective Exhibit(s) attached hereto describing such services and fees.
2.1 OVERTIME - ADDITIONAL PERSONNEL
If overtime rates are applicable as shall be indicated in the
Exhibit(s) attached hereto, then, when ITS incurs overtime payroll expenses as a
result of delays in scheduled activity, and/or additional activity, in addition
to the other payments to be made by UNITED to ITS hereunder, UNITED shall pay to
ITS the premium portion of the overtime incurred by ITS in perfuming such
activity at the rates set forth in the applicable Exhibit(s) attached hereto. No
overtime work shall be undertaken unless authorized in writing by UNITED's
authorized representative. All overtime will be for a minimum period in
accordance with ITS's personnel policy and labor contracts, of which UNITED will
be advised prior to execution of this agreement.
Upon UNITED's written request, ITS will, to the extent of its
capability, furnish additional personnel over and above the normal complement
used in performing services hereunder, if the same shall be necessary to perform
additional services to accommodate additional and/or unscheduled activity;
provided, however, the complement of such personnel shall be reasonable. UNITED
shall give ITS not less than four (4) hours advance notice of its request for
additional personnel and UNITED shall, in addition to the other payments to be
made by UNITED to ITS hereunder, pay ITS for the services of such additional
personnel at the applicable rates therefore set forth in the Exhibit(s) attached
hereto.
SECTION 3 - PAYMENT
-------------------
For the performance of the services described in Section I above and
the Exhibit(s) attached hereto, UNITED shall pay to ITS the rates and charges
described in the Exhibit(s) applicable thereto; ITS shall render invoices for
such services bimonthly, directly to UNITED. Payment of invoices is due thirty
(30) days from receipt of the invoice by UNITED.
2
<PAGE> 3
SECTION 4 - TAXES, LICENSES AND FEES
------------------------------------
ITS shall pay any and all taxes, licenses, fees and assessments, and
penalties thereon, if any (including, without limitation, any and all taxes,
assessments or charges based upon gross receipts and any and all fees required
to be paid under any applicable licenses, leases or agreements), in any manner
levied, assessed or imposed upon ITS by any governmental authority or agency
thereof having jurisdiction, including, without mediation, the airport authority
having jurisdiction over the Airport, as a result of or attributed to the
performance of any service, or the sale of any product, by ITS for or to UNITED
under or pursuant to this Agreement. However, ITS reserves the right to charge
the costs of any airport fees back to UNITED.
SECTION 5 - STANDARDS OF PERFORMANCE
------------------------------------
All services to be performed hereunder shall be performed in a careful
and workmanlike manner, and in performing such services, ITS shall comply with
such written specifications and procedures as may be furnished to ITS by UNITED
or, in the absence thereof, in accordance with the standard procedures of ITS.
In furnishing services hereunder, ITS agrees to observe all applicable
requirements of the Federal Aviation Administration (or any successor thereof)
and other governmental authorities having jurisdiction. ITS shall provide
suitable equipment and adequate and competent supervision and personnel to
furnish the services to be performed hereunder unless specific differences arc
specified in the Exhibit(s) attached hereto.
SECTION 6 - NON-DISCRIMINATION
------------------------------
ITS is an Equal Opportunity Employer, and as such EEO clauses contained
at 41 CFR Section 60-1.4, 60-250.4 and 60-741.4, are incorporated and made a
part hereof by reference.
In the performance of its functions and activities, ITS shall not
discriminate on the basis of handicap, consistent with the Air Carrier Access
Act of 1986 and the regulations of the Department of Transportation set forth in
14 CFR Part 382.
SECTION 7 - WORKMAN'S COMPENSATION OR EMPLOYER'S LIABILITY
----------------------------------------------------------
INSURANCE
---------
The employees of ITS engaged in performing the services furnished
hereunder shall be the employees of ITS for all purposes, and shall under no
circumstances be deemed to be employees of UNITED. Each party assumes full
responsibility for any and all
3
<PAGE> 4
liability to its own employees on account of injury, or death resulting
therefrom, sustained in the course of their employment. Each party, with respect
to its own employees, accepts full and exclusive liability for the payment of
Workman's Compensation or employer's liability insurance premiums with respect
to such employees, and for the payment of all taxes, contributions, or other
payments for unemployment compensation or old age benefits, pensions, or
annuities now or hereafter imposed upon employers by an government or agency
thereof having jurisdiction in respect of such employees measured by the wages,
salaries, compensation or other remuneration paid to such employees, and agrees
to make such payments and to make and file all reports and returns and to do
everything necessary to comply with the laws imposing such taxes, contributions
or payments. ITS insurance policies shall be endorsed to waive all rights of
subrogation against UNITED and its insurers except when UNITED is negligent and
intentionally causes injury to ITS's employee(s).
SECTION 8 - INDEMNITY
---------------------
ITS agrees to defend, indemnify and hold harmless UNITED, its officers,
employees and agents from and against any and all claims, losses, liabilities,
counsel fees, costs and expenditures incident thereto incurred by or asserted
against UNITED as a result of damage to the property of UNITED or others, or
personal injuries to or injuries resulting in death, of any person or persons
including directors, officers, employees and agents of UNITED arising out OF the
negligent acts or omissions of ITS, its directors, officers, employees or agents
in its performance of services hereunder.
UNITED agrees to defend, indemnify and hold harmless ITS, its officers,
employees and agents from and against any and all claims, losses, liabilities,
counsel fees, costs and expenditures incident thereto incurred by or asserted
against ITS as a result of damage to the property of ITS or others, or personal
injuries to or injuries resulting in death, of any person or persons including
directors, officers, employees and agents of ITS arising out of the negligence
or willful misconduct of UNITED, its directors, officers, employees or agents in
its performance of services hereunder.
The parties further agree that ITS's duty to indemnify will not extend
to cover claims arising from or in connection with the installation, design,
placement, maintenance and operation of equipment provided to ITS by UNITED,
provided that such equipment is used by ITS in a proper and reasonable manner.
SECTION 9 - INSURANCE
---------------------
ITS shall at its own cost and expense procure and maintain in
4
<PAGE> 5
full force and effect during the term of this Agreement policies of insurance of
the types and in the minimum amounts stated below with responsible insurance
companies acceptable to UNITED, covering the operations of ITS pursuant to the
Agreement. It is further understood that all policies of insurance provided by
ITS shall be primary as remedy for claims resulting from this Agreement.
TYPE OF INSURANCE MINIMUM COVERAGE
- ----------------- ----------------
Comprehensive General Liability A total combined single limit
of primary and excess coverage
in the amount of Ten Million
($10,000,000) Dollars for each
and every loss overall.
Automobile Liability A total combined single limit of
(Both owned and Hired) primary and excess coverage in the
amount of Ten Million (10,000,000)
Dollars for each and every loss
overall.
Workers' Compensation Statutory limits
Employer's Liability $500,000
ITS will provide UNITED with Certificates of insurance, evidencing all
of the above coverages, including all special requirements, specifically noted,
prior to commencement of the service under this Agreement and further shall
provide UNITED with Certificates of Insurance evidencing renewal, substitution
or change of such insurance 30 days prior to such. Certificates of Insurance
shall be appropriately endorsed as follows:
a. to waive any rights of subrogation against UNITED, its
directors, officers, its agents or employees and to their
authorized representatives, except for negligence and/or willful
misconduct.
b. to provide, that, in respect of UNITED, such insurance
shall not be invalidated by any action or inaction of UNITED or other person,
other than UNITED, and shall insure the interest of UNITED regardless of any
breach or violation by FFS or any other person, other than UNITED, of any
warranties, declarations or conditions contained in such policies.
c. to provide that any cancellation, reduction, lapse or
other, adverse change in such policy shall not be effective as to UNITED until
the expiration of thirty (30) days after written notice is sent by registered
mail to UNITED of such action.
d. to provide that such insurance is primary without right of
contribution from UNITED'S insurance.
5
<PAGE> 6
e. to provide that UNITED is not obligated for the payment of
any premiums, deductibles, retention or self-insurance thereunder.
f. to provide that all of the provisions thereof except
the limits of liability under the policy, shall operate in the same
limits of liability under the policy covering each insured.
g. to provide that UNITED is an additional insured under the
general liability and automobile liability policies except for gross negligence
or willful misconduct; and to provide contractual liability coverage for assumed
liability under the terms of this agreement.
h. UNITED shall have full, complete and immediate access to
all investigative processes and information regarding any incident giving rise
to actual or potential injury, loss or damage.
Simultaneously with the execution and delivery of this
Agreement and upon each policy renewal, ITS shall provide UNITED with
certificates of its insurance evidencing the coverage and endorsements set forth
above.
UNITED shall be entitled to certified copies of any and all insurance
policies at its discretion. Certificates of insurance should be furnished to
UNITED'S Risk Management Department at the address listed in Section 15 of this
Agreement.
In the event that ITS fails to maintain in full force and effect any of
the insurance and endorsements described in this insurance section, UNITED shall
have the right (but not the obligation) to terminate this agreement immediately
or to procure and maintain such insurance or any part thereof at ITS' cost. The
cost of such insurance shall be payable by ITS to UNITED upon demand by UNITED.
The procurement of such insurance or any part thereof by the other party shall
not discharge or excuse the defaulting party's obligation to comply with the
provisions of this insurance section.
SECTION 10 - GOVERNING LAW
--------------------------
THIS AGREEMENT IS MADE WITHIN, SHALL BE CONSTRUED IN ACCORDANCE WITH,
AND SHALL BE GOVERNED BY THE LAWS OF THE STATE OF OHIO.
SECTION 11 - ASSIGNMENT
-----------------------
This Agreement shall not be assigned by either party without the prior
written consent of the other party. This Agreement shall be binding upon and
inure to the benefit of the parties, their respective successors and assigns.
6
<PAGE> 7
SECTION 12 - RIGHT TO AUDIT
---------------------------
ITS shall at all times keep complete and accurate books, records and
accounts from which may be determined the basis for billing by it of screening
services rendered to UNITED at each Airport. Such books, records and accounts
shall be open for inspection, examination, audit and copying by UNITED or its
designated representatives at all reasonable times, during the course of this
agreement.
SECTION 13 - MODIFICATION
-------------------------
UNITED and ITS agree that this Agreement may be modified only
in writing and signed by duly authorized representatives of each party.
SECTION 14 - EFFECTIVE DATE, TERMINATION
----------------------------------------
This Agreement shall become effective as of ________, 19__ and shall
continue in full force and effect for one (1) year unless terminated by either
party upon thirty (30) days advance written notice.
However, if there is enacted any law, regulation, ruling, or any other
such mandate of any Government authority having jurisdiction over the subject
matter which alters the hours of service, rates of a pay, working conditions or
costs of performing the service provided hereunder, UNITED agrees that the rates
will be subject to renegotiation upon thirty (30) days advanced written notice.
In the event the parties are unable to agree on such rates and charges, this
agreement then may be terminated on thirty (30) days written notice.
Notwithstanding the foregoing, in the event UNITED fails to make
payments as set forth in Section 3 of this Agreement and the Exhibit(s) attached
hereto, ITS shall serve written notice upon UNITED calling attention to the
particular failure to make timely payment. UNITED shall be given thirty (30)
days from the time of receiving such notice to make such payment. If payment is
not made, ITS may cancel this Agreement immediately upon written notice. In the
event ITS breaches any term of this agreement, UNITED shall serve upon ITS a
written notice calling attention to the particular breach complained of, and
demanding the correction thereof. In the event ITS fails to correct such breach
within twenty-four (24) hours from the time of receiving such written notice,
UNITED may cancel this Agreement immediately upon written notice to ITS and all
rights of ITS shall then terminate.
SECTION 15 - NOTICES
--------------------
7
<PAGE> 8
Notices given hereunder shall be in writing and shall be deemed to have
been given and delivered when deposited in the United States mail, certified,
registered or express, with postage prepaid and addressed, if to ITS, at:
INTERNATIONAL TOTAL SERVICES, INC.
5005 Rockside Road
Cleveland, Ohio 44131
Attn: Legal Department
and if to UNITED, at:
UNITED
----------------------------------
----------------------------------
----------------------------------
SECTION 16 - ENTIRE AGREEMENT
-----------------------------
This agreement and the exhibits attached hereto constitute the entire
agreement between UNITED and ITS, and supersedes all prior CONTRACTS, proposals
or communications, either oral or written between the parties at the locations
identified more fully in the Exhibit (s) attached hereto.
SECTION 17 - DRUG TESTING PROGRAM
---------------------------------
As a condition of providing "Safety sensitive" or security related
services, each party hereto shall comply with all applicable Federal Laws, Rules
and Regulations issued pursuant thereto, including without limitation, and to
the extent applicable to this Agreement, the provisions contained within 49 CFR
Part 40 and 14 CFR Parts 12 1, 135, 145 et al, which provisions are incorporated
herein by reference as if set forth in full.
By execution of this Agreement, each party represents and warrants
compliance with the aforementioned regulations and will furnish proof thereof
upon demand.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first written above.
UNITED AIRLINES INTERNATIONAL TOTAL SERVICES, INC.
By: ___________________ By: ______________________________
Title:_________________ Title:____________________________
8
<PAGE> 9
Date:__________________ Date:_____________________________
9
<PAGE> 1
EXHIBIT 10.28
AGREEMENT FOR AIRPORT
SECURITY AND SCREENING SERVICES
SOUTHWEST AIRLINES CO. (hereinafter "Southwest") and INTERNATIONAL
TOTAL SERVICES, INC. thereinafter "ITS") agree as follows:
1. PURPOSE OF AGREEMENT. ITS shall furnish personnel as appropriate to
provide airport passenger security screening services and related airport
security services in accordance with Federal Aviation Regulations and
Southwest's "Air Carrier Standard Security Program" at Baltimore/Washington
International Airport, Baltimore, Maryland (hereinafter "the Airport").
2. TERM. This Agreement shall commence on February 1, 1995 and shall
continue indefinitely unless either party gives the other party advance written
notice of termination at least thirty (30) days prior to the effective
termination date. However, either party reserves the right to terminate this
Agreement immediately upon a material breach of this Agreement by the other
party.
3. STANDARD OF SERVICE. It is expressly understood by ITS that the
above-referenced duties are to be performed to assist Southwest in complying
with Section 108 of the Federal Aviation Regulations or such regulations as may
replace or supersede Section 108 during the term of this Agreement. It is
further expressly understood that Southwest's "Air Carrier Standard Security
Program" required to be filed with the FM pursuant to Section 108 is
incorporated into this Agreement by reference (including amendments) and ITS's
personnel will perform their duties so as to comply with that security program
manual.
4. RATES OF PAY. ITS shall bill participating airlines at the specific
rates for the classifications of personnel in accordance with Attachment "A."
The specific rates for classifications of personnel is subject to renegotiation
annually following the first anniversary of this Agreement and each anniversary
thereafter. If there is enacted any law, regulation, ruling or other such
mandate of any authority having jurisdiction over the subject matter of this
Agreement which alters the hours of service, rates of pay, working conditions or
costs of performing the security services provided hereunder, Southwest agrees
that this Agreement will be subject immediately to renegotiation to take into
account these increased/decreased costs.
5. INVOICES. ITS shall invoice Southwest bi-monthly for security
services supplied on a joint-use basis, mailed or delivered to Southwest at
Oakland International Airport, Terminal II, P.O. Box 25, One Airport Drive,
Oakland, CA 94621, to the attention of Southwest's Station Manager. ITS shall
pro-rate joint-use charges according to the local billing formula. The resulting
charges shall be billed on combined reports published to all participants. The
invoice shall include an itemized statement of hours worked, rates charged, and
amounts invoiced to all participating airlines. Payment is due within thirty
(30) days after receipt of invoice, it being understood that Southwest shall
<PAGE> 2
be required to pay only its pro-rata amount. The pro-rata amount owed by other
participants shall be invoiced to the other participants by ITS. However,
non-timely payment by other participants may result in the exclusion of any
participant from joint billing after fifteen (15) days' notice to all
participants.
Each airline using ITS's services at the Airport may designate a
representative to coordinate the staffing requirements with ITS. Said
representative group shall constitute the "Airline Committee." As a majority
shall rule, the term "majority" shall mean at least a numerical majority of the
airlines which together have paid charges of more than 50% of the total amount
paid by all of the airline participants at the Airport for the three month
period immediately preceding the current billing period.
6. EMPLOYEES. Security personnel are employees of ITS, an independent
contractor. ITS will exercise complete control over employee conduct and will
pay all wages and all applicable federal social security taxes, unemployment
taxes and any similar taxes. All employees furnished by ITS under this Agreement
shall be competent and properly trained as required to perform their assigned
jobs, properly attired, and shall perform their duties in a safe, courteous and
professional manner in accordance with FM regulations and Southwest's "Air
Carrier Standard Security Program."
ITS shall provide all employees with all necessary initial and
recurrent training as required by the FM or Southwest. Complete training and
personnel records will be maintained by ITS. Southwest will have access to those
records for inspection and review upon reasonable notice. ITS shall be
responsible for direct supervision of all employees. ITS's supervisors must be
available at reasonable times to consult with Southwest management. Southwest
expressly reserves the right to consult with ITS on the number of employees
hired, the hours worked, and overtime or holiday work schedules. ITS warrants
that it shall make every reasonable effort to comply with Attachment "B" of this
Agreement.
7. REMOVAL OF PERSONNEL. ITS agrees that upon request by Southwest, ITS
will remove from service any employee who, in the opinion of Southwest, displays
improper conduct or is deemed not qualified or necessary to perform the work
assigned. Southwest warrants that no such request will violate Title VII of the
Civil Rights Act of 1964.
8. ADJUSTMENT OF HOURS. ITS agrees that Southwest shall have the right
at any time to adjust the hours of service upon reasonable notice to ITS, and
any change in the hours shall be confirmed in writing within forty-eight (48)
hours.
9. INSURANCE. ITS agrees to furnish and keep in full force the
following insurance during the term of this contract:
A. WORKER'S COMPENSATION INSURANCE covering all persons employed by ITS
engaged in the performance of the work hereunder, in amounts as
required by applicable law;
-2-
<PAGE> 3
B. COMPREHENSIVE GENERAL LIABILITY COVERAGE including bodily injury,
property damage and personal injury (which coverage shall include,
but will not to be limited to: false arrest, detention,
imprisonment, assault, battery, malicious prosecution, libel,
slander, defamation of character, violation of right of privacy, and
property damage, including, but not limited to, loss of articles
from hand-carried items inspected by ITS's personnel) with the
following limits:
(1) Personal Injury - $500,000/Person
$1,000,000/Occurrence
(2) Property Damage - $500,000/Person
$1,000,000/Occurrence
(3) Excess Limits - up to $5,000,000 on
both personal injury
and property damage
C. BLANKET FIDELITY BOND COVERAGE on ITS's personnel.
ITS shall furnish Southwest, not less than five (5) days prior to the
commencement of this Agreement, proof of such insurance and shall notify
Southwest immediately if any insurance coverage is canceled, deleted or reduced.
10. INDEMNIFICATION. ITS agrees to indemnify and hold harmless
Southwest, its directors, officers, agents and employees, from and against all
liabilities, demands, suits or judgments, including attorneys fees and other
costs and expenses of defense, because of harm (including, but not limited to,
harm arising from false arrests, assault, battery, searches, libel or slander),
injury or death to persons; or loss, damage or destruction to property,
including the property of Southwest, ITS, and third persons, arising out of the
negligence or willful misconduct of ITS, its directors, officers, agents or
employees acting within the scope of their employment.
ITS also agrees to indemnify and hold harmless Southwest, its
directors, officers, agents and employees from any civil penalty which may be
levied against Southwest, its directors, officers, agents or employees, and
reasonable attorney's fees and costs for defense, as a result of a violation of
any law, regulation or order (including any FAR or Southwest's Air Carrier
Standard Security Program) committed by ITS, its directors, officers, agents or
employees acting within the scope of their employment.
11. ENTIRE AGREEMENT, AMENDMENTS. This Agreement supersedes all
previous agreements, oral or written, between ITS and Southwest, and represents
the whole and entire agreement between the parties. Any agreements previously
made remain intact to the date of this Agreement and there is no waiver of
provisions of previous agreements. Amendments may be by written attachment.
-3-
<PAGE> 4
12. ASSIGNMENT. This Agreement is not assignable by either party
without the prior written consent of the other party. Any attempt to do so shall
render this Agreement null and void.
13. SUSPENSION OF AGREEMENT. ITS agrees that in the event Southwest's
flight operations are halted or substantially decreased at the Airport by reason
of strike, labor dispute, picketing, act of God, or other cause beyond the
control of Southwest, this Agreement may be suspended at that Airport upon
twenty-four (24) hours' notice to ITS.
14. NOTICES. All notices required hereunder shall be deemed sufficient
and binding upon the parties when forwarded by U.S. Mail, postage prepaid, to
the parties at the addresses set forth below;
ITS: INTERNATIONAL TOTAL SERVICES, INC.
CROWN CENTRE
5005 ROCKSIDE ROAD
CLEVELAND, OHIO 44131
ATTN: GENERAL COUNSEL
SOUTHWEST: SOUTHWEST AIRLINES CO.
P.O. BOX 36611
DALLAS, TEXAS 75235-1611
ATTN: VICE PRESIDENT - GROUND
OPERATIONS
15. COMPLIANCE WITH LEGAL REQUIREMENTS. ITS shall secure all required
permits, licenses, certificates, approvals, and inspections necessary to perform
the services under this Agreement.
ITS and Southwest agree to comply with all applicable federal, state,
county and local laws, ordinances, regulations and codes, including the Civil
Rights Act 1964, as amended. The Equal Employment Opportunity and the
implementing Rules and Regulations of the Office of Federal Contract Compliance
Programs are incorporated herein by specific reference. The Affirmative Action
Clause in Section 503 of the Rehabilitation Act of 1973, as amended, relative to
Equal Opportunity for the handicapped is incorporated herein by specific
reference. The Affirmative Action Clause in 38 USC Section 2012 of the Vietnam
Veterans' Readjustment Assistance Act of 1974, relative to Equal Employment
Opportunity for the special disabled veteran and veterans of the Vietnam Era, is
incorporated herein by specific reference. The Air Carrier Access Act of 1986 as
set forth in 14 CFR Section 382, as amended, relative to non-discrimination on
the basis of handicap is incorporated herein by specific reference.
ITS agrees that in providing security services to Southwest's
passengers, it will not discriminate on the basis of handicap, consistent with
the Air Carrier Access Act of 1986 and implementing regulations of the
Department of Transportation at 14 CFR Part 382. ITS also agrees to comply with
directives issued by Southwest's Complaints Resolution Officials (CRO's)
pursuant to 14 CFR Section 382.65, as those directives relate to services
provided to handicapped passengers. ITS further agrees to provide training to
ITS's personnel concerning travel by handicapped persons in
-4-
<PAGE> 5
accordance with 14 CFR 382.61(a)(6). ITS agrees and acknowledges that compliance
with its obligations under 14 CFR Part 382 is a material term of this Agreement.
ITS shall conduct adequate background investigations of all its
employees hired after November 1, 1985 who have unescorted access to any area on
the Airport controlled for security reasons. Adequate background checks will
include, at a minimum and to the extent permitted by law, verification of prior
employment in the preceding five years.
16. RIGHTS AND REMEDIES. The duties and obligations imposed by this
Agreement and the rights and remedies available hereunder shall be in addition
to and not to a limitation of any duties, obligations, right and remedies
otherwise imposed or available by law.
No action or failure to act by ITS or Southwest shall constitute a
waiver of any right or duty afforded either of them under this Agreement nor
shall any such action or failure to act constitute an approval of or
acquiescence in any breach thereunder.
17. SEVERABILITY. If any of the provisions of this Agreement shall be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate or render unenforceable the entire Agreement, but rather the entire
Agreement shall be construed as if not containing the particular invalid or
unenforceable provision or provisions, and the rights and obligations of ITS and
Southwest shall be construed and enforced accordingly.
18. THIRD PARTNER RIGHTS. Nothing contained in this Agreement will or
is intended to create or will be construed to create any right in or any duty or
obligation to any third party.
19. GOVERNING LAW. This Agreement shall be construed under the laws of
the State of Texas regardless of conflict of laws rules.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives on the dates provided below.
Agreed and Accepted By:
INT'L TOTAL SERVICES, INC. SOUTHWEST AIRLINES CO.
By:________________________ By:____________________
Name:______________________ Name:__________________
Print Name Print Name
Title:_____________________ Title:__________________
Date:______________________ Date:___________________
-5-
<PAGE> 1
EXHIBIT 10.29
AIRCRAFT CLEANING SERVICES AGREEMENT
This Agreement, effective as of the 1 st day of November,
1996, is by and between SOUTHWEST AIRLINES CO. (hereinafter "Southwest"), whose
principal address is 2702 Love Field Drive, Dallas, Texas 75235, and
INTERNATIONAL TOTAL SERVICES, INC. ("Contractor"), whose principal address is
5005 Rockside Road, Cleveland, Ohio 44131.
WHEREAS, Southwest is engaged in the business of providing air
transportation services for passengers and cargo between destinations located
within the continental United States; and
WHEREAS, Contractor is engaged in the business of
providing aircraft cleaning services; and
WHEREAS, Southwest desires to have Contractor provide aircraft
cleaning services and Contractor desires to perform aircraft cleaning services
for Southwest as specified under this Agreement at the Tampa International
Airport - TPA (hereinafter the "Airport"), Tampa, Florida.
NOW THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. SERVICES. Contractor agrees to perform aircraft cleaning
services (hereinafter "Services") in a timely and workmanlike manner. The
Services shall be performed in accordance with the aircraft cleaning procedures
and cleaning schedule set forth in Attachment "A" of this Agreement. Such
procedures may be changed by Southwest from time to time. Upon completion of
Services, Contractor personnel shall complete and sign the R.O.N. Cleaning
Checklist in the form of Attachment "B" of this Agreement. This checklist shall
be left in the front galley area of each aircraft after Services are performed
for the purpose of inspection and verification by Southwest personnel.
2. EQUIPMENT/SUPPLIES. In the performance of the Services
herein specified, Southwest shall furnish and maintain at its sole cost and
expense all cleaning materials, equipment, chemicals, supplies, tools and other
implements necessary to perform the Services under this Agreement. Southwest
also agrees to replenish aircraft supplies used by passengers, such as lavatory
supplies, blankets and pillow cases.
3. TERM. This Agreement shall commence on the date first
written above and shall continue in full force and effect until terminated by
either party hereunder by giving the other party advance written notice of
termination at least thirty (30) days prior to the effective termination date.
However, Southwest
<PAGE> 2
shall have the right to immediately terminate this Agreement in the event
Contractor breaches its obligations under this Agreement.
4. RATES. In consideration of the timely and workmanlike
performance by Contractor of the Services hereunder, Southwest agrees to pay
Contractor the rate set forth in Attachment "C" of this Agreement (inclusive of
sales taxes and airport fees) per aircraft cleaned. This rate shall remain
unchanged for at least twelve (12) months following the effective date of this
Agreement. Thereafter, the rate for Services may be changed by mutual agreement
of the parties.
5. INVOICES. Contractor shall mail or deliver monthly invoices
to Southwest at Tampa International Airport, Airside A, Tampa, Florida 33607, to
the attention of Southwest's Station Manager. Invoices shall specify the
aircraft number of each aircraft cleaned and the date the Services were
performed. This invoice amount, which represents charges for Services rendered
by Contractor during the immediately preceding month, shall be due thirty (30)
days following the date the invoice is received by Southwest.
6. REPORTS/RECORDS. Contractor shall maintain complete and
accurate records (including, but not limited to training and personnel records)
and accounts related to the performance of this Agreement. Such records shall be
maintained by Contractor for a period of two (2) years, and shall be open for
inspection, examination, audit and copying by Southwest or its designated
representatives at all reasonable times during the course of this Agreement.
7. INDEPENDENT CONTRACTOR. Contractor and its employees are
not and shall never be considered as employees of Southwest. Contractor shall
remain as an independent contractor in this regard, Contractor and its employees
shall not be under the protection and/or coverage of Southwest's worker's
compensation insurance, or entitled to any other benefits of Southwest
employees. Contractor hereby discharges Southwest of all liabilities imposed
upon Contractor as an independent contractor pursuant to any labor, worker's
compensation, insurance, social security, as well as any and all other federal,
state, county and local laws and regulations relating to such benefits.
Contractor shall pay all wages and all applicable federal social security taxes,
unemployment taxes and any similar taxes.
8. PERSONNEL. All employees furnished by Contractor under
this Agreement shall be courteous, reliable, competent, properly trained, and
properly uniformed. Furthermore, Contractor shall be responsible for direct
supervision of all phases of the Services being performed to ensure completion
of the Services in accordance with the terms of this Agreement. Contractor's
supervisors shall be available at reasonable times to consult with
2
<PAGE> 3
Southwest management.
9. REMOVAL OF PERSONNEL. Contractor shall, upon request by
Southwest, remove from service any employee who, in the opinion of Southwest,
displays improper conduct or is deemed not qualified or necessary to perform the
work assigned. Southwest warrants that no such request will violate Title VII of
the Civil Rights Act of 1964.
10. COMPLIANCE WITH LEGAL REQUIREMENTS. Contractor shall
secure all required licenses, permits, certificates, approvals, and inspections
necessary to perform the Services under this Agreement.
11. REGULATIONS. Contractor expressly warrants that the
Services under this Agreement shall be performed in compliance with Section 108
of the Federal Aviation Regulations (FAR'S) or such regulations as may replace
or supersede Section 108 during the term of the Agreement. Further, it is
expressly understood that Southwest's "Air Carrier Standard Security Program"
required to be filed with the Federal Aviation Administration pursuant to
Section 108 is incorporated into this Agreement by reference and Contractor's
personnel will perform Services so as to comply with that Security Program.
Contractor specifically warrants that a satisfactory ten (10) year background
check shall be carried out with respect to any employee having access to sterile
areas.
Contractor shall comply with all applicable federal, state,
county and local laws, ordinances, regulations and codes, including the Civil
Rights Act 1964, as amended. The Equal Employment Opportunity and the
implementing Rules and Regulations of the Office of Federal Contract Compliance
Programs are incorporated herein by specific reference. The Affirmative Action
Clause in Section 503 of the Rehabilitation Act of 1973, as amended, relative to
Equal Opportunity for the handicapped is incorporated herein by specific
reference. The Affirmative Action Clause in 38 USC Section 2012 of the Vietnam
Veterans' Readjustment Assistance Act of 1974, relative to Equal Employment
Opportunity for the special disabled veteran and veterans of the Vietnam Era, is
incorporated herein by specific reference. The Air Carrier Access Act of 1986 as
set forth in 14 CFR Section 382, as amended, relative to non-discrimination on
the basis of handicap is incorporated herein by specific reference.
12. INDEMNITY AND INSURANCE. Contractor agrees to indemnify
and hold harmless Southwest, its directors, officers, agents and employees, from
and against all liabilities, demands, suits or judgments, including attorney's
fees and other costs and expenses of defense, because of harm (including, but
not limited to, harm arising from false arrests, assault, battery, searches,
libel or slander), injury or death to persons; or loss, damage or
3
<PAGE> 4
destruction to property, including the property of Southwest, Contractor, and
third persons, arising out of the negligence or willful misconduct of
Contractor, its directors, officers, agents or employees acting within the scope
of their employment.
Contractor also agrees to indemnify and hold harmless
Southwest, its directors, officers, agents and employees from any civil penalty
which may be levied against Southwest, its directors, officers, agents or
employees, and reasonable attorney's fees and costs for defense, as a result of
a violation of any law, regulation or order (including any FAR or Southwest's
Air Carrier Standard Security Program) committed by Contractor, its directors,
officers, agents or employees acting within the scope of their employment.
Contractor, at its sole cost and expense, shall maintain
policies of insurance in full force and effect during the term of this Agreement
and with insurance companies satisfactory to Southwest, evidencing all risk
combined single limit liability insurance, including bodily injury and property
damage insurance in the minimum amount of ten million dollars ($10,000,000) per
occurrence. Contractor shall also furnish Southwest with certificates of
insurance as evidence that such insurance is in full force and effect, and
Southwest may request such certificates of insurance from Contractor from time
to time. All insurance policies shall unconditionally obligates the insurer(s)
to provide Southwest with thirty (30) days advance written notice of any
cancellation, change, alteration or modification of such insurance coverage.
Contractor agrees that it shall provide fully bonded labor and
shall at all times maintain a minimum blanket fidelity bond in the amount of
$25,000 on each of its employees in accordance with this provision.
13. NOTICES. All notices required hereunder shall be deemed sufficient
and binding upon the parties when forwarded by U.S. Mail, postage prepaid, to
the parties at the addresses set forth below:
CONTRACTOR: INTERNATIONAL TOTAL SERVICES, INC.
5005 Rockside Road
Cleveland, Ohio 44131
Attn: General Counsel
SOUTHWEST: SOUTHWEST AIRLINES CO.
P.O. Box 36611
Dallas, Texas 75235-1611
Attn: Vice President/Ground Operations
14. ENTIRE AGREEMENT. This Agreement supersedes all previous
contracts/agreements, oral or written, between Contractor
4
<PAGE> 5
and Southwest, and represents the whole and entire agreement between the
parties. Any contracts/agreements previously made remain intact to the date of
this Agreement and there is no waiver of provisions of previous
contracts/agreements.
15. MODIFICATION. This Agreement may be modified during its term upon
the written consent of both parties. Such modifications must be signed by duly
express authorized representatives of each party.
16. ASSIGNMENT. This Agreement is not assignable by either party
without the prior written consent of the other party. Any attempt to assign this
Agreement shall render the purported assignment null and void.
17. RIGHTS AND REMEDIES. The duties and obligations imposed by this
Agreement and the rights and remedies available hereunder shall be in addition
to and not a limitation of any duties, obligations, right and remedies otherwise
imposed or available by law.
18. WAIVER. No action or failure to act by Contractor or Southwest
shall constitute a waiver of any right or duty afforded either of them under
this Agreement nor shall any such action or failure to act constitute an
approval of or acquiescence in any breach thereunder.
19. SEVERABILITY. If any of the provisions of this Agreement shall be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate or render unenforceable the entire Agreement, but rather the entire
Agreement shall be construed as if not containing the particular invalid or
unenforceable provision or provisions, and the rights and obligations of
Contractor and Southwest shall be construed and enforced accordingly.
20. THIRD PARTY RIGHTS. Nothing contained in this Agreement will or is
intended to create or will be construed to create any right in or any duty or
obligation to any third party.
21. SECTION HEADINGS. The headings used to identify sections or
subsections are for reference purposes only and shall have no bearing on the
interpretation of this Agreement.
22. SUSPENSION OF AGREEMENT. Contractor agrees that in the event
Southwest's flight operations at the Airport are halted or substantially
decreased by reason of strike, labor dispute, picketing, act of God, or other
cause beyond the control of Southwest, this Agreement may be suspended upon
twenty-four (24) hours' notice to Contractor.
23. GOVERNING LAW. This agreement shall be construed
5
<PAGE> 6
in accordance with the laws of the state of Texas, regardless of
conflict of laws principles.
IN WITNESS WHEREOF, the parties have executed this Agreement
by their respective duly authorized representatives as of the date first written
above.
INTERNATIONAL TOTAL SERVICES, INC. SOUTHWEST AIRLINES CO.
- ---------------------------------- --------------------------
Signature Signature
- --------------------------------- --------------------------
Name Ruth Ann Chancellor
- --------------------------------- ---------------------------
Title Regional Director
6
<PAGE> 1
EXHIBIT 10.30
AGREEMENT TO PROVIDE SKYCAP SERVICES
FOR SOUTHWEST AIRLINES CO.
This Agreement, effective the 1st day of February, 1997, is by and
between SOUTHWEST AIRLINES CO. (hereinafter "Southwest"), whose principal
address is 2702 Love Field Drive, Dallas, Texas 75235, and INTERNATIONAL TOTAL
SERVICES, INC. (hereinafter "ITS"), whose principal address is 5005 Rockside
Road, Cleveland, Ohio 44131.
WHEREAS, Southwest desires the services of ITS for the purpose of
providing skycap services as specified under this Agreement at the
Baltimore-Washington International Airport - BWI (hereinafter referred to as the
"Airport"), Baltimore, MD ; and
WHEREAS, ITS is in the business of providing skycap services and
desires to contract with Southwest for the performance of said skycap services
as specified under this Agreement;
NOW THEREFORE, in consideration of ITS's promise to provide skycap
services and Southwest's promise to pay for such services in the manner and at
the times specified herein, it is hereby contracted and agreed to as follows:
1. SERVICES. ITS shall provide Southwest with a sufficient number of
trained skycap personnel to assist Southwest's enplaning and deplaning
passengers, and to perform such other passenger service functions at the Airport
as set forth on Attachment "N" of this Agreement. ITS also agrees to follow all
additional instructions from Southwest that are reasonable regarding the
standards, practices and procedures to be followed in performing services
pursuant to this Agreement. ITS skycaps shall perform these services in a
workmanlike, safe and courteous manner seven as required by Southwest at the
Airport.
2. TERM. This Agreement shall commence on the date first written above
and shall continue in full force and effect until terminated by either party
hereunder by giving the other party advance written notice of termination at
least thirty (30) days prior to the effective termination date. However,
Southwest shall have the right to terminate this Agreement upon twenty-four (24)
hours notice to ITS in the event ITS breaches its obligations hereunder. Notices
are to be given in accordance with Section 13 below.
3. RATE AND INVOICES. In consideration of the timely and faithful
performance by ITS of the services described herein, Southwest agrees to pay ITS
the specific rates for skycap personnel in accordance with Attachment "B" of
this Agreement.
ITS shall mail or deliver monthly invoices to Southwest at
Baltimore-Washington International Airport, Terminal Building, First Floor, P.O.
Box 28983, Baltimore, Maryland 21240, to the attention of Southwest's Station
Manager. This invoice amount, which represents charges for Services rendered by
ITS during the immediately preceding month, shall be due thirty (30) days
following the date the invoice is received by Southwest.
4. REPORTS/RECORDS. ITS shall maintain complete and accurate records
(including, but not limited to training and personnel records) and accounts
related
<PAGE> 2
to the performance of this Agreement. Such records shall be maintained by ITS
for a period of two (2) years, and shall be open for inspection, examination,
audit and copying by Southwest or its designated representatives at all
reasonable times during the course of this Agreement.
5. INDEPENDENT CONTRACTOR. It is expressly agreed that ITS is not and
shall never be considered as an employee of Southwest. ITS shall remain as an
independent contractor; in this regard, ITS and its employees shall not be under
the protection and/or coverage of Southwest's worker's compensation insurance,
or entitled to any other benefits of Southwest employees. ITS hereby discharges
Southwest of all liabilities imposed upon ITS as an independent contractor
pursuant to any labor, workees compensation, insurance, social security, as well
as any and all other federal, state, county and local-laws and regulations
relating to such benefits.
6. PERSONNEL. ITS will exercise complete control over employee conduct
and will pay all wages and all applicable federal social security taxes,
unemployment taxes and any similar taxes. All employees furnished by ITS under
this Agreement shall be courteous, reliable, competent, properly trained,
properly uniformed, and shall perform their duties in accordance with applicable
FAA regulations. ITS shall provide its employees with all initial and recurrent
training as required by the FAA or Southwest. ITS shall be responsible for
direct supervision of all phases of the services being performed to ensure
completion of the services in accordance with the terms of this Agreement. ITS's
supervisors must be available at reasonable times to consult with Southwest
management. Southwest expressly reserves the right to consult with ITS on the
number of employees hired, the hours worked, and overtime or holiday work
schedules.
7. REMOVAL OF PERSONNEL. ITS agrees that upon request by Southwest, ITS
will remove from service any employee who, in the opinion of southwest, displays
improper conduct or is deemed not qualified or needed to perform the work
assigned. Southwest warrants that no such request will violate Title VII of the
Civil Rights Act of 1964.
8. COMPLIANCE WITH LEGAL REQUIREMENTS. ITS will at its sole cost and
expense secure all required permits, licenses, certificates, approvals, and
inspections necessary to perform the services under this Agreement.
9. REGULATIONS. ITS expressly warrants that its duties under this
Agreement shall be performed in compliance with Section 108 of the Federal
Aviation Regulations (FAR's) or such regulations as may replace or supersede
Section 108 during the term of the Agreement. Further, it is expressly
understood that Southwest's "Air Carrier Standard Security Program" required to
be filed with the Federal Aviation Administration pursuant to Section 108 is
incorporated into this Agreement by reference and ITS's personnel will perform
their duties so as to comply with that Security Program. ITS specifically
warrants that a satisfactory ten (10) year background check shall be performed
on any employee with access to sterile areas.
-2-
<PAGE> 3
ITS and Southwest agree to comply with all applicable federal, state,
county and local laws, ordinances, regulations and codes, including the Civil
Rights Act 1964, as amended. The Equal Employment Opportunity and the
implementing Rules and Regulations of the Office of Federal Contract Compliance
Programs are incorporated herein by specific reference. The Affirmative Action
Clause in Section 503 of the Rehabilitation Act of 1973, as amended, relative to
Equal Opportunity for the handicapped is incorporated herein by specific
reference. The Affirmative Action Clause in 38 USC Section 2012 of the Vietnam
Veterans' Readjustment Assistance Act of 197,4, relative to Equal Employment
Opportunity for the special disabled veteran and veterans of the Vietnam Era, is
incorporated herein by specific reference. The Air Carrier Access Act of 1986 as
set-forth in 14 CFR Section 382, as amended, relative to non-discrimination on
the basis of handicap is incorporated herein by specific reference.
10. ADJUSTMENT OF HOURS. ITS agrees that Southwest shall have the right
at any time to adjust the hours of service upon reasonable notice to ITS, and
any change In the hours shall be confirmed in writing within forty-eight (48)
hours.
11. INSURANCE. ITS agrees to furnish and keep in full force the
following insurance during the term of this Agreement.
A. WORKER'S COMPENSATION INSURANCE covering all persons employed by
ITS engaged in the performance of the work hereunder, in amounts
as required by applicable law;
B. COMPREHENSIVE GENERAL LIABILITY COVERAGE for personal injury
(which coverage shall include, but will not to be limited to
false arrest, detention, imprisonment, assault, battery,
malicious prosecution, libel, slander, defamation of character,
violation of right of privacy, and property damage) with the
following limits:
(1) Personal Injury - $500,000/Person
$1,000,000/Occurrence
(2) Property Damage - $500,000/PERSON
$1,000,000/Occurrence
(3) Excess Limits _ up to $5,000,000 on both personal
injury and property damage;
C. BLANKET FIDELITY BOND COVERAGE on ITS's personnel.
Insurance coverage will be endorsed to name Southwest as an additional
insured. ITS shall furnish Southwest, not less than five (5) days prior to the
commencement of this Agreement, proof of such insurance and shall notify
Southwest immediately of any insurance coverage which is canceled, deleted or
reduced.
-3-
<PAGE> 4
12. INDEMNIFICATION. ITS agrees to indemnify and hold harmless
Southwest, its directors, officers, agents and employees, from and against all
liabilities, demands, suits or judgments, including attorney's fees and other
costs and expenses of defense, because of harm (including, but not limited to,
harm arising from false arrests, assault, battery, searches, libel or slander),
injury or death to persons; or loss, damage or destruction to property,
including the property of Southwest, ITS, and third persons, arising out of the
negligence or willful misconduct of ITS, its directors, officers, agents or
employees acting within the scope of their employment.
ITS also agrees to indemnify and hold harmless Southwest, its
directors, officers, agents and employees from any civil penalty which may be
levied against Southwest, its directors, officers, agents or employees, and
reasonable attorney's fees and costs for defense, as a result of a violation of
any law, regulation or order (including any FAR or Southwest's Air Carrier
Standard Security Program) committed by ITS, its directors, officers, agents or
employees acting within the scope of their employment.
13. NOTICES. All notices required hereunder, except for invoices, shall
be deemed sufficient and binding upon the parties when forwarded by U.S. Mail,
postage prepaid, to the parties at the addresses set forth below:
ITS: INTERNATIONAL TOTAL SERVICES, INC.
5005 ROCKSIDE ROAD
CLEVELAND, OHIO 44131.
ATTN: GENERAL COUNSEL
SOUTHWEST: SOUTHWEST AIRLINES CO.
P.O. BOX 36611
DALLAS, TEXAS 75235-1611
ATTN: VICE PRESIDENT - GROUND OPERATIONS
14. MODIFICATION. This Agreement may be modified during its term upon
the express written consent of both parties. Such modifications must be signed
by a duly authorized representative of each party.
15. ASSIGNMENT. This Agreement is not assignable by either party
without the prior written consent of the other party. Any attempt to do so shall
render the purported assignment null and void.
16. ENTIRE AGREEMENT. This Agreement supersedes all previous
agreements, oral or written, between ITS and Southwest, and represents the whole
and entire agreement between the parties. Any agreements previously made remain
intact to the date of this Agreement and there is no waiver of provisions of
previous agreements.
17. RIGHTS AND REMEDIES. The duties and obligations imposed by this
Agreement and the rights and remedies available hereunder shall be in addition
to and not a
-4-
<PAGE> 5
limitation of any duties, obligations, rights and remedies otherwise imposed or
available by law. No action or failure to act by ITS or Southwest shall
constitute a waiver of any right or duty afforded either of them under this
Agreement nor shall any such action or failure to act constitute an approval of
or acquiescence in any breach thereunder.
18. SEVERABILITY. If any of the provisions of this Agreement shall be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate or render unenforceable the entire Agreement, but rather the entire
Agreement shall be construed as if not containing the particular invalid or
unenforceable provision or provisions, and the rights and obligations of ITS and
Southwest shall be construed and enforced accordingly.
19. THIRD PARTY RIGHTS. Nothing contained in this Agreement will or is
intended to create or will be construed to create any right in or any duty or
obligation to any third party.
20. SECTION HEADINGS. The headings used to identify sections or
subsections are for reference purposes only and shall have no bearing on the
interpretation of this Agreement.
21. SUSPENSION OF AGREEMENT. ITS agrees that in the event Southwest's
flight operations at the Airport are halted or substantially decreased by reason
of strike, labor dispute, picketing, act of God, or other cause beyond the
control of Southwest, this Agreement may be suspended upon twenty-four (24)
hours' notice to ITS.
22. GOVERNING LAW. This Agreement shall be construed under the laws of
the State of Texas regardless of conflict of laws rules.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their respective duly authorized representatives as of the date first written
above.
Agreed and Accepted By.
INTERNATIONAL TOTAL SVCS., INC. SOUTHWEST AIRLINES CO.
By:___________________________ By:_______________________________________
Name: ________________________ Name: Ruth Ann Chancellor
Title: _______________________ Title: Director
Date: ________________________ Date:_____________________________________
-5-
<PAGE> 1
Exhibit 10.31
CONTRACT
for
PRE-DEPARTURE SCREENING SERVICES
at
Norfolk International Airport (ORF)
between
US Airways, Inc.
and
International Total Services, Inc. (ITS)
Contract No: ORF007PD
Date: July 3, 1997
<PAGE> 2
TABLE OF CONTENTS
ARTICLE PAGE
- ------- ----
ARTICLE 1 - DEFINITION AND STANDARD OF SERVICES........................... 1
ARTICLE 2 - CONSIDERATION AND PAYMENT.................................... 2
ARTICLE 3 - TAXES........................................................ 4
ARTICLE 4 - EQUALITY OF TREATMENT........................................ 4
ARTICLE 5 - CONTRACTOR'S EMPLOYEES....................................... 5
ARTICLE 6 - INSURANCE AND INDEMNITY...................................... 7
ARTICLE 7 - INDEMNITY FOR GOVERNMENT ACTIONS............................. 8
ARTICLE 8 - PERIOD OF AGREEMENT/TERMINATION............................... 9
ARTICLE 9 - FORCE MAJEURE................................................ 10
ARTICLE 10 - NOTICES..................................................... 11
ARTICLE 11 - AUDITS...................................................... 12
ARTICLE 12 - NONDISCRIMINATION........................................... 13
ARTICLE 13 - CONFIDENTIALITY AND WAIVER.................................. 13
ARTICLE 14 - MISCELLANEOUS............................................... 15
Contract No: ORF007PD
Date: July 3, 1997
<PAGE> 3
PRE-DEPARTURE SCREENING SERVICES AGREEMENT
This Agreement made and entered into as of the first day of March,
1997 by and between US Airways, Inc., (herein referred to as "US Airways"), a
corporation organized and existing under the laws of the State of Delaware and
having its principal place of business at 2345 Crystal Drive, Arlington, VA
22227, and International Total Services, Inc. (herein referred to as
"Contractor"), a corporation existing under the laws of the state of Ohio and
having its principal place of business at Crown Centre, 5005 Rockside Rd.,
Cleveland, Ohio 44131.
WITNESSETH
WHEREAS, US Airways is a commercial airline;
WHEREAS, Contractor is an independent contractor presently engaged
in providing pre-departure screening services as that term is generally
understood in the air transportation industry (herein referred to as
"Services"); and
WHEREAS, US Airways desires to have Contractor furnish the Services
and Contractor agrees to perform such Services at the airport(s) or portion of
airport(s) (herein referred to as "Site") indicated in Exhibit A under the terms
and conditions of this Agreement;
NOW, THEREFORE, for and in consideration of the foregoing premises
and the mutual covenants and agreements herein contained, the Parties hereto
agree as follows:
ARTICLE 1- DEFINITION AND STANDARD OF SERVICES
1.1 The Services to be provided by Contractor's personnel are defined and
specified in Exhibit A hereto.
1.2 Contractor hereby represents, warrants, and agrees that all Services
provided under this Agreement will conform to all applicable federal,
state and other applicable statutes, regulations, ordinances, and
orders, and that such statutes, regulations, ordinances, and orders will
be deemed to apply to Contractor if such statutes, regulations,
ordinances, and orders would apply to US Airways.
1.3 Contractor warrants that it has obtained all permits and licenses
required by all applicable authorities, including, but not exclusively,
the Federal Aviation Administration ("FAA"), to perform the Services
specified in this Agreement and will continue, at its own expense, to be
so licensed throughout the term of this Agreement.
Contract No: ORF007PD
Date: July 3, 1997
<PAGE> 4
1.4 Contractor warrants that all employees utilized by Contractor pursuant
to this Agreement will be fully trained, equipped and competent and will
perform their duties in a safe, courteous manner, will work harmoniously
with US Airways personnel, and will observe standards of discipline
satisfactory to US Airways at all times while on the Site.
1.5 Contractor warrants that all Services provided under this Agreement will
comply with rules pertaining to the applicable Site including, those of
the Airport Authority, including, but not limited to, rules concerning
security, drug testing, and parking.
1.6 Except as specified in this Agreement or the Exhibits hereto, Contractor
will be responsible for the acquisition, maintenance, inventory,
storage, and control of all equipment, materials, supplies, and any
special equipment required to perform the Services.
1.7 Contractor acknowledges and agrees that Services may be provided to US
Airways at a specific Site in conjunction with Services that Contractor
may provide to other parties. Notwithstanding anything contained in any
other agreement to the contrary, Contractor agrees that Services
provided for US Airways, its employees, agents, passengers and invitees,
will be provided pursuant to the provisions of this Agreement.
1.8 Should disputes of any nature arise during the term of this Agreement,
pending settlement or resolution of said dispute, both Parties will
proceed diligently with their performance under this Agreement. The
Parties acknowledge that this provision will not operate to require
payment by US Airways of amounts that are the subject of the dispute.
The Parties further agree that this provision will not operate to limit
any of the other rights and remedies provided for in this Agreement.
1.9 The Services performed hereunder by Contractor will be provided to the
sole satisfaction of US Airways.
ARTICLE 2 - CONSIDERATION AND PAYMENT
2.1 In full consideration of the performance of the Services above
described, US Airways will pay Contractor in accordance with the terms
and conditions set forth in this Agreement and such additional terms as
specified in Exhibit B, if any. The rates in Exhibit B will remain firm
for the term of this Agreement. In the event of a conflict between the
contents of Exhibit B and the body of this Agreement, the terms of
Exhibit B will prevail.
-2-
Contract No: ORF007PD
Date: July 3, 1997
<PAGE> 5
2.2 Contractor will submit a bi-weekly invoice to US Airways for Services
provided to US Airways during the previous two (2) weeks. All invoices
will specify both the applicable contract number and the purchase or
work order number applicable to the specific delivery or services, if
any. The invoice will also include full documentation of the work
performed. US Airways will pay Contractor within thirty (30) days of
receipt of Contractor's invoice. In the event of a dispute over the
invoice, US Airways will pay all amounts that are not in dispute, and
the deadline for payment for the disputed amount will be deemed extended
until ten ( 10) days after the resolution of such dispute. Contractor
agrees that it will submit no invoices or revisions to invoices more
than three (3) months after Services are rendered.
2.3 All invoices will be sent to the address listed below or to such other
addresses as US Airways may specify:
US Airways, Inc.
Norfolk International Airport
Norfolk, VA 23518
Attn: Station Manager- ORFKK
2.4 Payments will not be made unless invoices are signed for by the
addressee specified in Article 2.3.
2.5 Without limiting any other rights or remedies which it may have, US
Airways may withhold any payments due Contractor if the Contractor fails
to comply with any term or terms of this Agreement.
2.6 Where Service is provided to multiple airlines at the same Site, fees
for Service at that Site will be apportioned among those airlines based
on total enplanements at that Site broken down by each checkpoint. The
Parties acknowledge and agree that the allocation method specified in
Exhibit B, if any, will apply instead of that specified in Article 2.6,
but where a Site has a different rule for the apportionment/allocation
of fees that rule will apply. Contractor agrees that in no event will US
Airways be jointly or severally liable for other airlines' unpaid fees.
2.7 Except for costs specifically assigned to and assumed by US Airways
under this Agreement, Contractor acknowledges and agrees that the fees
under this Agreement establish the maximum liability of US Airways to
Contractor for the Services provided under this Agreement. In
particular, the following costs are assumed by Contractor:
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a. Salaries and benefits for Contractor's employees,
including vacation, sick leave and severance pay.
b. Training to fulfill government requirements.
c. Parking arrangements for personnel.
d. Securing any and all permits and licenses required to perform
the Services.
e. Any administrative costs for scheduling.
f. All overhead costs for local offices, support staff, headquarters
staff, uniforms, supplies, dosimeter
badges, etc.
g. All insurance required under this Agreement.
ARTICLE 3 - TAXES
3.1 In addition to the amounts charged under this Agreement, US Airways will
pay any applicable sales and/or use taxes that may be lawfully imposed
by the Government of the United States or any State or political
subdivision thereof upon Contractor for the Services provided to US
Airways under this Agreement provided Contractor promptly notifies US
Airways of the imposition of such taxes. Contractor agrees that the fees
paid under this Agreement will be deemed to include any value added tax
or similar tax imposed by any government. US Airways will not be liable
to Contractor for, and Contractor will hold US Airways harmless from,
all other taxes including, without limitation, any taxes based on gross
receipts, revenue, income or the like, import or export taxes, or
franchise or doing business taxes. If requested by US Airways in
writing, Contractor will not pay any sales or use tax assessed which is
the responsibility of US Airways under this Agreement except under
protest, and if payment is made, Contractor will use its best commercial
efforts to obtain a refund thereof, or at US Airways' request, permit US
Airways to protest such tax in Contractor's name. If all or any part of
such tax is refunded, Contractor will repay to US Airways so much
thereof as US Airways will have paid, including any and all interest
paid thereon. US Airways will pay to Contractor, upon demand, US
Airways' proportionate share of all out of pocket expenses incurred by
Contractor in protesting payment of any such tax and in endeavoring to
obtain such refund at US Airways' request. If US Airways paid the
expenses and the refund applies to customers of Contractor other than US
Airways, then Contractor will make certain that US Airways receives a
reimbursement for a proportionate share of such costs.
ARTICLE 4 - EQUALITY OF TREATMENT
4.1 Contractor agrees that in the event that any Services that may be
provided under this Agreement are provided or
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offered to any third party and the fees for such Services are less than
the fees under this Agreement and/or the terms more favorable, the fees
provided under this Agreement will be deemed reduced to equal such lower
fees and/or the terms of this Agreement will be adjusted to equal such
more favorable treatment. Such reduction or adjustment will be deemed in
effect from the earlier of the date that such fees are offered or
provided to such third party.
ARTICLE 5 - CONTRACTOR'S EMPLOYEES
5.1 The employees of Contractor engaged in performing Services hereunder
will be considered employees of Contractor for all purposes and will
under no circumstances be deemed to be employees of US Airways. US
Airways will have no supervisory power or control over any such
Contractor's employees and any complaint or change in procedure will be
transmitted by US Airways to Contractor who will in turn promptly give
any necessary instructions to its own personnel.
5.2 Contractor is responsible for the direct supervision of its employees
through its designated representative and such representative will in
turn, report to and confer with the designated agents of US Airways with
respect to the Services.
5.3 Contractor agrees to assume full responsibility for any and all
liability to its employees on account of injury, disability, and death
resulting from, or sustained by said employees in the performance of the
Services defined herein.
5.4 At US Airways' request, Contractor agrees that it will remove from
service any employee who, in US Airways' opinion, where such opinion may
not be such that its basis would be a violation of applicable law in the
case of dismissal of an employee, is not performing in the manner
required by this Agreement as soon as a qualified replacement is
available, which will not be more than twenty-four (24) hours. At US
Airways' request, Contractor will immediately remove from service any
employee whose acts or omissions, in US Airways' opinion, where such
opinion will not be such that its basis would be a violation of
applicable law in the case of dismissal of an employee, constitute a
breach of this Agreement.
5.5 Contractor agrees to accept full and exclusive liability for the payment
of any and all taxes, contributions, and other payments for unemployment
compensation and/or pension benefits, Worker's Compensation, employers
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liability insurance or annuities now or hereafter imposed upon employers
by the government of the United States or any State or political
subdivision thereof with respect to such employees, measured by the
wages, salaries, compensation, or other remuneration paid to such
employees, and Contractor will make such payments and will make and file
any and all reports and returns and do all other things necessary to
comply with the laws imposing such taxes, contributions, or other
payments.
5.6 Contractor further agrees to comply with such reasonable directions as
US Airways, or the Site's administrators may give, including, but not
limited to, those relating to directions on parking, time of access to
the Site, movement of the goods within and about the Site, safety and
security. Where requested by US Airways or the appropriate Site's
authority, Contractor agrees that it will require its employees to wear
identification badges at all times while on the Site. Contractor
acknowledges that this request may apply even where US Airways does not
require the same of its own employees or other contractors. Contractor
agrees that Contractor and all of its employees employed to provide the
Services will be cleared by applicable Airport Authority and all such
employees will, if required, wear identification cards issued by such
Airport Authority.
5.7 At its own expense, Contractor will comply with all FAA regulations and
requirements for selection and training of personnel that would apply to
US Airways. In particular, but not exclusively, Contractor will comply
with 14 C.F.R. sections 107.31 and 108.33, and/or such other
directive(s) or regulations that may modify, amend or supersede it,
which require Contractor to conduct background checks for those
employees hired after November 1, 1985 who have unescorted access to any
area on an airport controlled for security reasons. Such checks will
include, at a minimum, obtaining employment histories relating to the
last ten (10) years and confirmation of the most recent five (5) years
of prior employment.
5.8 Contractor agrees and hereby undertakes to release US Airways from and
against all claims for benefits offered by US Airways to its employees.
Contractor further agrees to indemnify US Airways for any loss or
liability to US Airways arising as a result of Contractor or its
employees being adjudicated an employee of US Airways.
5.9 Contractor represents and warrants that the employees used in the
performance of the Services hereunder will have the qualifications,
skills and experience necessary to perform
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the Services and will have the work record as represented to US Airways.
ARTICLE 6 - INSURANCE AND INDEMNITY
6.1 At all times during the tenn of this Agreement, Contractor will carry
and maintain in full force and effect Workers Compensation insurance as
required by applicable law covering all personnel engaged in the
furnishing of Services under this Agreement including Employers
Liability Insurance in an amount not less than five hundred thousand
dollars ($500,000). Contractor agrees to furnish US Airways with
certificates evidencing this insurance required under this provision.
6.2 At all times during the term of this Agreement, Contractor will carry
and maintain in full force and effect Comprehensive General Liability
Insurance for bodily injury including personal injury and property and
automobile liability coverage for owned and non-owned vehicles with a
combined single limit of liability of not less than two million dollars
($2,000,000) Prior to the commencement of Services under this Agreement,
Contractor agrees to furnish US Airways with certificates evidencing
that Contractor has the insurance required under this provision. Each
policy will (1) be primary without right of contribution from any other
insurance that is carried by US Airways, (2) name US Airways and the
Airport Authority as additional insureds, (3) contain a waiver of
subrogation in favor of the additional insureds, (4) contain a provision
requiring Contractor's insurers to provide US Airways with written
notice of any cancellation or adverse material change in such insurance
and that such cancellation or adverse material change will not be
effective with respect to US Airways for thirty (30) days after such
written notice is given, (5) contain a breach of warranty clause in
favor of the additional insureds, and (6) be endorsed to insure
Contractor's liability under this Agreement.
6.3 Contractor acknowledges and agrees that its failure to provide the
certificates of insurance required under this provision and/or US
Airways' failure to demand delivery of said certificates will not
operate or be deemed to operate as a waiver of the insurance and
associated endorsements required under this provision, and Contractor
will hold US Airways harmless from any liability arising as a result of
any such failure(s).
6.4 Contractor agrees and hereby undertakes to release, indemnify, defend,
and save harmless US Airways, its directors, officers, employees, and
agents from and
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against all liability, damages, claims, suits, theft, penalties or
actions of every name and description, including any and all costs and
expenses related thereto, including the defense thereof, attorneys fees
and court costs arising out of or resulting from the act or omission of
Contractor, its directors, officers and employees, and/or in connection
with the performance of this Agreement except to the extent caused by
the negligence or willful misconduct of US Airways.
6.5 Contractor will indemnify, defend and hold harmless US Airways from and
against any and all losses, damages, claims, liabilities, costs and
expenses, including attorney's fees and court costs, that may be
incurred on account of any actual or alleged infringement of any patent,
trademark, copyright, trade secret or other intellectual property rights
in connection with the manufacture, use or disposition of any of the
goods and/or Services supplied hereunder. If the use or other
disposition of the goods or the use or provision of the Services
provided hereunder is enjoined as a result of any such infringement,
Contractor will, at no expense to US Airways (a) obtain for US Airways
and its customers the right to use, sell or otherwise dispose of the
goods and/or Services, or (b) modify such goods or Services or
substitute equivalent goods or Services acceptable to US Airways which
modification or substitution is not infringing and to which the
Contractor will extend the provisions of this paragraph.
ARTICLE 7 - INDEMNITY FOR GOVERNMENT ACTIONS
7.1 Contractor agrees and hereby undertakes to indemnify US Airways against
any and all fines, penalties, and settlements from actions against US
Airways for violations of FAA or other applicable federal, state,
municipal, local or other governmental regulations or statutes
occasioned by Contractor's act or omission or arising in connection with
this Agreement, except where such violation results solely and directly
from US Airways' gross negligence or willful misconduct. Contractor
acknowledges that sums due under this Article may become due both during
and after the term of this Agreement. Contractor agrees to pay any
amounts owed under this Article within thirty (30) days after receipt of
notice in writing from US Airways or its agent. Contractor further
agrees that interest of 1/2 percent, but not more than the amount
permitted by applicable law, per month or part thereof will accrue from
the date of notice on sums not yet paid within thirty-five (35) days
after written notice of sums due under this Article. Any sums that come
due pursuant to this Article which remain unpaid for sixty
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(60) days after demand therefor may thereafter be deducted with
applicable interest from sums due to Contractor from US Airways. For the
purposes of this Article notice will be deemed to be the date on which
the notice was postmarked or hand delivered as the case may be.
Contractor agrees that in no event will the payment of any indemnity
under this Article or deductions from amounts owed to Contractor
pursuant to this Article release or excuse Contractor from its duties
and obligations under this Agreement.
7.2 Contractor agrees that all decisions on the manner in which to manage,
settle, defend or dispose of cases initiated by the FAA or any other
governmental body that result from Contractor's actual or alleged
violation, by act or omission, of any regulations or statutes will be
made by US Airways, in its sole discretion. Contractor acknowledges that
such actions, settlements, and negotiations may take place at any time,
including, but not exclusively, before formal proceedings have begun,
before a complaint is issued, and both before and after any formal
decision is issued.
ARTICLE 8 -PERIOD OF AGREEMENT/TERMINATION
8.1 The period of this Agreement is for two (2) years commencing on March 1,
1997 and terminating on February 28, 1999, unless terminated in
accordance with terms and conditions of this Agreement. Notwithstanding
the termination date specified in this provision, except in case of
termination by Contractor in accordance with the terms of Article 8.3,
Contractor will advise US Airways not less than ninety (90) days in
advance of its intent to cease providing Services at or after the
termination date. Where Contractor continues to provide Services at a
location previously covered by this Agreement after the termination date
specified in this Article, Contractor acknowledges and agrees that such
Services will continue to meet the standards and be governed by the
terms of this Agreement.
8.2 Upon written notice to Contractor from US Airways stating that
Contractor is in breach of this Agreement, Contractor will immediately
remedy such breach. Where Contractor fails to remedy such breach within
one (1) day or to promptly initiate and continue in good faith to remedy
a breach that cannot be reasonably remedied in one (1) day, US Airways
will have the right to terminate this Agreement without further notice
or payment to Contractor. Contractor further agrees that if it commits a
substantially similar breach more than twice in any twelve ( 12) month
period, regardless of remedy, US Airways will
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<PAGE> 12
have the right to terminate this Agreement without further notice or
payment to Contractor. Contractor acknowledges and agrees that this
provision will not operate to limit US Airways' other remedies under
this Agreement.
8.3 Upon written notice to US Airways from Contractor stating that US
Airways is in breach of this Agreement, US Airways will immediately
remedy such breach. Where US Airways fails to remedy such breach within
one (1) day or to promptly initiate and continue in good faith to remedy
a breach that cannot be reasonably remedied in one (1) day, Contractor
will have the right to terminate this Agreement upon thirty (30) days
notice to US Airways. Where Contractor has given such notice of
termination under the terms of this provision, Contractor will be deemed
to have withdrawn such notice of termination in the event that US
Airways remedies the breach prior to the expiration of the thirty (30)
day period specified. US Airways agrees that if it commits a
substantially similar breach more than twice in any twelve (12) month
period, regardless of remedy, Contractor will have the right to
terminate this Agreement upon thirty (30) days notice to US Airways.
Contractor acknowledges and agrees that, provided payment is made on
amounts due to Contractor from US Airways, untimely payments will not be
deemed a breach under this provision. Contractor further acknowledges
and agrees that US Airways' failure to pay amounts that are in dispute
will not be deemed a breach under this provision.
8.4 Notwithstanding any other provision of this Agreement, US Airways will
have the right to terminate this Agreement immediately by giving
Contractor written notice to that effect should US Airways determine
that Services rendered by Contractor under this Agreement have become
unsatisfactory. US Airways will have the right to terminate this
Agreement without cause upon thirty (30) days prior written notice of
its intention to terminate the Agreement.
8.5 Any termination under the terms of this Article will not limit any
obligation or liability accrued by either Party arising hereunder prior
to the termination.
8.6 Except for the fees for Services provided, US Airways will not be liable
for any damages or other liability as a result of the termination of
this Agreement prior to the stated termination date.
ARTICLE 9 - FORCE MAJEURE
9.1 Notwithstanding anything to the contrary herein contained, it is agreed
that either Party hereto will be relieved of
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its obligations hereunder in the event and to the extent that
performance hereof is delayed or prevented by any cause beyond its
control and not caused by the Party claiming relief hereunder,
including, without limitation, acts of God, public enemies, war,
insurrection, acts or orders of governmental authorities, fire, flood,
explosion, riots, strikes or the recovery from such cause ("force
majeure"). Contractor agrees that where relief is obtained under this
provision to make its best efforts to resume Service and, where
applicable, to meet the timetable for the Services specified in Exhibit
A. Contractor further agrees to consult with and advise US Airways of
any anticipated delay or failure, as soon as it becomes aware of such
anticipated delay or failure or the possibility thereof, whether for
force majeure or not, and, where applicable, the re-establishment of
applicable timetables.
9.2 In the event that US Airways' operations at the Site are restricted by
acts or orders of governmental authorities, damage to the facility or
any other cause, then US Airways will have the right, upon written
notice to Contractor, to suspend this Agreement while such conditions
exist. Notwithstanding any other provision of this Agreement, in the
event that Contractor fails to provide the Services contracted for under
this Agreement for any reason, including force majeure, and such failure
continues for more than one (1) hour, US Airways may, at its sole
option, acquire similar Services from another provider or provide
Services for itself. Contractor agrees to reimburse US Airways for the
difference in cost between those specified under this Agreement and
those paid by US Airways to a different service provider, except where
such failure results from force majeure. In acquiring Service from
another provider, US Airways may suspend this Agreement for a period of
up to thirty (30) days longer than the condition leading to Contractor's
failure to provide service or terminate this Agreement. Where such
failure, regardless of cause, continues for thirty (30) or more days,
then US Airways will have the right to terminate this Agreement
immediately upon written notice to Contractor, without any liability to
Contractor by reason of such termination.
ARTICLE 10 - NOTICES
10.1 Except where specified elsewhere in this Agreement, any and all notices,
approvals or demands required or permitted to be given by the Parties
hereto will be sufficient if made in writing and sent by certified mail,
postage prepaid or delivered by hand. Where sent by mail,
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Date: July 3, 1997
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such notices will also be sent by facsimile. Notices to US Airways will
be addressed to:
<TABLE>
<S> <C>
Via U.S. Mail - Via Air Courier Service -
US Airways, Inc. US Airways, Inc.
Pittsburgh International Airport US Airways Bldg. #1 - 3rd Floor
P. O. Box 12346 Commerce Drive - RIDC Park West
Pittsburgh, PA 15231-0346 Pittsburgh, PA 15275
Attn: Director - Customer Services Attn: Director- Customer Services
Purchasing - PIT/H310 Purchasing
Fax: (412)747-5309 Fax: (412)747-5309
and to Contractor addressed to:
ITS
Crown Centre
5005 Rockside Rd.
Cleveland, OH 44131
Attn: Norman H. Wood
Vice President, Sales
Fax: 216-642-9235
</TABLE>
or to such other addresses in the United States as either Party may specify by
notice to the other as provided herein. Notices
will be deemed served as of actual receipt.
ARTICLE 11 - AUDITS
11.1 Contractor will at all times keep complete and accurate books, records
and documents from which may be determined the basis for billing and for
compliance with this Agreement. Such books, records, and accounts will
be open for inspection, examination, audit and copying by US Airways or
US Airways' authorized representatives at all reasonable times during
the term of this Agreement and for three (3) years thereafter. US
Airways will have the right to have its auditors, agents of the FAA or
other governmental agencies, or other business related personnel
accompany its agents for such auditing. Contractor will cooperate with
those conducting the audit.
11.2 Contractor will at all times keep complete and accurate books, records
and documents from which may be determined Contractor's compliance with
all statutes, regulations, orders, ordinances and security programs.
Such books, records, and documents will be open for inspection,
examination, audit and copying by US Airways or US Airways' authorized
representatives at all times during Contractor's hours of operation of
any facility during the term of this Agreement and for five (5) years
from its termination, regardless of the cause of that termination.
Contractor agrees that at all times when a facility is subject to audit,
Contractor will have an employee on site capable of locating and gaining
access to all documents
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subject to audit. Where Contractor no longer services a particular Site,
Contractor will cooperate with US Airways in providing such access. US
Airways will have the right to have its auditors, agents of the FAA or
other governmental agencies, or other business related personnel
accompany its agents for such audits. Contractor will cooperate with
those conducting the audit. In the event of termination of this
Agreement for any cause, Contractor will provide to US Airways such
documentation of regulatory compliance as US Airways requests.
11.3 Upon written request of Contractor, made within thirty (30) days of an
audit conducted pursuant to this Article, US Airways will provide
Contractor with a copy of all written audit results within thirty (30)
days of such written request for a copy of the audit conducted by US
Airways or its authorized representatives.
ARTICLE 12 - NONDISCRIMINATION
12.1 In the performance of this Agreement, Contractor will comply with all
applicable statutes, requirements, orders and regulations of the Federal
Government and other applicable jurisdictions, pertaining to
nondiscrimination in employment and facilities including, without
limitation, the provisions contained in Executive Order 11246 as amended
and as may be further amended in the future, titled "Equal Employment
Opportunity" and 41 C.F.R.sections 60-1.4(a), 60-250.4 and 60-741.5(a)
which are incorporated herein by reference.
12.2 In the performance of Services to passengers on behalf of US Airways,
Contractor will not discriminate on any prohibited basis, including
without limitation on the basis of handicap, consistent with all
federal, state and local statutes, regulations and orders, as such may
be added to, amended, recodified, or revised, including those assigned
to the air carrier thereunder, including without limitation, 14 C.F.R.
Part 382 (the Regulations). Contractor further agrees to comply with the
directives issued by US Airways' Complaints Resolution Official in
accordance with the Regulations.
ARTICLE 13 - CONFIDENTIALITY AND WAIVER
13.1 Confidential Information means any information, in any form, including,
without limitation, the terms of this Agreement, written documents, oral
communications, recordings, videos, software, databases, business plans,
and electronic/magnetic media, provided to or observed by Contractor
pursuant to this Agreement, including information owned or provided by
US Airways and/or third
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Date: July 3, 1997
<PAGE> 16
parties, excepting information that is generally available to the
public. Contractor agrees that it will maintain all Confidential
Information in confidence and use it solely for purposes of performance
under this Agreement. Such Confidential Information will be distributed
within Contractor's organization only to personnel with a need to know
such information for purposes relating to this Agreement or in
compliance with a court order or statutory requirement. In no event will
Contractor disclose any Confidential Information to any third parties
except subcontractors and independent consultants and then only where
approved by US Airways in advance and subject to the execution of a
confidentiality agreement acceptable to US Airways. Contractor further
acknowledges and agrees that it will maintain the confidentiality of US
Airways' operating manuals even if the information contained in them
becomes available to Contractor from a non-confidential source.
13.2 Contractor acknowledges and agrees that any information shared or given
to US Airways pursuant to this Agreement on a confidential basis may be
shared by US Airways on a confidential basis with US Airways Group, Inc.
and US Airways Affiliates, where US Airways Affiliates is defined as
those other companies that operate under a US Airways trade name,
subsidiaries of US Airways Group, Inc., members of US Airways Express,
airlines for which US Airways does purchasing and those airlines' parent
corporations, and any airline(s) with which US Airways has or may have
in the future an alliance, where alliance will be defined as such
airline(s) and US Airways having a code-sharing agreement as that term
is used in the aviation industry.
13.3 Upon request by US Airways to Contractor, Contractor will immediately
return to US Airways at Contractor's expense all US Airways documents
and all copies of such documents in possession or under the control
either directly or indirectly of Contractor or its agents. Contractor
acknowledges and agrees that US Airways will have the right to exercise
this right as many times as it deems necessary throughout the term and
even after the termination of this Agreement, regardless of the cause of
that termination.
13.4 Contractor acknowledges that the terms and conditions of this Agreement
will be deemed and treated as Confidential Information as defined in
this Agreement.
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ARTICLE 14 - MISCELLANEOUS
14.1 Titles - Article titles and subheadings contained herein are inserted
only as a matter of convenience and for reference. Such titles in no way
define, limit, or describe the scope or extent of any provision of this
Agreement.
14.2 Nonexclusive - Nothing in this Agreement will be deemed to act as a bar
to US Airways' solicitation or purchasing Services from any other
company or performing Services itself at any time.
14.3 Survival - The representations, warranties and indemnities contained
herein will survive the termination of this Agreement.
14.4 Enforceability - If, for any reason, any portion of this Agreement will
be unenforceable or determined by a court of competent jurisdiction to
be in violation of or contrary to any applicable statute, regulation,
ordinance, order, or common law doctrine, then that portion will be of
no effect. Nevertheless, the balance of the Agreement will remain in
full force and effect as if such provision were never included.
14.5 No Waiver - Except as otherwise specifically provided in this Agreement,
a waiver by either Party of any breach of any provision of this
Agreement, or either Party's decision not to invoke or enforce any right
under this Agreement, will not be deemed a waiver of any right or
subsequent breach, and all provisions of this Agreement will remain in
force.
14.6 Whole Agreement - This Agreement represents the entire agreement between
the Parties hereto and any additions, deletions or modifications will
not be binding on either Party unless accepted and approved in writing
by duly authorized representatives of both Parties.
14.7 Assignment - The Parties agree and covenant, except as specifically
provided in this Agreement, that this Agreement and the rights and
obligations established thereunder, may not be assigned in whole or in
part without the prior written consent of the other, where such consent
will not be unreasonably withheld, except that US Airways may assign its
rights to US Airways Group, Inc., any wholly owned subsidiaries of US
Airways Group, Inc. or any successor through merger, asset sale,
operation of law or the like.
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<PAGE> 18
14.8 Severability - The Parties acknowledge and agree that where Services are
provided at more than one location under this Agreement there will be
deemed to be, and this Agreement will be interpreted as though there
were, a separate contract in place for each location.
14.9 Choice of Law - The Parties agree that this Agreement will be governed
by the Laws and Common Law of the United States and Commonwealth of
Virginia as though the entire contract was performed in Virginia and
without regard to Virginia's conflict of laws statutes. The Parties
further agree that they consent to the jurisdiction of the Courts of
Virginia or the federal courts located within the Commonwealth of
Virginia and waive any claim of lack of jurisdiction or forum non
convenient.
14.10 Advertising - Neither party to this Agreement will use the name of the
other party for advertising purposes without the prior written consent
of the other Party, which consent may be withheld in that other Party's
sole discretion.
IN WITNESS WHEREOF, US Airways, Inc. and Contractor have caused this instrument
to be executed by their duly authorized representatives on the day and year
first above written.
For International Total For US Airways, Inc.
Services, Inc.
- ------------------------------ ------------------------------
By: Norman H. Wood By: Patrick G. Mahon
Title: Vice President, Sales Title: Manager - Airport
Services Purchasing
Date: _______________________ Date: _______________________
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<PAGE> 19
EXHBIT - A
PAGE 1 OF 4
DEFINITION OF SERVICES
----------------------
PRE-DEPARTURE SCREENING SERVICES
US AIRWAYS, INC. CONTRACT NUMBER ORF007PD
NORFOLK INTERNATIONAL AIRPORT (ORI;)
1.0 LOCATION:
1.1 Contractor will provide Services at Norfolk International Airport,
Concourse A. Contractor acknowledges that US Airways either currently,
or may in the future, share this location with other airlines.
2.0 SPECIFICATION OF SERVICES:
2.1 Services to be provided by Contractor's personnel will be defined as and
include the following:
a. Providing pre-departure screening services as required by, but not
limited to, those services mandated by the Federal Aviation
Regulations (FARs), the Air Carrier Standard Security Program
(ACSSP) and the Checkpoint Operations Guide (COG), as they exist now
and as amended from time to time, and all requirements that they
incorporate by reference.
b. Upon request, where such request may be specified as continuing,
promptly distributing to US Airways all incidents and other required
reports. All such reports will be legible and credible.
c. Upon request, where such request may be specified as continuing,
providing US Airways with a list all weapons found during any given
month. Contractor will maintain records sufficient to comply with
this request for not less than two years.
d. Providing an on site manager who possesses experience with, and
knowledge of, airline operations in a management capacity. This
manager will be responsible for maintaining and supervising
communications with US Airways' on-site managers on all pertinent
issues, both positive and negative. This manager or his or her
designee must have Air Transport Association of America (ATA)
Training Certification and be Ground Security Coordinator (GSC)
qualified. The manager or management designee is required to be
available, at US Airways' discretion, to attend the local ATA
airport managers meetings and/or for conferences with US Airways'
Station Manager or other US Airways personnel as designated by the
US Airways Station Manager. Such
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Contract No: ORF007PD
Date: July 3, 1997
<PAGE> 20
airport managers meetings are currently held the second Tuesday of
each month at 13:00 hours at the airport conference room, but both
the time and place are subject to change.
e. Furnishing qualified personnel in such numbers and at such times as
required during the Agreement. Contractor will have arrangements to
immediately provide replacement personnel for those individuals
unable to report for duty in order to maintain minimum staffing
requirements as defined in the FARs, ACSSP or COG.
f. Having thorough knowledge of and complying with all ATA and other
applicable security training requirements. When directed by US
Airways, where such direction may be specified as continuing,
Contractor agrees to emphasize the ideals of customer service in
training classes as specified by US Airways.
g. Advising US Airways at least two (2) weeks in advance of the time,
date and place of each and every training class conducted by
Contractor for its personnel or in which those personnel will
participate who work for Contractor in performing this Agreement and
allow one or more representatives of US Airways to attend and/or
participate in each class. Such participation may include allowing
the US Airways representative to address the class.
h. When required by the FAA, applicable airport authority, or
contract, acquiring office space within the airport grounds. For
the purpose of administering this contract, office space is
required by US Airways.
i. Furnishing personnel who will maintain the Site's image and
standards, and be fully outfitted with contractors uniforms and
other necessary equipment, such as, but not limited to two-way
radios.
j. Upon request, where such request may be specified as continuing,
providing US Airways with a current list of all of Contractor's
employees engaged in performance of the Services and provide updates
to that list whenever there is a change.
k. Performing all evaluations required by the FAA. Upon request, where
such request may be specified as continuing, Contractor will provide
US Airways with a copy of all completed evaluations within two
business days of their completion.
2.2 Contractor will provide additional services as requested by US Airways
pursuant to the terms of this Agreement. Contractor may, with US
Airways' consent, increase its fees by an amount equal to Contractor's
increased costs associated with such additional services. Contractor
agrees to provide US Airways with documentation that substantiates the
increase. Such increase will be
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Contract No: ORF007PD
Date: July 3, 1997
<PAGE> 21
effective from the date when the additional services are commenced. Such
increases will not include costs associated with increases in the number
of personnel billable pursuant to this Agreement. US Airways reserves
the right to discontinue additional services implemented pursuant to
this provision. In such case the increase in the fees will be eliminated
to the extent of the change. US Airways also reserves the right to
reduce services. Contractor agrees to reduce its fees accordingly and to
cooperate with US Airways in supplying all information necessary to
calculate the reduction.
2.3 Contractor will make its best efforts to accommodate demands for
increases in the number of personnel on less than twenty-four (24) hours
notice. Contractor will accommodate demands for increased staffing with
twenty-four (24) or more hours notice. Contractor will accommodate any
demands for any decreases in staffing requirements immediately upon
written notice. For the purposes of this provision, written notice will
be sufficient if hand delivered to Contractor s on site manager. US
Airways agrees that where Contractor must pay overtime wages as
specified in this Agreement in order to accommodate a request for an
increase in staffing on less than twenty four (24) hours notice, US
Airways will pay such overtime rates.
2.4 Contractor agrees that the Station Manager, or his or her designee, at
each Site where Service is provided may determine the level of service
to be provided by Contractor. Such levels will be subject to adjustment
pursuant to this Agreement in US Airways' sole discretion. The
applicable Station Manager or their designee will inform Contractor on a
monthly basis of the estimated level of service that will be required
for the coming month. Where such information is not provided Contractor
will assume that no change is required from the previous month.
2.5 Contractor agrees that US Airways may, at its sole discretion, create,
change or cancel incentive programs for those Contractor employees
providing pre-departure screening services. Such programs may include
rewards of money, gifts, or other awards as designated, determined, and
provided by US Airways to be given by Contractor to such employees of
Contractor as designated and determined by US Airways. Contractor
acknowledges that such rewards will not reflect US Airways' belief that
such employees performance is beyond that required by this Agreement,
but only that, considering the importance of pre-departure screening, US
Airways desires to motivate Contractor's employees to perform their
tasks to the best of their
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Contract No: ORF007PD
Date: July 3, 1997
<PAGE> 22
abilities and reward success. Contractor agrees to aid US Airways in
publicizing such incentive programs by permitting US Airways to provide
information concerning such programs to Contractor's employees.
Contractor agrees that in the event that such a program is implemented
that any such rewards will be accepted by Contractor on behalf of its
employees, and delivered in their entirety to the Contractor employees
designated by US Airways. Contractor acknowledges that such programs may
be implemented by US Airways in a non-uniform fashion among its various
stations and pre-departure screening service providers. Contractor
agrees that such awards, when given to its employees, will be properly
reported for the purposes of the recipients' applicable employment
taxes, and that such gifts will not in any manner reduce that employee's
normal wages. Contractor further agrees that where no program is in
effect, but a Contractor employee's actions in a particular circumstance
is, in US Airways' sole opinion, worthy of reward, Contractor agrees to
deliver to such Contractor employee such reward as US Airways designates
and provides as though such a program as described in this provision
were in effect. In order that such rewards not create a tax burden on
Contractor in relation to tax contributions that Contractor must pay in
relation to its employees' wages, Contractor will supply US Airways with
such information as required so that the appropriate gross up on the
applicable award may be calculated and such amount will be paid to
Contractor in addition to the amounts given to Contractor pursuant to
this provision. US Airways agrees that such incentive programs will be
implemented in such a manner as to not discriminate on any statutorily
prohibited basis.
3.0 STAFFING AND SCHEDULE:
3.1 The hours of operation are currently Monday through Sunday from 050
hours to 1900 hours, but are subject to change.
3.2 The estimated daily staffing to be provided by Contractor will be as
follows:
PBS/Exit Lane Guard 90.5 Hours
CSS 21 Hours
Manager 4 Hours (non-billable)
3.3 Contractor acknowledges and agrees that the staffing.and daily schedule
specified in this exhibit is only an estimate and agrees that staffing
levels and schedule will be determined by US Airways in its sole
discretion.
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Contract No: ORF007PD
Date: July 3, 1997
<PAGE> 23
4.0 EQUIPMENT:
4.1 There is one (1) checkpoint consisting of two (2) walk-through metal
detectors and two (2) X-ray machines that will be monitored by
Contractor pursuant to this Agreement. The metal detectors and X-ray
machines will be furnished and maintained by US Airways.
4.2 All other equipment will be furnished and maintained by the Contractor
at its sole expense.
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Contract No: ORF007PD
Date: July 3, 1997
<PAGE> 1
Exhibit 10.32
AGREEMENT
---------
THIS AGREEMENT made and entered into this 1st day of December,
1984 by and between USAir, Inc., (hereinafter referred to as "USAir"), a
corporation organized and existing under the laws of the State of Delaware and
having its principal place of business at Washington National Airport,
Washington, D.C. 20001, and International Total Services (hereinafter referred
to as "CONTRACTOR"), a corporation having its principal place of business at 114
Terminal Tower, Cleveland, OH 44113.
WITNESSETH
----------
WHEREAS, USAIR is a Certified Scheduled Airline leasing
exclusive use space at Philadelphia International Airport (hereinafter referred
to as "SITE"); and
WHEREAS, CONTRACTOR is an independent contractor presently
engaged in providing skycap and positive claim services (hereinafter referred to
as "SERVICES"), and has agreed to provide USAir with such SERVICES at the
facilities operated by USAir in connection with its operations at the SITE; and
WHEREAS, CONTRACTOR agrees to perform for USAir in a good and
workmanlike manner the SERVICES provided for herein at the SITE, which are set
forth in detail in Exhibit A attached hereto and made a part hereof, all subject
to and in accordance with the terms and provisions hereof;
NOW, THEREFORE, for and in consideration of the foregoing
premises and the mutual covenants and agreements herein contained, the parties
hereto agree as follows:
<PAGE> 2
ARTICLE I - EQUIPMENT, MATERIALS, AND SUPPLIES
- ----------------------------------------------
All materials, equipment, and Supplies and any special
equipment required solely for the services performed under this Agreement will
be furnished by CONTRACTOR at its sole cost and expense.
ARTICLE II - CONSIDERATION AND PAYMENT
- --------------------------------------
In full consideration of the performance of the SERVICES above
described, USAir will pay to CONTRACTOR, upon receipt of written billing
therefore, the sums outlined in Exhibit A, attached hereto and made a part
hereof.
ARTICLE III - STANDARDS OF SERVICES
- -----------------------------------
CONTRACTOR agrees to furnish USAir the SERVICES contemplated
hereunder on an impartial basis, and to require its employees to render such
SERVICES in a courteous and efficient manner. The SERVICES performed hereunder
by CONTRACTOR shall be provided to the sole satisfaction of USAir.
ARTICLE IV - EMPLOYEES
- ----------------------
The employees of CONTRACTOR engaged in performing SERVICES
hereunder shall be considered employees of CONTRACTOR for all purposes and shall
under no circumstances be deemed to be employees of USAir. USAir shall have no
supervision or control over any such CONTRACTOR employees and any complaint or
requested change in procedure shall be transmitted in writing by USAir to
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<PAGE> 3
CONTRACTOR who shall in turn promptly give any necessary instructions to its own
personnel.
CONTRACTOR agrees to assume full responsibility for any and
all liability to its employees on account of injury, disability, and death
resulting from, or sustained by said employees in the performance of the
SERVICES contemplated herein.
CONTRACTOR agrees to carry Worker's Compensation and
Employer's Liability Insurance with a limit of $100,000 and to assume full and
exclusive liability for the payment of all premiums for such insurance.
CONTRACTOR further agrees to accept full and exclusive liability for the payment
of any and all taxes, contributions, and other payments for unemployment
compensation and/or old age benefits, insurance or annuities now or hereafter
imposed upon employers by the Government of the United States or by individual
states with respect to such employees, measured by the wages, salaries,
compensation, or other remuneration paid to such employees, and CONTRACTOR shall
make such payments and shall make and file any and all reports and returns and
do all other things necessary to comply with the laws imposing such taxes,
contributions, or other payments.
ARTICLE V - INSURANCE
- ---------------------
During the term of this Agreement, CONTRACTOR shall carry and
maintain in full force and effect public liability insurance (covering
CONTRACTOR's operations hereunder) with a combined single limit of liability of
at least $2,000,000 covering injury to, or death of persons and damages to, or
destruction of or loss of
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<PAGE> 4
property (including the loss of use thereof). CONTRACTOR shall furnish to USAir,
upon the effective date of this Agreement, insurance underwriter's certificates
certifying that CONTRACTOR is in full compliance with all the above-described
insurance requirements (including the insuring of CONTRACTOR's contractual
liability under Article VI hereof), and that USAir, its Directors, officers,
agents and employees shall be named as additional insureds thereunder, that the
policy will be endorsed to include a standard cross liability clause, and that
USAir shall be given thirty (30) days' prior written notice of CONTRACTOR's
desire to cancel or materially alter the policies of insurance, or any parts
thereof and that the insurers waive rights of subrogation against USAir, its
officers, employees, and agents, acknowledge that CONTRACTOR's insurance is
primary insurance and USAir's insurance is secondary or excess insurance,
acknowledging CONTRACTOR's exclusive liabilities under this Agreement.
CONTRACTOR agrees that each and every one of its employees, agents, or
representatives shall be covered under a Blanket Fidelity Bond in an amount not
less than $5,000.00.
ARTICLE VI - INDEMNITY
- ----------------------
CONTRACTOR agrees and hereby undertakes to indemnify, defend,
and save harmless USAir, its Directors, officers, employees, and agents from and
against any and all liability, damages, claims, suits, penalties or actions of
every name and description (including any and all costs and expenses related
thereto) suffered by USAir, its Directors, officers, employees, and
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<PAGE> 5
agents on account of any injuries to or death of any persons or damages to or
loss of property (including the loss of use thereof) received or sustained by
any person or persons Including USAir, its Directors, officers, employees, and
agents directly or indirectly arising out of or resulting from the furnishing of
services pursuant to this Agreement unless caused solely by the negligent act or
omission of USAir, its Directors, officers, employees, and agents. USAir agrees
that it will give to CONTRACTOR prompt and timely notice of any claim made or
suit instituted which in any way, directly or indirectly, contingently or
otherwise, affects or might affect CONTRACTOR, and CONTRACTOR shall have the
right to participate in the defense of the Game to the extent of its own
interest.
ARTICLE VII - TERM
- ------------------
This Agreement shall take effect on December 1, 1984 and shall
continue thereafter until terminated by either party by giving thirty (30) days'
written notice to that effect to the other party, provided that such termination
shall not affect any rights or obligation which shall have accrued to either
party prior to the effective date of such termination. Notwithstanding the above
provision, USAir shall have the absolute right to cancel this Agreement upon
giving CONTRACTOR five (5) days' written notice to that effect should USAir
determined that CONTRACTOR's SERVICES under this Agreement have become
unsatisfactory.
ARTICLE VIII - SUSPENSION AND ABATEMENT
- ---------------------------------------
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<PAGE> 6
Notwithstanding anything to the contrary herein contained, it
is expressly agreed that either party hereto shall be relieved of its
obligations hereunder in the event and to the extent that performance hereof is
delayed or prevented by any cause reasonably beyond its control, including,
without limitations acts of God, public enemies, war, insurrection and acts or
orders of governmental authorities, or by fire, flood, explosion, riots, or
strikes; provided, however, that nothing herein contained shall require either
party hereto to accede to demands of labor unions or to demands of its employees
which it considers unreasonable.
In the event USAir's operations at the SITE should be
restricted, substantially by acts or orders of governmental authorities, then
either party shall have the right, upon written notice to the other, to a
suspension of this Agreement and an abatement of a just proportion of the
payments to become due hereunder, from the time of such notice until such
restrictions shall have been remedied and normal operations restored.
ARTICLE IX - ASSIGNMENTS
- ------------------------
This Agreement shall not be assigned or otherwise transferred
(by operation of law or otherwise) by CONTRACTOR without the written consent of
USAir and, in the event that it shall be assigned, whether by operation of law
or otherwise without such written consent, this Agreement may be terminated by
USAir upon written notice to the CONTRACTOR.
ARTICLE X - NOTICES
- -------------------
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<PAGE> 7
Notices under this Agreement shall be sufficient if sent by
United States certified mail, postage prepaid, to USAir, Washington National
Airport, Washington, D.C. 20001. Attention: Peter D. Brennan, Vice President -
Properties and Facilities or International Total Services, 1114 Terminal Tower,
Cleveland, OH 44113, Attn: Richard P. Starke, President.
ARTICLE XI - ENTIRE AGREEMENT
- -----------------------------
This contract represents the entire Agreement between the
parties hereto and shall be modified, altered, amended, or cancelled (except as
provided for by Article VII and VIII) only by mutual agreement evidenced by an
instrument in writing executed by both parties or their respective successors in
interest. This Agreement shall be construed and enforced under the laws of the
State of Delaware.
ARTICLE XII - TITLES
- --------------------
Article titles contained herein are inserted only as a matter
of convenience and for reference. Such titles in no way define, limit, or
describe the scope or extent of any provision of this Agreement.
ARTICLE XII - TAXES, LICENSES, PERMITS
- --------------------------------------
(a) In consideration of the payment by USAir of the Basic
Charge, CONTRACTOR shall pay and agrees to indemnify, defend and hold harmless
USAir, its officers, employees and agents from and against any and all taxes of
whatsoever kind or nature,
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<PAGE> 8
including but not limited to attorneys' fees, costs and expenses incurred in
connection therewith (but excluding USAir's income taxes) which are or may be
assessed against, chargeable to or collectible from CONTRACTOR or USAir by any
taxing authority (Federal, state or local) and which are based upon or levied or
assessed with respect to the performance of this Agreement.
(b) CONTRACTOR, at no additional Charge to USAir, will obtain
and pay for all necessary federal, state and local permits and licenses required
to legally perform the services contemplated hereunder.
IN WITNESS WHEREOF, USAir, Inc., and CONTRACTOR have caused
this instrument to be executed on the day and year first above written.
USAir, Inc.
WITNESS: By:
------------------------------------
Title: Peter D. Brennan
- --------------------------- ---------------------------------
Vice President Properties &
Facilities
International Total Services,
Inc.
WITNESS: By:
------------------------------------
Title:
- --------------------------- ---------------------------------
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<PAGE> 9
EXHIBIT A
USAir Skycap and Positive Claim Agreement
Philadelphia International Airport, Philadelphia, PA
CONTRACTOR shall furnish to USAir "skycap' service, as that term is generally
understood in the air transportation industry, at Philadelphia International
Airport, Philadelphia, PA (the "Airport"), and USAir retains CONTRACTOR to
furnish the services defined hereunder and shall pay CONTRACTOR its charges
therefor as hereinafter provided.
CONTRACTOR shall provide the number of uniformed personnel to perform such
service as requested, in writing, by USAir's local management. Such personnel
shall perform their in a manner satisfactory to USAir and shall observe
standards of discipline satisfactory to USAir at all time's while on duty, but
shall otherwise be exclusively under the direction and control of CONTRACTOR. In
performing its duties hereunder, CONTRACTOR shall be an independent contractor
in every respect.
CONTRACTOR's services shall include but not be limited to:
a) The handling and tagging of bags from USAir passengers at curbside, and
between curbside and the ticket counter, and/or gates, either in or
outbound customers.
b) Provide monitoring of the local baggage claim areas (carousels) and
assist customers with their baggage in this area.
c) Provide wheelchair and other special assistance to USAir customers,
between all gates and ticket counters, baggage facilities, connecting
flights, parking garage, or as otherwise specified by USAir.
Each month, CONTRACTOR will guarantee that skycap coverage be provided on a
monthly basis equivalent to a specific number of Sky Caps hours each day
according to the cost schedule included in this Exhibit A, and will be directed
by the local Station Manager as to the deployment of these individuals. In order
to achieve maximum productivity, CONTRACTOR will carefully plan a schedule of
full time and/or part time employees and will flex its schedule to carefully
cover peak and non peak times. CONTRACTOR will confer with and get full approval
of the USAir Station Manager before instituting this "flex" schedule. Although
hourly coverage may vary on a day to day basis, the total hours per month will
be equivalent to no less than the guaranteed coverage specified in the attached
cost schedule.
If at any time the local USAir management feels it needs extra Sky Cap hours
added to this Schedule, CONTRACTOR will immediately agree
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<PAGE> 10
to change its schedule in accordance with the Manager's request at no extra
charge to USAir.
CONTRACTOR agrees to provide skycap service to USAir on a "Per Enplaned
Passenger" basis, invoiced Monthly on the basis of the enclosed Schedule "A", by
multiplying the number of USAir's monthly enplaned passengers times the cost per
passenger indicated on the attached schedule for the reported enplaned
Passengers.
CONTRACTOR will maintain the equipment that is owned by the airlines and/or
CONTRACTOR. Should any costs be incurred for the maintenance and/or repairs of
this equipment other than equipment owned by CONTRACTOR, then the cost of the
maintenance and/or repairs plus 10% will be charged to the airline owning such
equipment. At such time should this equipment become functionally obsolete,
CONTRACTOR will purchase its own equipment and amortize the Cost of the
equipment into the aforementioned hourly rate to USAir.
POSITIVE CLAIM SERVICE
- ----------------------
CONTRACTOR shall provide informed personnel to be responsible for matching
passenger baggage claim stubs before allowing baggage from USAir flights to be
removed from the bag claim area; coordinating and expediting group baggage
movement; offering assistance, directions and information to all USAir
passengers, primarily those looking for lost or previously unclaimed baggage, as
well as performing a general overall surveillance of the baggage claim area, and
regular policing of the baggage claim area to remove litter from the general
area.
Staffing shall be provided at one person per hour of baggage claim activity.
Schedules shall be confirmed with the USAir Station Manager. Positive claim
services will be provided to USAir at the rate of $4.96 per hour, including
overtime and holidays.
CONTRACTOR shall use its reasonable and beat efforts to provide these services.
Contractor's employees will not undertake to subdue or use physical force to
provide such services but will be trained to report incidents immediately to
proper authorities and to ascertain the identity of anyone suspected of
wrongdoing.
ALL SERVICES OF CONTRACTOR
- --------------------------
CONTRACTOR will install an independent quality control program to give USAir a
constant view of the quality of Service performed by CONTRACTOR. This program
will be conducted by an independent agency, which can, from time to time,
include USAir Management. The program will include, but not be limited to:
1. Appearance
2. Customer approach
3. Speed of operation
4. Helpfulness to customers
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<PAGE> 11
5. Waiting time at curb
6. Miss-checks
7. Stolen property
CONTRACTOR will review this program carefully with USAir Management before
implementing it and will share its results openly with USAir's local management.
If at any time CONTRACTOR fails to achieve an agreed upon high grade for the
service, CONTRACTOR will voluntarily increase its Sky Cap coverage and
supervision, at no extra cost to USAir, until it achieves high rating grades.
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<PAGE> 12
USAir - PHILADELPHIA SKYCAPS
----------------------------
COST SCHEDULE A
---------------
<TABLE>
<CAPTION>
Maximum No. of Number of Cost per Monthly
Enplaned Passengers Skycaps/Day Hours/Day Passenger Billing
- ------------------- ----------- --------- --------- -------
<S> <C> <C> <C> <C>
Under - 70,000 8 64 .10 $ 7,000
70,001 - 75,000 8 64 .097 7,275
785,001 - 80,000 8 64 .094 7,520
80,001 - 85,000 8 64 .091 7,735
85,001 - 90,000 9 72 .088 7,920
90,001 - 95,000 9 72 .085 8,075
95,001 - 100,000 9 72 .082 8,200
100,001 - 105,000 9 72 .079 8,295
105,001 - 110,000 10 80 .076 8,360
110,001 - 115,000 10 80 .073 8,395
115,001 - 120,000 10 80 .070 8,400
120,001 - 125,000 10 80 .070 8,750
125,001 - 130,000 11 88 .070 9,100
130,001 - 135,000 11 88 .068 9,180
135,001 - 140,000 11 88 .066 9,240
140,001 - 145,000 11 88 .065 9,425
145,001 - 150,000 12 96 .070 10,500
150,001 - 155,000 12 96 .069 10,695
155,001 - 160,000 12 96 .066 10,560
160,001 - 165,000 12 96 .065 10,725
</TABLE>
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<PAGE> 1
Exhibit 10.33
CORE AGREEMENT FOR BAGGAGE SEARCH
AND PASSENGER INSPECTION
This Agreement is entered into this 15th, day of March, 1990 between
Trans World Airlines, Inc. (hereinafter referred to as "TWA") and International
Total Services, Inc. (hereinafter referred to as "ITS"), an Ohio Corporation,
for services to be provided at various airport locations agreed upon by and
between the parties as further described below.
RECITALS
WHEREAS, TWA desires ITS to provide Baggage Search and Inspection
Services at the Airport;
WHEREAS, ITS is able to provide Baggage Search and Inspection Services
at the Airport;
THEREFORE, TWA and ITS agree as follows:
SECTION 1
---------
DEFINITIONS
-----------
AGREEMENT. This Agreement for Baggage Search and Passenger
Inspection Services.
AIRPORT. The location(s), as more particularly described in
Exhibits attached hereto.
AIRPORT SPECIFICATIONS. Those documents which collectively comprise Exhibits
attached hereto. Each document contains the
specifications for Inspection Services at an Airport.
DANGEROUS OBJECT. Any explosive, incendiary device, weapon or dangerous
object of any kind whatsoever or as defined by
applicable law.
FAA. The Federal Aviation Administration, United States
Department of Transportation.
INSPECTOR. Personnel employed by ITS who conduct Inspection
Services.
INSPECTION SERVICES. The services to be provided by ITS under the terms
and conditions of this agreement. Such services shall
include, but shall not be limited to, the furnishing
of qualified and trained Inspectors to perform pre-
departure Inspection Services such as electronic
screening of Luggage and Passengers and, when
applicable, the physical Inspection of Passengers and
Luggage.
<PAGE> 2
LUGGAGE. Any article carried by a Passenger into what are
established at the Airport as an Inspection Area.
PASSENGER. Any individual, whether or not a customer of the Air
Carrier or any other air carrier, who desires to gain
entry to that portion of the Airport which has been
established as the Inspection Area.
INSPECTION AREA. That area at the Airport which has been designated as
an Inspection Area and to which entry is restricted
to Passengers who have gone through Inspection
Services.
SECTION 2
---------
INSPECTION SERVICES
-------------------
ITS understands that in order to detect any Passenger who may be
carrying any Dangerous Object onto an aircraft or into the Inspection Area, TWA
must be able to rely upon ITS and its Inspectors. Therefore, ITS assures TWA of
well-qualified and well-trained Inspectors.
ITS further understands that inasmuch as TWA places a high priority on
quality service to Passengers, Inspection Services must be conducted in an
efficient and courteous manner. TWA understands, however, that ITS's first and
primary duty is to detect any Passenger who may be carrying any Dangerous Object
onto an aircraft or into the Inspection Area.
A. ITS's Inspection Services shall at all times be conducted in
accordance with FAA Regulations, 14 CFR Parts 108 and 121.538, as amended.
B. ITS shall ensure that its Inspectors comply with the procedures
outlined by Federal Law.
C. Upon receipt of a notice from TWA that an Inspector has engaged in
improper conduct, has failed to perform Inspection Services satisfactorily, or
is in TWA's opinion unqualified to perform Inspection Services, ITS agrees to
prohibit within 24 hours of ITS's receipt of the TWA's notice such Inspector
from performing Inspection Services.
D. ITS's Inspection Services shall at all times be conducted in
accordance with the Air Carrier Standard Security Program, "ACSSP".
E. The attached "Appendix to Domestic Airline Passenger Screening
Agreements" is hereby incorporated into this Agreement, and the parties agree
to be bound by the teens of such Appendix.
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<PAGE> 3
SECTION 3
---------
PRICES
------
A. ITS shall submit to the TWA its invoice for Inspection Services
provided during the preceding bimonthly period at each Airport, on or before
seven days from the end of the bimonthly period.
B. Prices for said service are reflected in the Exhibit "A"
incorporated herein.
C. Upon the receipt of ITS's invoice, TWA shall verify that
Inspection Services have been performed pursuant to this Agreement. Upon
verification, TWA shall tender its payment of the invoice within thirty (30)
days of receipt of the invoice. If such verification is not forthcoming, the
parties shall proceed in accordance with Section 5 of this Agreement.
D. For each airport, where multiple carriers are provided service
under this Agreement, ITS will bill TWA for TWA's prorated share of the
services performed under this Agreement at the rates specified in Exhibit A.
E. TWA agrees to pay ITS on demand for all cost of collection,
including any reasonable attorneys' fees incurred in connection with the
collection of any amounts payable by TWA to ITS under any of the provisions of
the contract, through an attorney or collection agency, whether collected by
suit or otherwise.
F. For each concourse at an Airport, ITS agrees that if, during the
term of this Agreement, it enters into a contract for the provision of
Inspection Services at that Airport under terms and condition similar to the
terms and conditions of this Agreement, MA shall have the benefit of the
pricing of such other contract to the extent that such pricing is less than
that set forth in the Airport Specification for that Airport.
SECTION 4
---------
TERM AND TERMINATION
--------------------
A. Unless otherwise terminated, this Agreement shall be for the term
set forth in the Airport Specifications.
B. If there is enacted any law, regulation, ruling, or any other such
mandate of any Government authority having jurisdiction over the subject
matter which alters the hours of service, rates of pay, working conditions or
costs of performing the Service provided hereunder, MA agrees that the rates
will be subject to renegotiation with thirty (30) days advanced written notice
to MA to take into account these increased costs.
-3-
<PAGE> 4
C. Upon sixty (60) days advance written notice by either party, TWA
or ITS may terminate the provision of Inspection Services at an Airport for
any reason, including no reason.
D. The provision of Inspection Services at an Airport or at one or
more Airports, including all Airports, may be terminated by TWA upon notice of
termination to ITS if ITS fails to provide Inspection Services at an Airport
as contemplated by this Agreement or fails to comply with the requirements of
this Agreement at an Airport.
SECTION 5
---------
INVOICE DISPUTES
----------------
In the event TWA disputes, in good faith, any invoice, then:
A. TWA shall notify ITS within fifteen (15) days of receipt of the
invoice of the nature of the dispute and the amount of such dispute;
B. TWA shall within fifteen (15) days of its receipt of the invoice,
pay to ITS that portion of the invoice which is undisputed;
C. TWA and ITS shall thereafter work together to arrive at a
settlement of the dispute.
SECTION 6
---------
INDEMNIFICATION
---------------
A. Except as provided in Section 6-B., below, ITS hereby releases and
agrees to defend, indemnify and hold TWA, its directors, officers, agents and
employees, (hereinafter collectively "TWA") harmless from and against any kind
all claims, suits, liabilities, damages, losses and judgments, including
reasonable expenses and attorney's fees incident thereto (including but not
limited to attorneys' fees and court costs incurred in enforcing TWA's right to
indemnity) (hereunder collectively "Claims") which may be suffered by, accrued
against, charged to or recoverable from TWA, for or on account of damage to,
loss of, or destruction of the property of TWA or third persons, or for or on
account of any injury or death of any person (except an employee of TWA covered
by workers' compensation insurance) and which arise from or in connection with
any act of ITS or its directors, officers, agents or employees in the
performance by ITS of Inspection Services, which it occurred prior to the
completion of Inspection Services. Where a claim is asserted against both ITS
and TWA, either jointly or severally, for acts alleged to have arisen from or
in connection with inspection services, both ITS and TWA shall submit the claim
to their respective insurer and any coverage disputes shall be resolved between
carriers through arbitration. Notwithstanding any language herein to the
-4-
<PAGE> 5
contrary, the primary obligation to defend claims involving allegations
pertaining to preboard screening shall be that of ITS.
B. The parties agree that ITS's duty to indemnify as set forth in
Paragraph 6.A. above will apply to all claims with the exception of the
following:
1. Claims arising from or in connection with any act or omission
occasioned solely by the negligence or intentional misconduct of TWA.
2. Claims arising from or in connection with any act of omission
occasioned solely by the negligence or intentional misconduct of TWA, after the
completion of Inspection Services.
3. Claims arising from or in connection with the installation,
design, placement, maintenance and operation of equipment provided to ITS by
TWA in the provision of inspection services, provided that such equipment is
used by ITS in a proper and reasonable manner.
C. The parties agree that any failure to detect or to discover a
firearm, explosive or other prohibited device or instrumentality shall not be
deemed to constitute negligent conduct within the meaning of this Section so
long as the ITS security personnel involved have conducted a reasonable search
of all articles carried by each person and a magnometer screening of each
person passing through the airport checkpoint location.
D. TWA hereby releases, and agrees to defend, indemnify and hold ITS,
its directors, officers, agents and employees harmless from and against those
Claims described in Paragraph 6.B, which may be suffered by, accrued against,
charged to or recoverable from ITS, its directors, officers, agents, or
employees, for or on account of any damage to, loss of, or destruction of the
property of ITS and TWA or third persons, or for or on account of any injury or
death of any person, including the directors, officers, agents and employees of
TWA.
E. Completion of Inspection Services shall be deemed to the moment
immediately following the clearance of a passenger by an inspector or the
arrival of law enforcement officers called to the inspection area by the
Inspection Area Supervisor.
F. Nothing in this agreement shall preclude a separate action by TWA
or ITS, their respective officers, directors, employees or agents, one against
the other for claims, losses, damages or liabilities caused by or arising out
of the negligence of the other party, including, but not limited to, workers
compensation subrogation actions.
-5-
<PAGE> 6
SECTION 7
---------
COMPLIANCE WITH LEGAL REQUIREMENTS
----------------------------------
A. ITS shall comply with all applicable federal, state and local laws
and executive orders and regulations issued pursuant thereto, including without
limitation, and the extent applicable to this Agreement, the provisions
contained within Section 202 of Executive Order 11246 (41 C.F.R. 60.1.4),
Section 4.2 of the Vietnam Era Veterans Readjustment Act (41 C.F.R. 60-250.4)
and Section 503 of the Rehabilitation Act (41 C.F.R. 60-741.4) which provisions
are incorporated herein by reference as if set forth in full.
B. ITS shall ensure that it has conducted adequate background
investigations of all of its employees hired after November 1, 1985 who have
unescorted access to any area on the airport controlled for security reasons
(including those employed in the passenger screening process).
C. TWA shall have the right, but not the duty, to conduct such audits
of ITS's employment records as it deems prudent to ensure ITS's compliance with
paragraph A. and B. hereinabove. TWA may terminate this Agreement if it finds
any evidence which indicates that ITS has not complied with the obligations
imposed by paragraphs A. and B. hereinabove.
SECTION 8
---------
INSURANCE
---------
A. ITS shall at its own expense procure and maintain in full force and
effect during the term of this Agreement insurance coverage with insurance
carriers acceptable to TWA, duly qualified in the state where each Airport is
located and covering ITS's obligations under this Agreement including the
Indemnity provisions of Section 6.
In the event TWA should desire, at any time during the term of this
Agreement, that changes be made in the minimum amounts and/or the types of
coverage of such insurance, ITS agrees to accede to any such reasonable
request; however, ITS reserves the right to increase the cost to TWA
accordingly.
B. At a minimum, ITS shall have in force during the term of this
Agreement insurance of the following types and in the following minimum
amounts:
-6-
<PAGE> 7
<TABLE>
<S> <C>
Type of Insurance Minimum Coverage
Comprehensive General Liability: A Total combined single limit
(Specifically including Personal of primary and excess coverage
Injury, Bodily Injury/Property in the amount of Ten Million
Damage/Contractual Liability ($10,000,000) Dollars for each and
every loss
Workers' Compensation and To Statutory Limits
Employer's Liability
</TABLE>
C. Such policies of liability insurance shall be endorsed (i) to
provide that said insurance shall be primary insurance and to acknowledge that
any other insurance policy or policies of TWA shall be secondary or excess
insurance not withstanding any provision in such policies regarding other
insurance, (ii) to name TWA, its directors, officers, agents and employees as
additional insureds, (iii) to provide that all provisions of such insurance,
except for the limits of liability, shall operate in the same manner as if
there were a separate policy issued to each insured, (iv) to specifically cover
the indemnity and hold harmless obligations of Company to TWA hereunder, and
(v) to contain a provision requiring the insurers to provide TWA with a written
notice of any cancellation or adverse material change in such insurance and
providing that the same shall not be effective as to the benefit and/or
interest of TWA for thirty (30) days after written notice of such cancellation
or adverse material change is received by TWA.
D. Company shall furnish certificates evidencing the insurance
coverage required hereunder to TWA at the following addresses:
TRANS WORLD AIRLINES, INC.
100 South Bedford Road
Mt. Kisco, NY 10549
ATTN: Legal Assistant
with a copy to:
TRANS WORLD AIRLINES, INC
P.O. Box 20007
Kansas City, MO 64195
ATTN: Insurance Department
-7-
<PAGE> 8
SECTION 9
---------
EXCUSABLE NON-PERFORMANCE
-------------------------
A. ITS shall provide TWA with sixty (60) days advance notice, or in
the alternative, notice as soon as practicable, of any planned or threatened
shutdown or slow down in its provision of Inspection Services at an Airport. In
the event of such a shutdown or slowdown, ITS agrees that TWA may enter into
Agreements for the provision of Inspection Services at that Airport for the
duration of such shutdown or slowdown. ITS further understands that TWA may at
any time during such shutdown or slowdown terminate this Agreement at that
Airport in accordance with the provisions of Section 4.
B. ITS agrees that in the event TWA's operation at an Airport is
decreased or halted by reason of events beyond TWA's reasonable control, then
this Agreement at that Airport shall be suspended upon notice of suspension from
TWA, that TWA shall not be liable for such suspension and that TWA shall not be
liable to ITS for Inspection Services at that Airport until such suspension is
removed by TWA. In the event the suspension lasts for more than one hundred and
twenty (120) days, ITS may terminate this Agreement at that Airport upon ten
(10) days advance notice to TWA. In either case, ITS will be paid in full for
services rendered subject to the invoice disputes provisions of Section 5.
C. ITS shall not be liable to TWA for failure or delay in the
performance of Inspection Services at an Airport if the failure or delay arises
from a cause beyond ITS's reasonable control.
SECTION 10
----------
RIGHT TO AUDIT
--------------
ITS shall at all times keep complete and accurate books, records and
accounts from which may be determined the basis for billing of Inspection
Services rendered to TWA at each Airport. Such books, records and accounts shall
be open for inspection, examination, audit and copying by TWA or its designated
representatives at all reasonable times.
SECTION 11
----------
INDEPENDENT CONTRACTOR
----------------------
The relationship between TWA and ITS shall be that of independent
contractors and in no event shall persons employed by either party be held to be
or construed to be employees of the other.
-8-
<PAGE> 9
SECTION 12
----------
LEGALITY OF PROVISIONS
----------------------
If any provision of this Agreement is held to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 13
----------
NO WAIVER
---------
The failure of TWA or ITS to subscribe or to require performance by the
other of any provision of this Agreement shall in no way affect that party's
right thereafter to enforce such provision, nor shall the waiver by TWA or ITS
of any breach of any provision of this Agreement be taken or held to be a waiver
of any further breach of the same provision or any other provision.
SECTION 14
----------
CHOICE OF LAW
-------------
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Ohio.
SECTION 15
----------
ENTIRETY OF AGREEMENT
---------------------
TWA and ITS agree that this Agreement embodies all prior discussions,
whether oral or written, and to the extent such prior discussions have not been
incorporated herein they are without effect.
SECTION 16
----------
ASSIGNMENT
----------
This Agreement shall not be assignable to any other entity without the
express written consent of the other party.
-9-
<PAGE> 10
SECTION 17
----------
MODIFICATION
------------
TWA and ITS agree that this Agreement may be modified only in writing
and signed by duly authorized representatives of each party.
SECTION 18
----------
NOTICE
------
Unless otherwise specified, any notice required by this Agreement shall
be mailed to the parties by certified mail, return receipt requested, or by
means of overnight expedited delivery service to the following address:
TO CONTRACTOR:
INTERNATIONAL TOTAL SERVICES, INC.
626 Terminal Tower
Cleveland, OH 44113
ATTN: Legal Department
TO AIR CARRIER:
TRANS WORLD AIRLINES, INC.
100 South Bedford Road
Mt. Kisco, NY 10549
ATTN: Legal Assistant
with a copy to:
TRANS WORLD AIRLINES, INC.
P.O. Box 20126
Kansas City, MO 64195
ATTN: Director of Contract Services
-10-
<PAGE> 11
This Agreement is made and entered into as of the date first
hereinabove written; provided, however, that it shall be effective for each
Airport as of the date set forth in the attached Exhibit pertaining to such
Airport. With respect to any date set forth in any Exhibit(s) hereto which
predates the date first hereinabove written, the parties intend that this
Agreement shall be retroactive to the date set forth in such Exhibit.
INTERNATIONAL TOTAL SERVICES, INC.
By:
----------------------------------------------
Robert A. Weitzel Date
President/CEO
TRANS WORLD AIRLINE, INC.
By:
----------------------------------------------
Signature Date
Name: VERL K. CUMBERLAND
-------------------------------------
Title: Manager-Contract Services
-------------------------------------
-11-
<PAGE> 12
APPENDIX TO
DOMESTIC AIRLINE PASSENGER SCREENING AGREEMENTS
I. PASSENGER SCREENER EMPLOYMENT QUALIFICATION STANDARDS
A. PRE-EMPLOYMENT QUALIFICATION. An applicant for employment is an
airline passenger screener shall:
(1) be 18 years of age or older;
(2) he a United States citizen or possess the necessary
authority from the U.S. Immigration and
Naturalization Service to be employed as a Screener;
(3) hold a high school or equivalent degree;
B. PRE-SELECTION EVALUATION. The Contractor shall determine through
appropriate evaluation or testing that the applicant meets the following
qualifications:
(1) possesses the ability to communicate effectively in
the English language; possesses adequate physical
health, including good corrected eyesight
(correctable to 20/20, good visual acuity, and normal
color perception), hearing, sense of smell, and
mobility, so as to perform his or her job
responsibilities (these requirements are bona fide
occupational qualifications for the performance of
airline passenger screener functions);
(2) is courteous and well groomed;
(3) has taken the Psychological Technologies' Airline
Passenger Security Screener Examination (available
from psychological Technology, P.O. Box 52448, Tulsa,
OK 74152, (918) 742-1246), and has received a passing
grade of eight or lower on the "S" part and eight or
higher on the REL part, the cost and administration
of which will be the burden of the Contractor; and
(4) shall have taken any Federal Aviation Administration
("FAA") required drug screening examination for
passenger screening personnel and shall have tested
"negative", as such term is defined by FAA
regulations and policies.
C. PRE-SELECTION BACKGROUND EXAMINATION. The Contractor shall complete
a background investigation of its prospective employees pursuant to the Air
Carrier Standard Security Program (ACSSP) which shall cover prior employment
history for (he past five years, and to the extent permitted by law, a police
background check. In addition, the Contractor shall verify the personal
references listed on each applicant's employment application.
D. INDEMNIFICATION. Should Contractor fail to comply with this Section
1, any and all liabilities arising out of such noncompliance shall be the
responsibility of the Contractor, and
<PAGE> 13
Contractor hereby expressly holds the Carrier harmless and agrees to indemnify
Carrier for any costs, expenses, liabilities, demands, claims, damages, suits or
judgments, including reasonable attorney's fees incurred by Carrier in the
defense of any such liabilities or claims, arising out of Contractor's failure
to comply with the provisions of this Section 1.
II. EQUIPMENT
---------
The Carrier shall provide the inspection equipment necessary for the
Contractor to perform its services under this Contract. The Contractor
shall advise the Carrier verbally and in writing of any maintenance or
repair needs of the equipment and any need for additional equipment.
III. INDEPENDENT CONTRACTOR RELATIONSHIP
-----------------------------------
The employees of Contractor engaged in performing services hereunder
shall be considered employees of Contractor for all purposes and under
no circumstances shall be deemed lo be employees of Carrier. Carrier
shall have no supervision or control over Contractor's employees, and
any complaint or requested change in procedure shall be transmitted by
Carrier to Contractor, which shall in turn give any necessary
instructions to Contractor's employees. Notwithstanding the foregoing,
however, Contractor agrees, as an inducement to Carrier, without which
Carrier would not have entered into this Agreement, to undertake the
training programs, management and supervisory support activities,
testing, and record keeping and reporting activities set forth in
Sections IV through VII hereof.
IV. TRAINING PROGRAMS
-----------------
A. INSTRUCTIONAL PROGRAMS. The passenger screening instructional
personnel of the Contractor shall attend the Airline Passenger
Screening Training Program conducted by an Air Transport
Association of America designated vendor. The Contractor shall
provide reasonable assistance to that ATA designated vendor in
its development for the Program of instructional materials
concerning passenger screening activities at the airport or
airports at which the Contractor provides passenger screening
services for the Carrier.
B. INITIAL AND RECURRENT TRAINING. Contractor shall establish and
provide an initial and recurrent training program for all
screening personnel in accordance with FAA FAR 121.538,
covering without limitation, radiation, x-ray system devices
and weapon identification.
-2-
<PAGE> 14
C. COST OF TRAINING. All initial and recurrent training costs
shall he borne by Contractor.
V. MANAGEMENT AND SUPERVISORY SUPPORT
----------------------------------
STAFFING STANDARDS. The Contractor and Carrier shall establish
passenger screening point staffing levels that respond to reasonably
anticipated passenger flows. The Contractor shall assure adequate
check-point security supervision or screener-in-charge presence at the
screening point, as required by the ACSSP. Contractor management shall
monitor the performance of its personnel at the passenger screening
point to assure that those personnel arc optimally performing so that
they provide screening in a professional and courteous manner, and
assure the fulfillment of administrative and training requirements for
the operation of the screening point. Screener duty rotation schedules
shall be established and communicated to screeners. Rotation of
functions shall occur every 15 minutes. In no event shall a screener
perform continuous X-ray screening during a rotation for more than 30
minutes. Duty schedules shall provide meal and break periods for
screeners. Training requirements for screeners shall be reflected in
duty schedules.
VI. TESTING
-------
The passenger screening point at which the Contractor provides security
services for the carrier shall be subject to testing by Carrier
personnel, or by personnel that the Carrier designates, at such times
and in such frequency as the Carrier determines. The passenger
screening point at which the Contractor provides security services for
the Carrier may also be subject to testing by the Federal Aviation
Administration. The Contractor shall be provided with the results of
those tests and shall promptly take appropriate corrective action to
respond to any deficiencies that those results indicate. Contractor's
failure to take such corrective action, within two (2) days after "The
Test Failure", shall constitute grounds for termination of this
Agreement, with or without advance notice by TWA.
VII. RECORDKEEPING AND REPORTING
---------------------------
A. PASSENGER SCREENER EXAMINATION. The Contractor shall maintain
a record of the number of the Psychological Technologies'
Passenger Screener Examinations that it has given to
employment applicants and the number of those applicants who
passed the Examination. The scores of applicants who become
employees shall be maintained in their personnel files. The
Contractor shall abide by the requirements that Psychological
Technologies' or the Carrier establish concerning the manner
in which Contractor administers the Examination.
-3-
<PAGE> 15
B. SCREENER TRAINING RECORDS. Record, which indicates all initial
and recurrent training, for each of its employees who performs
duties at passenger screening points. The Contractor shall
maintain the training record of an employee who is terminated
for at least 90 days after his or her termination. Training
records shall be available for inspection by the Carrier and
the Federal Aviation Administration.
C. Carrier and FAA Inspection of Records. All records required to
be maintained by the Contractor pursuant to the Agreement of
FAA regulations shall be available for inspection by the
Carrier and, to the extent mandated by applicable law or
regulations by the FAA.
-4-
<PAGE> 16
AMENDMENT NO. 1 TO AGREEMENT
----------------------------
THIS AMENDMENT, made and entered into as of the 2nd day of August,
1995, by and between TRANS WORLD AIRLINES, INC., (hereinafter referred to as
"TWA") and INTERNATIONAL TOTAL SERVICES, INC. (ITS) (hereinafter referred to as
"Contractor"),
W I T N E S S E T H:
WHEREAS, TWA and Contractor are parties to a certain agreement made as
of March 15, 1990, (hereinafter referred to as the "Agreement") pursuant to
which Contractor provides certain Baggage Search and Passenger Inspection
Services to TWA at various locations as described in Exhibits.
WHEREAS, the parties desire to amend the Agreement in certain
respects;
NOW, THEREFORE, TWA and Contractor hereby agree as follows:
1. The following addresses replace previous Trans World Airlines, Inc.'s
addresses in SECTION 18 NOTICE.
2. This Amendment shall be effective as of August 2, 1995.
3. Except as herein amended, the Agreement shall remain unchanged and in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment by
their duly authorized representatives as of the day and year first written
above.
TRANS WORLD AIRLINES, INC. INTERNATIONAL TOTAL SERVICES, INC.
By: By:
------------------------ -----------------------------
Title:Manager-Airport Contracts Title:
------------------------- ----------------------------
-5-
<PAGE> 17
(ITS Logo)
EXCEEDING THE STANDARDS.
August 2, 1995
Linda M. Bavaro
Sr. Accounting Specialist
Trans World Airlines, Inc
P.O. Box 20126
Kansas City, Missouri 64195
Re: Amendment to PBS Core Agreement
Dear Ms. Bavaro:
Please allow this letter to serve as an Amendment to the Core Agreement
for Preboard Screening Services between TWA and ITS dated March 15, 1990,
changing the following provision:
Section 18: Notices
--------------------
TWA Headquarters:
TRANS WORLD AIRLINES, INC.
One City Centre
515 N. Sixth Street
St. Louis, Missouri 63101
Attn: Sr. Vice President - operations
with a copy to:
TRANS WORLD AIRLINES, INC.
P.O. Box 20126
Kansas City, Missouri 64195
Attn: Manager - Airport Contracts
This amendment is effective as of today's date. The remainder
of the contract shall continue unchanged and in full force and effect.
If this amendment meets with TWA approval, please sign both copies of
this letter and return one copy to me for my files. The original is meant for
your files.
Very truly yours,
Crown Centre
5005 Rockside Road
Cleveland, Ohio 44131
(216) 642-4522
<PAGE> 18
International Total Services, Inc.
By:
-----------------------------
Name: Robert Weitzel
-------------------------------
Title: President and CEO
-------------------------------
Crown Centre
5005 Rockside Road
Cleveland, Ohio 44131
(216) 642-4522
<PAGE> 19
(ITS Logo)
EXCEEDING THE STANDARDS.
Ms. Bavaro
Core Agreement Amendment
page 2
Read, accepted and agreed: Trans World Airlines, Inc.
By:
------------------------------
Name: Roger M. Smart
---------------------------------
Title:Acting Manager Airport Contracts
--------------------------------
<PAGE> 1
<TABLE>
EXHIBIT 11.1
CALCULATION OF EARNINGS PER SHARE
OF INTERNATIONAL TOTAL SERVICES, INC.
<CAPTION>
THREE MONTHS ENDED
JUNE 30, YEARS ENDED MARCH 31,
-----------------------------------------------------------------------------
1997 1996 1997 1996 1995
-----------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Reconciliation of net earnings (loss) per
statement of earnings to amount used
in earnings per share computation:
Net earnings (loss) $852,940 $422,120 $1,695,790 $1,037,583 ($717,632)
Less: Preferred dividend requirements 0 4,000 16,000 16,000 16,000
-----------------------------------------------------------------------------
NET EARNINGS (LOSS), AS ADJUSTED 852,940 438,120 1,679,790 1,021,583 (733,632)
=============================================================================
Weighted average number of shares
outstanding 3,654,985 5,899,898 5,061,278 5,730,756 6,247,852
Plus: additional shares related to grants to
officers within the one year period prior to
filing of the registration statement,
assumed to be outstanding through-out
all periods presented 0 45,124 28,202 45,124 45,124
----------------------------------------------------------------------------
Weighted average number of shares
outstanding as adjusted 3,654,985 5,945,022 5,089,480 5,775,880 6,292,976
============================================================================
Earnings (loss) per share $0.23 $0.07 $0.33 $0.18 ($0.12)
============================================================================
</TABLE>
<PAGE> 1
<TABLE>
EXHIBIT 11.2
CALULATION OF EARNINGS PER SHARE OF INTEX AVIATION SYSTEMS, INC.
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------
1997 1996 1996 1995 1994
----------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net earnings (loss) per statement of earnings ($222,000) $431,000 $1,519,557 $2,704,687 $2,480,049
=============================================================================
Weighted average number of shares
outstanding 11,250 11,250 11,250 11,250 11,250
=============================================================================
Earnings (loss) per share ($19.73) $38.31 $135.07 $240.42 $220.45
=============================================================================
</TABLE>
<PAGE> 1
ERNST & YOUNG LOGO
Exhibit 16
July 31, 1997
Securities and Exchange Commission
450 Fifth Street, M.W.
Washington, D.C. 20549
We have read the second paragraph under the caption "Experts" on page 45 of
the registration statement on Form S-1 (No. 333-29463) filed by International
Total Services, Inc., on June 18, 1997. We are in agreement with the statements
contained in the first, third, and last sentences of that paragraph, except for
the date in the first sentence, with which we have no basis to agree or
disagree. We have no basis to agree or disagree with the other statements in
that paragraph.
Ernst & Young LLP
----------------------
Ernst & Young LLP
Cleveland, Ohio
July 31, 1997
<PAGE> 1
EXHIBIT 21
Crown Technical Systems, Inc., an Ohio corporation
I.T.S. of New York Security, Inc., a New York corporation
Selective Detective Services, Inc., a New Jersey corporation
T.I.S., Incorporated, a Texas corporation
Certified Investigative Services, Inc., a Texas corporation
International Total Services, Limited, a United Kingdom company
Chalmers Security Systems 1995, a United Kingdom company
International Transport Security, s.r.o., a Czech Republic company
International Transport Security Ltd., a Thai company
<PAGE> 1
EXHIBIT 23.1
We have issued our reports dated May 9, 1997, accompanying the financial
statements and schedules of International Total Services, Inc. and Subsidiaries
contained in the Registration Statement and Prospectus. We consent to the use
of the aforementioned reports in the Registration Statement and Prospectus, and
to the use of our name as it appears under the caption "Experts".
GRANT THORNTON LLP
Cleveland, Ohio
August 15, 1997
